Can Tim Geithner Lead the Economy Out of Its Mess?

[DeepModem Mom]

TIME: Can Tim Geithner Lead the Economy Out of Its Mess?
By Bill Powell
Jan. 14, 2009


Timothy Geithner
(Brian Kersey/Getty)

Every year at the end of August, the high priests of the U.S. financial system — the board of governors and staff of the Federal Reserve — gather at a remote resort high in the mountains near Jackson Hole, Wyo., and there, amid the Tetons, listen to lectures by invited economists on a variety of topics, hoping the fresh air and proximity to genuine cowboy bars might lead to clear thinking and sound economic policy.

A good time is usually had by all — except when the global financial markets are sending out warnings of extreme stress to come. By August 2007, the storm known as the subprime crisis had been gathering for much of the year, and inside the Fed, Timothy F. Geithner, president of the New York Federal Reserve Bank and a vice chairman of the Federal Open Market Committee (which sets interest-rate policy), had quietly been raising red flags among his colleagues. Earlier that month, the European Central Bank had startled traders by pumping close to 100 billion euros into the short-term-credit markets — an unexpectedly massive intervention. It was as if the global financial system had had an angina attack, a brief, unexpectedly painful episode that signaled what a few senior Fed officials were beginning to fear: a full-blown economic heart attack might well be coming. During the Jackson Hole meetings, Geithner pressed the view that Fed policy was behind the curve; the problem in the credit markets was big and likely to get worse, and the Fed needed to get out in front of it, to err on the side of being aggressive.

It wasn't a popular view back then. "He had taken a lot of heat" for the position inside the Fed, a colleague says. Some regional Fed presidents thought he was excessively gloomy. As an insider put it, they thought Geithner had been captured by his constituents — the heads of the largest banks and investment firms in New York, most of whom were leveraged to the hilt and deeply vulnerable to turmoil in the mortgage-backed-securities market. But Geithner's view prevailed that week with his boss, Ben Bernanke. A few weeks later, the Fed slashed its key interest rate by half a percentage point, and soon it was trying to figure out other, less conventional ways to deal with the growing crisis in the global credit markets. It has been frantically trying to contain that crisis ever since.

It now falls to Geithner to lead the way out of this mess. As Barack Obama's nominee to be Secretary of the Treasury, Geithner will be tugging on the economic levers himself — levers that are, thanks to outgoing Secretary Hank Paulson, far more powerful than they had been. Colleagues say Geithner privately acknowledges that the U.S. economy is still sinking fast and the root cause of the problem — the housing bust and ensuing credit crunch — is still very much with the nation. Critics will ask at his confirmation hearing how the incoming Administration plans to prevent things from getting even worse. His personal finances may be called into question, in light of the revelation that he initially failed to pay part of his taxes while working for the International Monetary Fund in 2001 and 2002.

All of that may force Geithner, 47, to do some self-evaluation. Along with Paulson and Bernanke, Geithner has been one of the key players overseeing the bailout of the banking industry. Some of the trio's decisions — like not rescuing Lehman Brothers in mid-September — have come under criticism on Wall Street and Capitol Hill for being hesitant and reactive. Associates say Geithner doesn't necessarily disagree with the charge that the government's response "has had an ad hoc, seat-of-the-pants quality to it," as a senior investment banker in the middle of things puts it. That's one reason Geithner and the rest of the Obama economic team have indicated that they plan to move more aggressively, on an even broader scale, than the government has to date. Geithner has declined publicly to put a number on just how large a stimulus package the new Administration will seek after Obama takes office on Jan. 20. But associates say he has been emphatic about one thing: the Administration should err on the high side. The package should be big. How big is big? "Big enough," he has told friends. In this case, he believes, "prudence requires scale."...

http://www.time.com/time/printout/0,8816,1871665,00.html

[Psephos]

1. Bigger question: can he figure out how to prepare his own tax return? n/t

[Demeter]

2. Ultimate Question: Why Take a Chance on a Tainted Man?

Obama is quick enough to dump women who cross the invisible line....

[tom_paine]

3. Don't know about that, but Geithner can surely further the Elite Agenda.

Mostly by doing his "post-partisan" Good Cop Thing.

Oh, the next 4 or 8 years will be a rest, a brief respite.

Then it's back to Bad Cop. But not to worry, the Good Cops aren't going to do anything that will let the American Subject Populace) get a fair shake.

Make book on that.