For weeks he's looked like a deer in the headlights, flubbing speeches and rattling markets. But the Treasury chief retains the support of his boss—and he's starting to hit his stride.By Michael Hirsh | NEWSWEEK
Published Mar 28, 2009
From the magazine issue dated Apr 6, 2009
Tim Geithner can't stop smiling and laughing—he's actually relaxed, in fact. The new Treasury secretary has just come off the biggest week in his life, though when asked about it he adopts that sober, intense look the public knows so well, insisting he's not over any hump. "Sure, it's nice, but I know how fickle this stuff is. I'm going to be doing all sorts of unpopular things for a long time," he says, sitting in his office late last week under the stern eye of Alexander Hamilton's portrait.
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Geithner started off badly in January—and things just seemed to get worse from there. The straitlaced civil servant was forced to admit within days of Obama's inauguration that he had failed to pay all his taxes. He won confirmation by a vote of 60–34, but it was the closest tally for any Treasury secretary since World War II. That put Geithner—who is publicity-shy even in normal times—at a moral disadvantage when he should have been a dominant voice dictating policy to Washington and Wall Street. "Because of the tax issue, he couldn't come off being too strong-voiced," says a former senior official at the New York Fed who knows Geithner well, but asked for anonymity when giving a personal assessment of him. "The problem was, by treading softly people said he didn't have the gravitas."
He was also plagued by what many critics say was a tendency to overpromise. In interviews, he invoked his experience in Tokyo as a Treasury attaché in the early '90s—pledging to avoid the timid response of Japan after its bubble burst, and to apply "overwhelming force," an economic Powell doctrine. The markets were underwhelmed when they didn't see a big, detailed plan right away. Geithner now argues that if you add up all Treasury's programs, along with the record $890 billion stimulus plan, he's used as much force as he could, and just about as fast as he could.
Geithner and his frazzled staff say they're amazed they've gotten as much done in 60 days as they have. "What is it? Six weeks? Eight weeks? It's eight weeks, OK," says Geithner, who is trim, fit and a little wired. "Just look at what we've done." Among other things, he cites the stimulus, as well as the huge amount of financing provided to the markets.
Out of view of the cameras, Geithner prides himself on proceeding methodically—the markets be damned. He's dismissive of critics who rail against the more controversial aspects of his plan for a public-private partnership creating government-backed "funds"—which by this summer are supposed to conduct an auction for bad assets. Among those critics is columnist Paul Krugman, who says the plan is another rich giveaway to Wall Street that won't make banks more solvent.
Geithner scoffs at their proposed alternative, what he calls "preemptive nationalization of the big institutions," saying his critics have no idea what they're talking about. One big problem, Geithner says, is that the government doesn't have the resources to do more now, not with political outrage so high. And Washington cannot just take over banks that are not technically insolvent yet. "We would end up killing the institutions and having the government assume right away all those basic losses … There's no feasible way we could get in and out quickly."
Geithner says AIG, which the government effectively took over last fall, is a good example of how difficult nationalization is today. "The government took 80 percent of the thing as a condition for initial intervention. They replaced management, changed the composition of the board—they might call that nationalization. We did that because they couldn't operate. They were on the brink of default. Look at what's happened. They've had the (healthy aspects of their) business bleed away." At the same time, senior Treasury and Fed officials concede they may still have to make substantial investments in a couple of major banks when the "stress tests" are completed sometime in April. But that won't mean "nationalization." "You can't solve it that way," says Geithner.
more From Meet The Press:
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SEC'Y GEITHNER: Core thing is to make sure that the institutions at the center of our financial system are subject to much more conservative, much tougher requirements on capital and leverage that are applied more evenly and more effectively, frankly. We need to make sure that hedge funds and derivatives come within a framework of oversight so we protect the system from the risks they may present. And we need to make sure the government has the authority it needs to come in more quickly, to help contain the damage, restructure the system, so we can have a stronger system going forward.
MR. GREGORY: But is the government really capable of moving in on companies that may need it? Does the government have the level of expertise to unwind something like AIG's financial products division? You're having your own problems even staffing up the Treasury Department. Isn't that a lot to, to ask the American people to support?
SEC'Y GEITHNER: But, but there's no choice. I mean, how--what would you, what would you prefer, that we live with the kind of choices we saw in Lehman, AIG? Catastrophic damage, or the government putting huge amounts of taxpayer dollars at risk to help and contain that damage? We need a better model. What we're proposing to do is use a model that exists for small banks that was designed by the Congress in the wake of the S&L crisis, build on that model and give the government a capacity to act more quickly, more effectively to contain the damage at least risk to the taxpayer and the economy as a whole.
MR. GREGORY: Time magazine this week has its cover, and it's very interesting. I want to put it up on the screen for our viewers to see. "The End of Excess: Why the crisis is good for America." And there's a big red "reset" button. And everybody talks about reset. Obviously this is not a good crisis for America right now. But take a longer view. In the long run, is this crisis necessary for this economy?
SEC'Y GEITHNER: I think the adjustment to a period of excess is necessary. You never, you never want to have a crisis to remind people of the importance of living within your means, not borrowing too much or why regulation of the...(unintelligible)...is important. You never want to have a crisis that's damaging to make that point. But we're going to emerge stronger than this. When we get through this people are going to care less about what they make, more about what they do, what they achieve with what they make, and that will help make this country stronger.
MR. GREGORY: Will the economy be fundamentally different? Will people own fewer homes? I mean, home ownership, will that go down? Will consumption change? Will our lives change in a meaningful way?
SEC'Y GEITHNER: I think people will be living within their means more, which is helpful. We want to have, you know, a stronger, more sustainable recovery. Not a recovery based on a artificial boom that's not going to be sustained. We need to end this, this, this pattern of having booms and busts at the kind of frequency we've seen. That has to change. And that'll make the, that'll make this a better place to live and a more productive economy going forward.
MR. GREGORY: Before you go, it's been a fairly bumpy ride for you so far. You've had Republicans calling for you to resign. Some on Wall Street have questioned your effectiveness. Do you think at this stage you've been able to shore up your credibility as not only a steward for economic policy, but as a spokesman for the president's policies?
SEC'Y GEITHNER: David, when I came into this job I knew two things. One is I knew we were starting with a set of enormously complicated challenges and a deep sense of anger and frustration about the burden Americans were bearing because of a long period of excessive risk taking. And I knew we were going to face really tough choices. We were going to have to do things that are going to be deeply unpopular, hard to understand. We're not going to get it perfect everywhere. But this is a great privilege for me, a great honor to help this president do what it takes to help get this economy back on track. This job, it comes with a lot of heat by definition and there's nothing surprising in that. But we have a great moment of opportunity for this country and it is, again, a great privilege for me to be part of an effort to try to make sure we put in place a stronger economy, stronger financial system for the future.
MR. GREGORY: Secretary Geithner, good luck with your very important work.
SEC'Y GEITHNER: Thank you. Nice to see you.
MR. GREGORY: Appreciate you being here.
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