NOVEMBER 22, 2008
A few weeks ago, I wrote a profile of Tim Geithner that explored his relationship with Larry Summers during their eight years together at Treasury in the 1990s. The two men had formed such a productive partnership that I wondered if there were some way of reuniting them under Obama. Invariably the answer from sources was “no.” Both had achieved “principal” status (Geithner spent the last five years as president of the New York Fed, Summers was Bill Clinton’s final Treasury Secretary) and there was, alas, only one top job.
So I was thrilled to hear yesterday about the dream-team pairing that will make Geithner Treasury Secretary and Summers a top White House adviser. Geithner is one of the most able technocrats to have risen through Treasury’s ranks, which makes him the perfect pick to run its sprawling bureaucracy; Summers is one of the top two or three economic minds of his generation, which makes him a guy you want in the room with the president.
But, beyond the pairing of person and job, it's the way these guys complement one another that's really key here. Geithner is the rare bureaucrat with the smarts and the self-confidence to effectively challenge Summers when he’s off base. As I wrote earlier this month:
Geithner had become a check on the bandwagon-jumping Summers's intellect could inspire--and which Summers, to his credit, reflexively resisted. "When you're talking to the Treasury secretary or the under secretary, there's a strong tendency for everybody to leap on what that person is saying and agree," says one co-worker. "Tim's fundamental function was to interrupt that process."
Former colleagues told me that Geithner had a particular knack for reeling in Summers when he’d get bogged down on some esoteric point of marginal relevance to the problem at hand. He’d say something like, “That was enormously clever Larry, but on the other hand...” then home in on the question that needed resolving. The value of this skill is hard to overstate.
The two men also developed an incredibly effective good cop/bad cop routine, which I'm guessing they might reprise:
Summers was the bad cop--the outspoken sheriff with strong views about how to structure the international financial system. Geithner was his antidote--a master of process and protocol and Treasury's ambassador to global forums like the G-7. At one point, after a series of rapid-fire bailouts by the IMF, the Europeans began agitating for checks on the organization's ability to dispense money, something Summers strongly opposed. In response, Geithner hinted that the United States might start relying on other institutions--like the newly formed G-20 group of industrialized and emerging economies--to respond to financial crises. The Europeans were highly sensitive about the status of the IMF, where they had outsized influence. They quickly backed down.
So what might the division of labor between Geithner and Summers be like this time around? A couple bets:
1.) Substantively, Geithner will have the chief responsibility for resuscitating and reforming the financial markets, an area where he’s developed extensive expertise at the New York Fed. Summers will, in turn, be the guy the administration defers to on broad macroeconomic decisions--how big a stimulus bill should be, how the money should be allocated between unemployment benefits, aid to states, infrastructure projects, tax cuts, etc. (One thing to keep in mind about Geithner: He’s one of the least territorial people ever to work in government, with the possible exception of his old boss Bob Rubin, who was also famous for this. If Geithner thinks a colleague is in a better position tackle something, his impulse is to get out of the way.)
2.) Geithner and Summers will also have complementary procedural roles when dispensing advice to Obama. Summers’s instincts are pretty activist--he tends to favor aggressive government intervention during a crisis. Obama is innately cautious. Even when his head tells him to be aggressive, his gut tells him to slow down. The problem with a combination like this is that it can lead to stalemate: The activist guy pushes and the cautious guy clams up.
Which is where Geithner comes in. Geithner has, over the years, displayed a knack for getting to where Summers is headed, but with less indigestion all around. For example, in the fall of 1997, Geithner, Summers, and then-Treasury Secretary Bob Rubin had to formulate a response to the Korean financial crisis, which was on the verge of spreading around the globe. Summers wanted a huge show of force--accelerating an existing IMF package and kicking in a U.S. bailout to boot--which made Rubin queasy. Geithner helped broker the compromise that won Rubin over. (It involved asking private banks to re-schedule Korea’s debts so the country wouldn’t need as big a bailout.) I can imagine a similar situation arising under Obama.
3.) Geithner will take the lead on all things political. He’s developed strong relationships up and down Wall Street over the last five years, so he shouldn’t have trouble selling his reform agenda there. He also has extensive experience navigating Capitol Hill, having helped advance the Clinton administration’s debt relief agenda there during the mid-to-late ‘90s, over deep conservative opposition. Anyone who can convince the Jesse Helmses of the world to ease up on third-world countries can probably guide a stimulus bill through Congress.
Be sure to check out the rest of the backstory behind the Geithner pick here.