Tim Geithner Falls Apart: Alberto's Revenge

by Pejman Yousefzadeh on March 19, 2009

I used to think that it would be a long, long, long time before I would witness a Cabinet official make as spectacular a mockery of himself as Alberto Gonzales did when he was at the Department of Justice.

Then, Timothy Geithner came along.

Geithner first burst onto the national scene as the president of the New York Federal Reserve Bank, helping then-Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke deal with the outbreak of the financial crisis last fall. He won plaudits for his cool and collected crisis management. Given his performance and his familiarity with the causes of the economic downturn, it came as little surprise that President-elect Barack Obama turned to him and asked him to serve as Treasury Secretary. The appointment won plaudits across the board and Geithner so quickly gained a reputation for indispensability that the revelation that he owed back tens of thousands of dollars in taxes was desperately hushed up and papered over by a Washington establishment spooked by the financial crisis and terrified of the consequences of losing Geithner to a botched vetting job.

Now, after two months on the job, Barack Obama has had to come out and tell people that he has every confidence in Geithner’s ability to serve. As just about everyone in Washington knows, once the President has to express confidence in the abilities of a Cabinet officer, that Cabinet officer is under a deathwatch. Tim Geithner may be regretting that he was not eliminated from consideration for the position of Treasury Secretary by his inability to navigate an Internet tax return and his inability to understand that former International Monetary Fund contractors–like him–are responsible for their own taxes. And after having seen Geithner on the job for the past couple of months, so may we. Oh Epic TurboTax Fail, where is thy political sting?

Start with the fact that upon confirmation, Geithner began his tenure by taking the Chinese to task over the issue of currency revaluation. To be sure, something may have needed to have been said concerning this issue. But Geithner did not have to make his disagreement with the Chinese public and by doing so, he courted the risk of a trade war during a time of severe economic stress. Dismissed by many as a sort of tempest in a teapot, this episode should have served to offer a warning that Geithner was not ready for prime time.

Things got worse when the Treasury Secretary–to much hype, with much of the hype offered by his boss, the President–came out with a plan to deal with toxic assets. The announcement of the plan was, to say the least, underwhelming, and observers were shocked by the Treasury Secretary’s lack of command, details and confidence in announcing his plan. Markets duly plummeted. A look behind the scenes showed that planning for the Geithner announcement on toxic assets had been slipshod and amateurish and it rapidly became clear that Geithner’s shortcomings were augmented by the fact that there was almost no personnel whatsoever at the Treasury Department prepared to help him; the White House was too scared to send up sub-Cabinet appointees for nomination to Treasury posts. One might note that this failure was outside of Geithner’s control and that the White House political operation should have taken responsibility for it, but there is little evidence that Geithner did what a responsible Cabinet Secretary would have done and tried to force the issue on the personnel front.

Now, of course, things have really gotten bad for the Treasury Secretary. Despite Administration outrage over the payment of retention bonuses by AIG to its employees, it appears that the payment of those retention bonuses was aided by language placed into the stimulus package by Senator Chris Dodd of Connecticut, allowing bailout recipients to get bonuses. Dodd placed that language into the bill at the behest of Treasury officials.

As if this is not enough to further erode Geithner’s credibility, it appears that the Treasury Secretary knew of the AIG bonuses ahead of time, and could do nothing to either stop them, or to prepare the White House on how to deal with the issue. Indeed, one of the things we have learned is that Geithner found out about the bonuses earlier than he claimed he did. The massive degree of flailing about that is going on in response to the AIG bonus payments only serves to solidify in the public mind the impression that the Administration does not know how to address the issue–either substantively or from a public relations standpoint. At a time when strong action is called for from many quarters, the Treasury Secretary is clearly adrift and does not appear to know what to do. Thanks to the fumbling of this issue by the White House and the Treasury Department, Republicans are suddenly recalling what it is like to see Democrats squirm politically. And the calls have gone out for Tim Geithner’s resignation.

Yes, that’s right. Two months into his job, people are calling for Tim Geithner — once heralded as the savior of W’s economic mess — to leave. Perhaps if we had thought to check with other people about his background, this would not be such a surprise. He’s been a part of bad solutions before:

If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner’s performance since.

In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner’s record in handling the Asian crisis: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

Tim Geithner will probably hang on–for the moment. No one will make him leave just yet. But thus far, everything that could have gone wrong with his tenure, has. And the more Tim Geithner flails about, the more he will resemble a certain, former Cabinet officer from the previous Administration–one who just didn’t know how to take a hint until his service in office became a national joke.

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