Welcome Home, Tim Geithner

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

Geithner: Believes swaps have less risk.
National Journal
Michael Hirsh
Add to Briefcase
See more stories about...
Michael Hirsh
Nov. 18, 2013, 9:32 a.m.

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.

What We're Following See More »
ISIS INVOLVED
Niger Attack Possible Terrorist Set-Up
10 hours ago
THE LATEST

"An emerging theory among U.S. military investigators is that the Army Special Forces soldiers ambushed in Niger were set up by terrorists, who were tipped off in advance about a meeting in a village sympathetic to local ISIS affiliates...The group of American Green Berets and support soldiers had requested a meeting with elders of a village that was seen as supportive of the Islamic State, and they attended the meeting at around 11 a.m. local time Oct. 4...Such meetings are a routine part of the Green Beret mission, but it wasn't clear whether this meeting was part of the unit's plan."

Source:
TRUMP’S COMMENTS AT ISSUE
Bergdahl’s Sentencing Delayed Until Wednesday
10 hours ago
THE LATEST

"The long-awaited sentencing of Army Sgt. Bowe Bergdahl was delayed Monday after a legal battle erupted over the word 'but' in President Donald Trump's most recent remarks about the case. Bergdahl's defense team argued that their client could not get a fair shake from the court because Trump, during a Rose Garden appearance on Oct. 16, at first said he couldn't talk about the case and then added: 'But I think people have heard my comments in the past.'" Trump has called him a traitor and suggested he should be executed.

Source:
PROBE CAME FROM INQUIRY INTO MANAFORT’S FINANCES
Mueller Investigating Tony Podesta and His Firm
19 hours ago
THE LATEST

"Tony Podesta and the Podesta Group are now the subjects of a federal investigation being led by Special Counsel Robert Mueller, three sources with knowledge of the matter told NBC News. The probe of Podesta and his Democratic-leaning lobbying firm grew out of Mueller's inquiry into the finances of former Trump campaign chairman Paul Manafort."

Source:
SCHEDULED FOR TUESDAY
House Intel Will Interview Trump Digital Director
21 hours ago
THE LATEST

"President Donald Trump’s campaign digital director, Brad Parscale, will be interviewed Tuesday by the House Intelligence Committee, his first appearance before any of the panels examining the issue of Russian interference in the 2016 election. Mr. Parscale confirmed his scheduled appearance. The Senate committees also probing interference haven’t scheduled time with Mr. Parscale, he said, declining to comment further."

Source:
CONGRESS MAY HAVE DIFFERENT IDEAS
Trump Promises No Changes to 401(k) Plan
21 hours ago
THE LATEST
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login