Wow, a monster profile in the Times digs deep into Tim Geithner's career, or rather, his career since becoming president of the New York Federal Reserve Bank in 2003. The article doesn't reveal anything new, but it does draw together a narrative asserting that Geithner is too close to the banks. Yves Smith reads the piece and goes to town on Geithner:
This story now makes official what only those who kept tabs on these matters knew, that Geithner is captured by the industry. It will now be much easier for Obama to cut Geithner loose should that prove necessary. But with Summers still in the mix, I'm dubious that even an outster of Geithner would produce much of a change in policy direction.
That is, actually, why I think this story doesn't matter so much. Smith spends a lot of his her post drumming up the common theory that the leaks about Geithner are part of a media strategy to give the administration a fall guy to take the blame if the response to the financial crisis really falls flat, but even that is less important than the structural problems with the policy debate. Ryan Avent's comment on my recent Simon Johnson piece helpfully summarizes my views as well: "I just don't think it's correct to extend that argument to say that the Obama administration is primarily constrained by the will of the financial oligarchy."
One disappointment with the new piece is that it fails to shed light on what is currently going on in the Treasury; the reporting is excellent during Geithner's tenure as Fed chair during last summer's bailouts, but it doesn't really touch on the current debates. We don't learn about the formation of the public-private investment plan or the stress tests or the relationship between Geithner and Congress. The one interesting nugget concerns the financial institution take-over authorities, recently set aside by Barney Frank, and thus is almost a moot point. And indeed, because the piece never actually tackles the policy implications of Geithner's supposed capture by bankers by presenting non-captured alternatives, readers never learn what that means in practical terms. (One exception is where FDIC Chair Sheila Bair comes into the picture and forces Geithner to take a harder line on fees for banks whose debt is insured; of course, the fact that she won that argument sort of undermines the whole capture theory.)
Even the Fed chair section of the piece is somewhat lacking. The authors note that Geithner failed to foresee the crisis, but he has already admitted as much. They criticize him for supporting one bank-friendly policy that wasn't adopted (government guarantees on all financial institution debt) and another that hasn't been adopted yet (lessening capital requirements at banks). The crisscrossing source agendas also undermine some of the critique -- at one point a right-leaning former Fed chair is attacking him for massive government spending and inflation worries, at another hedge funds are criticizing him for hiring a different hedge fund to manage Treasury securities, at a third point he is under fire for trying to get private capital to AIG in the early stages of that bailout rather than government money, an effort that obviously failed. My point is that this is a complex narrative that can't really be shoehorned to fit any one critique of Geithner, except that he is terrible at managing politics. (Sources tell me that a couple of Democratic operatives have been parachuted into Treasury to try to fix that. Good luck!)
Where does all that leave us? Well, it leaves us with some very dubious financial-crisis policies coming out of the administration but not a lot of easy or obvious alternatives to those policies. Geithner is clearly very close to the financial sector -- one clear argument coming from this piece is that we have got to radically restructure the way the Federal Reserve regulates banks -- but despite this piece I agree with Yves on one point: He's here for at least another six months, and if he leaves before a massive failure of one of his signature programs, things won't change much.
-- Tim Fernholz
