NOVEMBER 22, 2008
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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.
--Noam Scheiber
Be sure to check out the rest of the backstory behind the Geithner pick here.
18 comments
This is an excellent choice. Summers was ill-suited to this job because the Sec'y of the Treasury needs to be able to command Wall Street authoritatively rather than be the Economist in Chief of the US. Geithner knows a great deal more than Summers about how the financial system actually works, perhaps more than anyone. Very will done.
- roidubouloi
November 22, 2008 at 7:19am
Bravo! Typical Obama - shows he's respectful, but comfortable deflating an evolving ballon of conventional wisdom. He values calming the frenzy first, which allows for the change.
Markets are the most emotional thing in public life, people don't realize that - like a bunch of 13 year old girls, the good and the bad. While he public applauds politely, the markets all cry and faint with relief. Let's hope the next thing is a teeny giggling euphoria, short lived is fine - I'm realistic. But we could all use it.
- Wandreycer1
November 22, 2008 at 9:01am
So everyone is OK with Geithner, even though he is a former Republican turned independent and significantly to the right of Summers? Boy, Obama really does have a real honeymoon with the liberals.
- cal80
November 22, 2008 at 10:44am
Cal80, having worked with Geithner, yes, I'm extremely comfortable with him. He is as advertised. If this plays out the way Noam describes this is a fantastic round of choices. Each of them in their perfect spot. Well done.
- mcgumbleton
November 22, 2008 at 11:13am
Roidubouloi, your comment is spot on. Timothy Geithner is the ideal choice. Wandreycerl: Can you please translate your second paragraph into English?
- liberal reformer
November 22, 2008 at 11:55am
cal80,
No, everyone on the left is not ok with this pick. But given that everyone rumored to be considered for this job was a bad choice, it is not surprising. The New Republic has not represented the left for a very long time. Today it totters back and forth between center-right and center-left, depending on the issue. The best description is that TNR represents the mainstream beltway viewpoint, which tends to be socially center-left and fiscally/financially center-right.
Why is it that even when Obama wins all of his choices for Treasury Secretary are narrowed down to people who are proven failures? Example: Summers is largely responsible for the financial mess that is Russia - the formation of the oligarchs and the lost decade where Russia's economy was obliterated due to opening markets way too fast. Why do all of the choices come from insiders of the financial industry, particularly given how catastrophically that industry has failed? You would think we would turn to real economists - professors who spend their lives studying economics, not just one narrow view held by the financial industry.
And to anyone who thinks that Russia just had to go through the pain transitioning from Communism to Capitalism (the "shock therapy"), I give you China. China has done essentially the same thing, but has done so following the advice of economists on the left, such as Joseph Stiglitz. The result is that China's growth has destroyed that of countries like Russia, all while improving standards of living dramatically. Why is it that people like Stiglitz, or Paul Krugman, are never considered for these positions? Is it that the financial industry fears they may focus on actual economics first, rather than the narrow demands of their industry?
For more information on how Summers and Robert Rubin virtually destroyed the developing world during their tenure at Treasury, I recommend reading Globalization and Its Discontents by Stiglitz.
- rhorath
November 22, 2008 at 12:39pm
Liberal - can you please do me a favor and bite me? Thanks.
- Wandreycer1
November 22, 2008 at 12:54pm
From The Weekly Standard's "The Blog"
November 22, 2008
The Geithner Gallop?
Is Tim Geithner, Barack Obama’s choice to succeed Hank Paulson at Treasury, worth 500 points on the Dow? So it seems. No surprise say the professional traders: Markets hate uncertainty, and by making up his mind about this key economic post, Obama has removed a great deal of uncertainty. Plausible, but not persuasive.
One thing was certain since the day Barack Obama became our president-elect. Someone would replace Paulson, and that person would implement the Obama agenda. Whether that person turned out to be Paul Volcker, Larry Summers, Timothy Geithner or some reincarnation of Adam Smith, that person would be an implementer of policy. Yes, he--no plausible “she” was ever in the frame--would also be a key adviser to the new president. But would the advice of Larry Summers be very different from that of his long-time buddy, Geithner? Not likely. So where was the uncertainty that was dispelled by the naming of the new secretary of the Treasury?
Also, just what uncertainty has been eliminated? We knew no more about Obama’s plans and priorities on Friday afternoon, after the Geithner appointment was announced, than we did that morning. There will be a stimulus package of undetermined amount, there will be a GM bailout containing undetermined conditions, there will some day be an end to the secret ballot in union elections but we have no idea when--all known for some time. No uncertainty eliminated, no certainty substituted for the vagueness that has so far been the Obama hallmark.
The real significance of the market pop on the Geithner announcement is that we are shifting, at least for now and for the foreseeable future, from a market-driven economy to a government-policy driven economy. When Hank Paulson announced that he had changed his mind and would not buy the rotten IOUs that litter bank balance sheets, the market tanked. Nothing about the prospect for the economy changed--earnings will be whatever they will be in this recession, so will unemployment and other variables. Only policy changed.
So, too, on Friday. The economy was in as bad shape in the afternoon as it was in the morning. But a new policy player was inserted into the game. It didn’t take a genius to understand Paulson when he said that he would put the remaining $350 billion into a lockbox, to be opened by his successor--or sooner, with the blessing of that successor. Nor did it take a genius to figure out that this weekend’s deliberations about what to do about the sinking ship that is Citigroup--some wags are suggesting that CEO Vikram Pandit ask for a bailout by cash-rich Somali pirates who undoubtedly would like to move from their Mafia-like existence to financial respectability as the Corleones did when they shifted to Las Vegas--would now include Geithner as the “decider”, rather than merely as an advisor.
In short, policymaking changed on Friday afternoon, and the market likes what it thinks is the new direction more than it likes Paulson’s recent moves. The economy is no different. Obama might have intended to keep his hands off policy until he is inaugurated so as to distance himself from the Bush administration. But the policy-driven economy waits for no man, not even one who claims to be able to cool the planet and turn back the flood waters.
We are now in an era in which Washington trumps New York. When the economy is creating wealth, Wall Street and Main Street are the centers of the action; Washington has little or nothing to contribute. When attention shifts to redistributing wealth, the center of the action shifts to Pennsylvania Avenue, Capitol Hill and K Street. That’s where it is now.
--Posted by Irwin M. Stelzer on November 22, 2008
www.weeklystandard.com/.../the_geithner_gallop_1.asp
© Copyright 2008, News Corporation, Weekly Standard, All Rights Reserved.
- bkaplovitz
November 22, 2008 at 1:13pm
From The Weekly Standard's "The Blog"
November 22, 2008
The Geithner Gallop?
Is Tim Geithner, Barack Obama’s choice to succeed Hank Paulson at Treasury, worth 500 points on the Dow? So it seems. No surprise say the professional traders: Markets hate uncertainty, and by making up his mind about this key economic post, Obama has removed a great deal of uncertainty. Plausible, but not persuasive.
One thing was certain since the day Barack Obama became our president-elect. Someone would replace Paulson, and that person would implement the Obama agenda. Whether that person turned out to be Paul Volcker, Larry Summers, Timothy Geithner or some reincarnation of Adam Smith, that person would be an implementer of policy. Yes, he--no plausible “she” was ever in the frame--would also be a key adviser to the new president. But would the advice of Larry Summers be very different from that of his long-time buddy, Geithner? Not likely. So where was the uncertainty that was dispelled by the naming of the new secretary of the Treasury?
Also, just what uncertainty has been eliminated? We knew no more about Obama’s plans and priorities on Friday afternoon, after the Geithner appointment was announced, than we did that morning. There will be a stimulus package of undetermined amount, there will be a GM bailout containing undetermined conditions, there will some day be an end to the secret ballot in union elections but we have no idea when--all known for some time. No uncertainty eliminated, no certainty substituted for the vagueness that has so far been the Obama hallmark.
The real significance of the market pop on the Geithner announcement is that we are shifting, at least for now and for the foreseeable future, from a market-driven economy to a government-policy driven economy. When Hank Paulson announced that he had changed his mind and would not buy the rotten IOUs that litter bank balance sheets, the market tanked. Nothing about the prospect for the economy changed--earnings will be whatever they will be in this recession, so will unemployment and other variables. Only policy changed.
So, too, on Friday. The economy was in as bad shape in the afternoon as it was in the morning. But a new policy player was inserted into the game. It didn’t take a genius to understand Paulson when he said that he would put the remaining $350 billion into a lockbox, to be opened by his successor--or sooner, with the blessing of that successor. Nor did it take a genius to figure out that this weekend’s deliberations about what to do about the sinking ship that is Citigroup--some wags are suggesting that CEO Vikram Pandit ask for a bailout by cash-rich Somali pirates who undoubtedly would like to move from their Mafia-like existence to financial respectability as the Corleones did when they shifted to Las Vegas--would now include Geithner as the “decider”, rather than merely as an advisor.
In short, policymaking changed on Friday afternoon, and the market likes what it thinks is the new direction more than it likes Paulson’s recent moves. The economy is no different. Obama might have intended to keep his hands off policy until he is inaugurated so as to distance himself from the Bush administration. But the policy-driven economy waits for no man, not even one who claims to be able to cool the planet and turn back the flood waters.
We are now in an era in which Washington trumps New York. When the economy is creating wealth, Wall Street and Main Street are the centers of the action; Washington has little or nothing to contribute. When attention shifts to redistributing wealth, the center of the action shifts to Pennsylvania Avenue, Capitol Hill and K Street. That’s where it is now.
--Posted by Irwin M. Stelzer on November 22, 2008
www.weeklystandard.com/.../the_geithner_gallop_1.asp
© Copyright 2008, News Corporation, Weekly Standard, All Rights Reserved.
- bkaplovitz
November 22, 2008 at 1:19pm
Yes of course we should be paying close attention as Obama forms his cabinet, but a little caution is in order. We do not yet know what the Obama dynamic will be. By that I mean the underlying force and mind-set of the administration, as in "the Reagan Era", the "Clinton Era", the "W Era". Until this image and actual reality emerges, we cannot predict how these choices will work out. This won't happen until the honeymoon is over and inevitable outside forces play their roles. It is only then that we can evaluate the effectiveness of the individual team players. In the meantime, this makes interesting speculation, but we must realize that we are speculating on individuals who have yet to prove themselves in an entirely new context.
- moran@sbc.edu
November 23, 2008 at 8:44am
En verde (el color del dólar) a corto plazo, para reactivar la economía. Y en verde (su new deal de nuevos
- Anonymous
November 24, 2008 at 12:36am
I've tried to lay out the reasons why Obama would want Tim Geithner as his Treasury secretary. Now
- Anonymous
November 24, 2008 at 1:37am
En verd (el color del dòlar) a curt termini, per reactivar l'economia. I en verd (el seu new deal de
- Anonymous
November 24, 2008 at 4:36am
rhorath - good post.
- The Ignorant Populist
November 24, 2008 at 10:02am
rhorath, i like you post too.
All these people -- Summer, Geithner, etc.. -- are fervently committed to the destruction of America's industrial base, and to the idea that the proper role of America in the global economy is consumption, investment, and the production of crappy movies, music, television and pornography. Also, corn-based food products, and the medical skills necessary to deal with their resulting ill health effects.
I understand that the union's card check bill only got 51 votes in the Senate last time, when it never had a chance of being signed into law. So that means it'll be well short of the sixty needed this time. That means no card check.
- gurdjieff66
November 24, 2008 at 3:31pm
"The problems we face today cannot be solved by the minds that created them"
Albert Einstein
I keep waiting for someone to convince me that Barck Obama's "economic dream team" is comprised of minds that did indeed have little to do with creating the political and economic instruments that put us in the quicksand that is increasingly engulfing the global economy.
So far vast amounts of the "recovery" billions have been funneled to those folks who unequivocally were present at the creation of this institutional mess. Here for example is Mike Whitney's take on all this from the blog Counterpunch:
Paulson shoveled $25 billion to Citigroup without even sending in the regulators to see if they were solvent or not. How smart was that? Citi's stock has dropped 93% from its all-time high in May 2007 and ended Friday at a measly $3.77 per share. Its market cap. has gone from $280 billion to a skinny $20 billion in less than a year. Without a lifeline from the government, they won't make it through December; the short-sellers will carve them up like a smoked ham. Will Paulson come to Citi's rescue with more public cash? Absolutely. So why won't he support a similar bailout for the Big Three auto-makers who employ nearly a million people?
There was a clue in Sunday's paper as to why Paulson is stiffing the car companies. According to UPI :
"GMAC Financial Services said Thursday it had applied to the U.S. Federal Reserve for bank holding company status, a step toward securing federal aid. The auto and home financing company said it had also submitted an application to the U.S. Treasury to participate in the Capital Purchase Program set up in the $700 billion financial firm bailout program known as the Emergency Economic Stabilization Act.
"As a bank holding company, GMAC would obtain increased flexibility and stability," the company said in a statement." (UPI)
So why would GMAC want to become a bank holding company if General Motors is headed for the chopping block? Could it be that the government is working out a secret deal with management to put the company through Chapter 11 (reorganization) just so it can crush the union and eliminate their pension and health care benefits in one fell swoop?
George:
I suspect this narative might be one Naomi Wolf would be inclined to support. How will the shock be administered in this particular crises? I'll start holding my breath waiting for someone in the media to pose this question to Barack Obama.
But, admittedly, until I see Obama's economic policies unfold in real time after the inauguration, I am more than willing to give him the benefit of the doubt.
george walton
- iambiguous
November 24, 2008 at 7:43pm
Andrew Ross Sorkin (whose uncle was my favorite high school teacher: Hey Sork!) offers the most--and
- Anonymous
November 25, 2008 at 10:14am
Larry Summers was officially tapped yesterday as a top White House advisor and the next head of the White
- Anonymous
November 26, 2008 at 1:54pm