July 5, 2011If Timothy Geithner steps down as Treasury secretary, it would spotlight an increasingly apparent liability for the Obama administration as it searches for a way out of the economic crisis -- the weakness of its bench on economic and financial services policy, where a number of crucial vacancies loom at a fragile time for the financial system.
While the administration's economic attention has been consumed by the struggle to strike a budget-cutting deal that would lift the debt limit before the economy is further rattled by the threat of a default, critics have been complaining that there is little attention or manpower devoted to other pressing issues. Having to take time and energy away from limited resources to focus on replacing a Treasury secretary would only add to those problems, analysts said Friday.
"It makes matters worse," said William Longbrake, an executive in residence at the University of Maryland and the former vice chairman of Washington Mutual. "What about the rest of the economics team? There doesn't seem to be a whole lot there to actually help the president formulate good sound economic policies as well as good sound political strategy. Everywhere I look, the people who have been guiding the president's economic policy are all either departed or shortly will depart."
It is well known that Austan Goolsbee, the chairman of the President's Council of Economic Advisers, is on his way out; Jared Bernstein, Vice President Joe Biden's top economic adviser, has already left; and Jeffrey Goldstein, the Treasury's undersecretary for domestic finance, also has announced his exit.
But what has gotten far less attention is that the administration has put little emphasis on new solutions to the painful housing correction, and has almost no permanent financial regulators in charge of implementing all the reforms Congress passed last year that were intended to protect taxpayers from another financial catastrophe like the one that cost so many people their jobs, homes, and retirement savings.
Michael Barr, the former Treasury assistant secretary for financial institutions, was looked to as a surrogate leader on financial reform and was known as an outspoken advocate for foreclosure mitigation even before he joined the administration. His position has not been replaced since he left last year, and no one in the administration is seen as taking up the same mantle.
There is also the shortage of two governors on the Federal Reserve Board and the lack of permanent heads in place at the Office of the Comptroller of the Currency, Federal Housing Finance Agency, Consumer Financial Protection Bureau, and Federal Housing Administration. Federal Deposit Insurance Corp. Vice Chairman Marty Gruenberg has been named to succeed Sheila Bair as FDIC chief, but his Senate confirmation process has not begun.
In the meantime, the administration is only able to focus fully on one issue at a time, and it is taking its toll on other financial policy matters.
"Everything is falling way behind schedule and I don't see them picking it up; people are leaving rather than coming," said Dean Baker, a co-director of the Center for Economic and Policy Research. "It's a really big problem in the sense that nothing is getting done. The issues don't go away. It just means that they fester or others take the lead.... For example, you have the mortgage suits, where I guess the state attorneys general are taking the lead; I'm not sure what role the administration has played."
But Bernstein, Biden's former adviser, said he thought it was typical for a Treasury secretary's tenure to be about one term and that the vacancies in the administration should not be considered a major obstacle to implementing financial reform. Delays on financial reform usually occur in Congress, he said, and would be unaffected by the number of people on the president's economic team.
Finding a candidate willing to go through the often bruising confirmation process is a bigger challenge, Bernstein said.
"They'd have to have thick skin to get through the confirmation hearing," he said. "Ideally, someone who has market credibility that isn't necessarily a person of the markets, because you need a Treasury secretary who -- I think Geithner has this quality -- you need a Treasury secretary who appreciates the connection between Wall Street and Main Street. The Treasury secretary can't be there just to advocate for banks and financial markets, they have to make sure the economy is reaching all corners."
Indeed, the confirmation process for filling any of these vacancies could be messy.
Typically, higher-profile appointments such as Cabinet officials are met with more bipartisanship and a sense of urgency, but even Geithner had to overcome some questions about his failure to pay taxes during his confirmation hearings. Any red flag like that now so close to the next election might not be so easily overcome.
On other appointments, Republicans have already said they would oppose anyone to run the CFPB, and it remains in doubt whether any appointment can be filled there if Republicans make good on threats that they will continue to hold the Senate in session during recesses.
The GOP has succeeded in blocking Joe Smith, a North Carolina state bank commissioner, to lead the FHFA. It has also forced the administration to drop the nomination of Peter Diamond, a Nobel Prize-winning economist, to serve on the Fed.
"It would be amazing that you are at the one-year anniversary of Dodd-Frank and, if the headlines about Geithner are true, the last man standing from the financial crisis is Ben Bernanke," said Ed Mills, a financial policy analyst with FBR Capital Markets, referring to the Federal Reserve Board chairman, who is a holdover from the Bush administration. "I don't think anyone would have every imagined that at a point in our history... that you would have so few permanent people in place."
Mills noted that filling vacancies is challenging because of the partisanship in Congress.
"The White House is in a little bit of a bind in terms of getting top-tier people willing to go through the confirmation process.... It's a fine line that the administration is going to have to walk to find a Treasury secretary that the street is comfortable with but does not have the tarnish from the financial crisis," he said.
But William Black, an outspoken critic of the government's handling of the financial crisis and an associate economics and law professor at the University of Missouri, Kansas City, argued that with the economy in such a weak state, there is little incentive for Geithner to stick around to bear the blame for it. He added that Obama can get by like he has been doing by appointing an acting leader.
"The economy is obviously in very poor shape, the recovery is obviously weak, the budgetary deals that they are talking about are insane.... That means Geithner is going to be a liability on the job side," said Black. "The president can use an acting leader and he can always bring former Fed Chairman Paul Volcker in. And then say we are adopting with my new guy, or new gal, this new initiative, and we are going to spend a lot of time on job training and infrastructure, which is what he always says," he said sarcastically.
July 5, 2011