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.