Two months ago, I gave a thumbs down to Obama’s entire economic team, including the then-nominee for secretary of the Treasury, Timothy Geithner. Now, I am sorry to say that Geithner is even performing worse than my very low expectations of him. The country gave him a free pass on his confirmation despite his tax problems, because he had been previously involved in the rescue of the financial system as president of the Federal Reserve of New York. We thought that would allow him to have a running start on solving this crisis, but instead it seems to have hobbled him.
It is only a matter of time before he is replaced. The names of his potential replacements are already on commentators’ lips. Obama is in the middle of his Hurricane Katrina, and Geithner has become as much a liability to him as Michael “Brownie” Brown, former head of FEMA, became to George Bush.
In ordinary times, we might be able to wait for him to grow into the job, but these are not ordinary times. This is probably the most challenging period in the last century to be the Treasury secretary. The global financial system is at the edge of a cliff and is barely hanging on by its fingertips. Even Odgen Mills, the secretary of the Treasury during the Great Depression, probably did not have it as challenging as the current office holder. During the Great Depression, they did not have to contend with complex financial instruments, massive amounts of leverage, and the international nature of the current economic crisis.
With the unprecedented good will that Obama had at the start of his administration, Geithner, if he had prepared a plan, could have immediately nationalized the insurance giant AIG and Citigroup. Essentially, AIG is already nationalized because the American taxpayer owns 80% of the company and has given AIG $170 billion and counting. If it had been private, the government would have had an easier time stepping in and preventing the AIG bonus controversy.
AIG is like an eight-month pregnant woman on the precipice of a miscarriage. Only a good doctor or Treasury secretary can save the life of both mother and baby. Giving the bastard child our name (nationalization) may be the only way to save it, but Geithner does not have the guts to step up and claim the child.
In the initial presentation of another of his ill-conceived plans, Term Asset Backed Securities Loan Facility (TALF), Geithner was roundly criticized for not being able to flesh out any of the details of the plan that will encourage private investors to bid for the toxic assets of the banks. The much delayed rollout of the detailed plan was met with criticism from even the New York Times.
The program does not solve the most pressing problem of the wide gap in the valuation of the assets between buyers and sellers. The banks believe that the assets are worth 60 cents on the dollar (what are they smoking?), while the private investors willing to step forward and buy believe they are worth 30 cents. The New York Times estimated that private investors will only have to put up 3% of the money to earn the lion’s share of the profits. Once again, the American taxpayer gets hosed while Wall Street gets rich. With no skin in the game, Wall Street will once again be encouraged to act irresponsibly and the battered American taxpayer could be left holding the bag on the round trip.
Although the banks that caused this crisis were monitored by the Federal Reserve and Bernie Madoff’s business (Ponzi scheme) was registered and audited by the SEC, Geithner has just announced a new plan to further regulate Wall Street and executive compensation. He does not understand that he needs to fix the regulators before he can pile on more regulation. A wrecking ball needs to be taken to the regulators. They need to be built from the ground up. Building more floors on a shaky foundation only makes the building collapse quicker.
I deplore the excessive compensation on Wall Street, but government regulation is not the answer. Limiting executive pay on Wall Street for employees of healthy institutions, which are not taking government money, will only cause a brain drain. Wall Streeters, fearful of lower salaries, are already talking to foreign banks about work. Wall Street could soon be located in London, Singapore, or Hong Kong. Is that what we really want?
His half-baked plans are only the beginning of Geithner’s problems. The main responsibility of any secretary of the Treasury is to sell the president’s economic plan. The dweeby Geithner could not sell ice on a 100 degree day. Geithner, with no hands-on business appearance, appears to be channeling Doogie Howser, M.D. I would not trust Dr. Howser to perform brain surgery, so why should I allow Geithner to steer the economy?
I might be able to forgive Geithner his nerdiness if he had avoided stepping on a landmine. Obama should have instantly removed him from office in a tumbrel when he detonated the $215 million (upgraded from the previous number of $165 million) AIG bonus controversy. While Geithner has admitted knowing about the bonuses before they were paid out, he did nothing to stop their payment. To paraphrase Jay Leno questioning Hugh Grant after he was caught with a hooker, “What were you thinking, Tim?”
He either has a tin ear and did not understand the populist anger that the bonuses would ignite or is too close to Wall Street to rein in the miscreants. His dissembling of the facts about his knowledge of the bonuses has hurt his credibility. Geithner’s AIG bonus misstep has sucked out valuable oxygen from the Obama administration’s efforts to solve the financial crisis.
As Arnold Schwarzenegger would say, it is time to replace the girly man secretary of the Treasury with a real man prepared to do the heavy lifting necessary to get the economy back on track.