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Economy

Welcome Home, Tim Geithner

You can't blame the former Treasury chief for cashing in. But let's not whitewash him either.

Former Treasury Secretary Timothy Geithner has landed a job with a private-equity firm.(Alex Wong/Getty Images)

photo of Michael Hirsh
November 18, 2013

No one should begrudge Timothy Geithner his new job. It was inevitable that a man who had been spiritually captured by Wall Street would someday join it in the flesh. In truth the former Treasury secretary held out far longer than the band of Rubinites he sprang from. And by joining a respectable private-equity firm, Warburg Pincus—rather than one of the banks he bailed out—at least Geithner is avoiding the path to reputational ruin followed by his mentor, Robert Rubin, who while he was in Washington freed up Citigroup to become an economy-destroying monster and then went to Wall Street to join it, standing by in befuddlement while the bank nearly imploded.

Geithner has a family to feed after all; he has every right to cash in with the vast industry he saved and protected. It seems a bit overripe for Dennis Kelleher, head of the Better Markets advocacy group, to suggest that Geithner's "spin through the revolving door" will "further erode public confidence in government," when such confidence is all but undetectable today.

But neither should Geithner get a full pass, as CNBC's Ben White seems all too eager to give him in a Web piece today.

 

CNBC, of course, tends to cover Wall Street in somewhat the way Pravda once covered the Soviet Union, with a lot of boosterism and without asking too many fundamental questions. But White, who also writes for Politico, is a respectable financial reporter and should know better. White argues that the criticism of Geithner "neglects to mention" that the former Treasury chief  "inherited the Wall Street bailout" and "fails to ask the fundamental question of what, exactly, the administration was supposed to do with the banking sector, let it fail and turn a crushing recession into a lasting depression?"

This is an egregious misrepresentation of history. No knowledgeable observer doubts that the Obama administration inherited the crisis (though Geithner, as head of the New York Fed, did not), and that the new president was faced with a stark choice of bailing out the banking sector in the nerve-wracking months of early 2009 or sending the economy into a Depression.

But by the time Congress began debating serious reform in late 2009, the banks were much healthier. The panic had passed. Yet even then Geithner refused to tamper with their structure and balance sheets—to the point where even senior Fed officials like Governor Dan Tarullo today think that Dodd-Frank doesn't have enough restraints on the banks. Geithner's fellow Cabinet member, Attorney General Eric Holder, has publicly questioned whether the banks are not only too big to fail, but also too big to prosecute.  As Harvard University's Kenneth Rogoff, a former adviser to John McCain, said of Geithner in a 2011 interview with me, echoing the views of many financial experts: "He was too generous to the financial system. He followed a set of policies aimed at preserving the status quo."

White also credits Geithner with the best of the Dodd-Frank financial-reform law, saying, "It's a big stretch to suggest Geithner stood in the way of stronger reform in order to win a place for himself on Wall Street."

A truer history of that law would record that Geithner resisted many of its toughest provisions, including the "Volcker Rule," which he avoided until the president insisted on it. As former Federal Deposit Insurance Corp. chief Sheila Bair wrote in her frank memoir this year about her major battles with Geithner, Bull by the Horns: "I couldn't think of one Dodd-Frank reform that Tim strongly supported. Resolution authority, derivatives reform, the Volcker and Collins amendments—he had worked to weaken or oppose them all."

Geithner, in truth, often seemed in denial of the deeper systemic dangers on Wall Street that he, as a member of Rubin's team back in the 1990s, had helped to create. Their signature policy, the 1999 repeal of Glass-Steagall, ensured there would longer be any strong firewalls and capital buffers between Wall Street institutions and their affiliates, and between banks and nonbanks and insurance companies. A year later, in 2000, then-Treasury Secretary Lawrence Summers and Geithner pushed for the Commodity Futures Modernization Act, which created a global laissez-faire market worth trillions in unmonitored trades. With the repeal of Glass-Steagall, systemic failure was largely forgotten while at the same time, with the passage of the CFMA, huge new systemic risks were being created.

Yet Geithner, throughout his tenure, did not acknowledge these mistakes and resisted more fundamental reforms like the Volcker Rule, which harked back to the spirit of Glass-Steagall by seeking to bar federally insured banks from the riskiest trading.

Personally, I don't believe that Geithner took the positions he did "in order to win a place for himself on Wall Street." He's not that kind of fellow. I think he did it because he believed in Wall Street. Welcome home, Tim.

 

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