BREAKINGVIEWS-Geithner needn’t pack his bags — yet
— The author is a Reuters Breakingviews columnist. The opinions expressed are his own —
By James Pethokoukis
WASHINGTON, Jan 11 (Reuters Breakingviews) – U.S. cabinet members tend to lose their support the same way a person goes broke — slowly, then all at once. Timothy Geithner, the embattled U.S. Treasury secretary, still has President Obama’s confidence. Still, he has bled enough that this year could well be his last.
The rap against Geithner is that, as New York Federal Reserve president in 2008, he worked with former Treasury boss Henry Paulson and used AIG as a conduit to pass bailout money to struggling financial firms such as Goldman Sachs and Deutsche Bank. Critics also say that since joining Team Obama, Geithner has pushed an impotent financial reform package that fails to limit the size or complexity of U.S. financial institutions.
Emails from the New York Fed’s outside lawyers add to the impression that the bank tried to keep significant details of the AIG bailout from becoming public knowledge. But Geithner — already at the time looking ahead to the Treasury — wasn’t in the loop, according to the Obama administration and the New York Fed.
And even if that sounds like a cop-out, there’s an alternative Geithner narrative espoused by the White House. He helped fashion the plan that brought the U.S. financial system back from the edge of the abyss and laid the foundation for economic recovery. To insist on his departure now would eviscerate that message and probably unnerve markets. It would also set back Obama’s legislative agenda — and the search for a replacement would provide a forum for Republican attacks in the run-up to November’s midterm elections.
The Democrats are also fully in control for now, making it easy for Obama to quash calls for Geithner’s ouster. Besides, the list of candidates with ready-made reputations who might step into the breach is short.
The nation’s populist mood seemingly rules out a Wall Streeter, not that JPMorgan’s Jamie Dimon currently desires the job. Whispered West Coast financial names like bond giant Pimco’s Bill Gross and Mohamed El-Erian seem a stretch. And the White House has scant interest in two easily confirmable choices, ex-Federal Reserve Chairman Paul Volcker and bank regulator Sheila Bair.
So the “Geithner must go” crowd will need patience. That said, Geithner has a shallow reservoir of goodwill on Capitol Hill. Congress looks likely to investigate what he knew about AIG and when he knew it, and some highly damaging revelation could change the game. Otherwise, the Treasury secretary is probably safe until after Election Day. But if Democrats lose big then, booting Geithner will be an obvious way for Obama to show he’s rebooting his agenda.
— U.S. lawmakers want Treasury Secretary Timothy Geithner to testify on whether the New York Federal Reserve improperly pressured American International Group not to disclose some information relating to payments it made to bank counterparties after its government bailout. The Obama administration and the New York Fed said that Geithner, who headed the bank at the time of the AIG rescue, was unaware of any advice by Fed lawyers to limit disclosures.
— Email correspondence released by Republican Congressman Darrell Issa shows that outside attorneys for the New York Fed recommended that information on specific payments to banks be excluded from a December 2008 Securities and Exchange Commission filing by AIG. The New York Fed lawyers proposed that AIG delete an explicit reference to banks receiving 100 cents on the dollar to liquidate credit default swaps.
— A total of $62 billion in payments to specific counterparties was later disclosed by AIG in March 2009.
— Edolphus Towns, chairman of the House Oversight Committee, said he had asked Geithner to testify on the matter the week of Jan. 18. Spencer Bachus, the ranking Republican on the House Financial Services Committee, asked the panel’s chairman, Democrat Barney Frank, to hold a similar hearing on the AIG emails.
— White House spokesman Robert Gibbs, asked by reporters whether Geithner still had President Barack Obama’s full confidence, said, “of course.”
(Editing by Richard Beales and Martin Langfield)