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
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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.

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