Well, they’re not good and signal great danger for Democrats in the midterm election. The good folks at RealClearPolitics sums things up nicely:
Peter Orszag never really seemed to want the job as President Barack Obama’s budget chief. His successor should be just as reluctant, having to deal with the fiscal aftermath of the stimulus and healthcare plans.
But there is little doubt Orszag will depart as the most consequential Office of Management and Budget director since the notorious David Stockman nearly torpedoed Reaganomics in the early 1980s by calling supply-side economics a sham. In hindsight, of course, Reaganomics looks pretty good, including 17 million net new jobs and a collapse in inflation.
But Orszag was no whistle-blower of some perceived fiscal sleight-of-hand. Instead, it was just the opposite. He was a facilitator and enabler, providing the intellectual firepower and energy behind Obama’s drive for healthcare reform. Orszag made the case to the president that reducing healthcare costs was an important element to slashing the long-term budget deficit. More importantly, he persuaded Obama the U.S. healthcare system was so inefficient, overall spending could be restrained while also providing near-universal health insurance coverage. In effect, “bending the curve” was a free lunch. Or at least close enough for government work.
It was an audacious claim, mostly based on a single controversial academic study. Republicans never bought into the theory, and neither did Orszag’s successor at the Congressional Budget Office, Uncle Sam’s fiscal scorekeeper. In the end, Obama was forced to cut future Medicare spending and raise taxes to make the numbers balance out — at least on paper. Few Washington observers think those cuts will happen, meaning that the budget deficit could explode if Orszag’s novel theories don’t pan out. And even if the cuts occur, many budget hawks were counting on them to make Medicare sustainable over the long-term, not create a new entitlement.
Too bad Orszag didn’t use his considerable political skills – Larry Summers was supposedly warned to be careful of the guy “wearing the cowboy boots and bad toupee” – to make the case for entitlement reform first. In that regard, Orszag’s legacy is uncertain at best.
The next head of OMB will need 24-carat credibility and authority. The president’s confidence won’t be enough. A potentially more Republican Congress will be needed to pass any fiscal austerity reforms recommended by Obama’s deficit panel. And voters will need to understand those painful fixes, while U.S. bond and currency investors will need to believe they’ll really happen.
One option would be a disciple of Bill Clinton, the last president to balance the budget. A bolder choice would be David Walker, the government’s former chief auditor. He now runs a foundation created by Blackstone Group co-founder Peter Peterson devoted to fiscal sustainability issues. Walker is a fire-and-brimstone preacher on the deficit, albeit one with a penchant for folksy aphorisms. He could both crunch the numbers and communicate them. But given the magnitude of the challenge, getting him might take some convincing.
Beware the soothsayers who know the exact day and hour when the trumpets shall sound and Rahm Emanuel, the White House chief of staff, announces his resignation. First, Emanuel has said, repeatedly, that he’s told President Obama that his shelf life is about two years. … But Obama has no interest in seeing Emanuel depart, and Emanuel will probably stay at least long enough to oversee other staff departures and additions. Turnover at that point is normal. It’s safe to say that a chunk of the economic policy team will be keen in moving on, as efforts shift from crisis mitigation to building a new economic foundation.
Me: When I was on The McLaughlin Group a couple of weeks back, I was asked to come up with a prediction ahead of time. But the segment went a different direction, and I didn’t get to use it. My prediction was going to concern a coming shakeup in the WH economic team. But really, that is not hard to predict. There is the burnout factor, of course. And neither Christie Romer nor Austan Goolsbee — to take two names — are creatures of Washington and sure don’t seem like they would become DC lifers. It would be a bit early for Tim Geithner to leave — Treasury secretaries usually stick for at least two years — but who knows? There are also plenty of rumors about budget chief Peter Orszag being a short timer, perhaps to be replaced by Gene Sperling, currently at Treasury. And Larry Summers — well, he deserves a blog post of his own.
Bruce Bartlett adds this on the speculation about Tim Geithner and Larry Summers:
Keep in mind that one reason for creation of the NEC in the first place was to give Bob Rubin someplace nice to hang his hat while waiting for Lloyd Bentsen to move on after being given Treasury to protect Bill Clinton’s right flank. Keep in mind also that Geithner is widely viewed as being under Larry’s protection. Without that it is quite possible that Tim would be gone already, given the generally poor grades he has gotten from across the political spectrum. Finally, remember that the appointment as NEC director does not require Senate confirmation, which may be an attractive quality in this political environment.
Someone like Roger Altman, former deputy Treasury secretary, might be a good replacement for Larry and, eventually, Tim. Knowing how badly Roger would like to be Treasury secretary, I’d start packing my bags if I were Tim and Roger became my de facto White House boss.
I think Jon Corzine may also have aspirations for being Treasury secretary, but considering how badly his term as governor of New Jersey went I suspect that considerable time will need to pass before he is politically viable again.
Me: I think all this is really premature. I think Geithner’s stock has skyrocketed and will only elevate further if the economy improves the way the WH thinks/hopes it will. Roger Altman, by the way, wants a VAT, like, yesterday. And a BIG one.
I am writing a column on this, given the rumors about Larry Summers soon departing. But a few quick thoughts:
1) The only folks who really seem hot for these guys to leave are liberal activist groups and union folks. Basically the Huffington Post crowd who want to break up the banks and spend another trillion dollars on stimulus.
2) I think the WH believes the economy will begin to be a slight breeze at its back in the months ahead, a not unreasonable economic conclusion. Why muddy the narrative with departures?
3) If Summers is sick of the job, he’s sick of the job. Whatever. But I don’t think there is a great desire to push him out by the WH political team or the POTUS.
4) As for Geithner, his slow start, including tax troubles, made him a permanent subject for resignation rumors. But the success of the stress tests and perhaps now some movement on the China currency issue have thickened his heat shield considerably.
5) What if the Dems lose both houses of Congress in the fall? The assumption is that there will be a total house cleaning on the other end of Pennsylvania Avenue as well. I am not so sure about that. Replacements for the econ team would be tough to find given the party’s anti-Wall Street fervor, especially at Treasury. Plus, if Obama thinks his policies are right and progress is being made, then he is is going to stick. Recall that after the 1982 disaster for Republicans, President Reagan didn’t replace Don Regan at Treasury. Now after the Dem 1994 disaster, Lloyd Bentsen did leave, but he was never going to be a long-termer anyway.
A quick exit for Larry Summers? That’s the goal of an incipient whispering campaign within segments of his own party. Detractors of the superstar White House economic adviser blame his deficit-phobia for a skimpy stimulus and resulting jobless recovery in the United States.
Many Democrats fret that a toxic tandem of so-so economic growth and stubbornly high unemployment could cause huge losses in November’s midterm elections, perhaps even a loss of the House of Representatives. So let the Blame Game begin. In particular, an amalgam of influential liberal bloggers, New York Times columnist Paul Krugman, and even nervous White House and congressional politicos have concluded that the Obama administration erred in not pushing for a 50 percent larger stimulus plan than the $800 billion effort in early 2009 — or for a massive second dose of steroids since.
Summers has been central to those decisions. He has argued that while government can partially fill the economy’s output gap, overdoing spending — and borrowing to fund it — would spook global bond markets. Such reasoning annoys Washington liberals, as it did during the Clinton years when much of the left-wing, “Putting People First” agenda lost out to the deficit reduction advocated by Treasury Secretary Robert Rubin, Federal Reserve chairman Alan Greenspan and, yes, Summers. A near-trillion dollar stimulus plan and trillion dollar deficits apparently just aren’t enough when you have visions of coast-to-coast high-speed rail and a modern-day WPA program dancing in your head. Given the kvetching on the left, you would almost think Summers was pushing for a crash balanced budget.
It’s the same brand of deficit hawkishness liberals see at work in the healthcare reform process. (Amazingly, a $900 billion plan that will almost certainly expand the budget deficit is still too fiscally strict for these folks.) Many Dems also sniff at Summers’ past employ at hedge fund DE Shaw. Hey, what value could experience outside of academia and government possibly have, right?
But Summers is certainly right to focus on controlling government deficits. Uncle Sam has at least $10 trillion in new debt to sell over the next decade and needs to maintain investor confidence. Bond fund giant Pimco, for instance, is already cutting back on Treasuries because of the flood of new issuance.
Even dyed-in-the-wool Keynesians should also concede that government borrowing can become excessive. A stunning new study by Carmen Reinhart and Kenneth Rogoff found that when government debt-to-GDP levels rise above 90 percent in advanced economies, annual GDP growth falls by one percentage point or so. The International Monetary Fund projects that America’s debt-to-GDP ratio will reach 94 percent this year.
Summers isn’t going anywhere right now. Imagine the strange optics of axing the White House’s economic guru just when President Obama is arguing that his policies are slowly righting the ship. But should the economy dip again or November’s elections prove disastrous, there will be a political price.
And while the high-profile Summers is near the top of the list to pay it, he might not be the only one. The left, brimming with anti-Wall Street fervor, would also like the president to give Treasury Secretary Timothy Geithner his walking papers. An obvious replacement would be JP Morgan CEO Jamie Dimon.
But liberals want no part of ex-Wall Streeters or ex-Clintonites. So who would that leave to replace Summers or Geithner? Who would be on the liberal short list for an Economic Policy Dream Team besides Krugman and Biden adviser Jared Bernstein? (Certainly no one in favor of cutting taxes.) Financial markets would probably love to know.
Of course, the real problem for the anti-Summers crowd is Barack Obama himself, the man “progressive” columnist David Corn said has already left liberals “alienated from politics today.” Obama’s instincts, along with real political and fiscal limitations, seem to consistently push him toward center-left economics. But the White House isn’t like a baseball team where it’s far easier to fire the manager than get rid of problem players.
As usual, Ed Yardeni is exactly on point:
1) While Washington wants them to lend more, the bank examiners sent by Washington’s regulators are all over them to improve their credit quality and to tighten their lending standards.
2) They also observe that most of the big banks were forced to take TARP money they didn’t need or want last October 2008.
3) The bankers can’t deny that they contributed to the financial mess, but so did the government by pushing them to make subprime loans through the Community Reinvestment Act and by encouraging Fannie and Freddie to purchase these loans. In his recent book titled “The Housing Boom and Bust,” Thomas Sowell carefully documents this sordid tale of corruption in Washington and on Wall Street.
4) One of the main reasons that the banks are not lending is that the Federal Reserve is pegging the federal funds rate at zero. As a result, investors have scrambled to buy corporate bonds at a record pace. So corporations with access to the bond market have been able to raise lots of money. Indeed, many have raised more than they need, and they used some of the proceeds to pay down their bank lines of credit. Less fortunate borrowers are stuck with trying to get loans from their bankers. The problem is that many of them have become less credit worthy because the economy remains weak. The banks already have lots of problem loans and don’t want to make more such loans, especially with bank examiners on their backs.
One residual from Timothy Geithner’s rough confirmation back in January — “Turbo Tax Tim” and all that — is that his political position is probably a bit more precarious than that of the typical newbie treasury secretary.
Not only has Geithner been a frequent target of late-night comedy shows, he’s the public face of the unpopular bank and automaker bailouts. High unemployment rate isn’t helping either.
No surprisingly, a new Rasmussen poll finds that 42 percent of Americans think Geithner has done a “poor” job handling the economy versus 20 percent who rate him “good or excellent.” And the furor over his handling of the AIG bailout has yanked the competence issue back to the forefront.
So there is little political risk from calling for his resignation, as Representative Peter DeFazio, an Oregon Democrat, and several Republicans have done. But, my sources say, there seems to be little White House appetite at this moment for ousting Geithner, who certainly has no plans of his own for a fast exit. Expect him to stick around until at least November 2010.
And why would Obama cut him loose when doing so would be tantamount to a vote of disapproval in his own economic policies?
No one has charged Geithner with going rogue, after all. So blame the model, not the man, if you must. Not to mention a quick hook would stink of panic. Top cabinet secretaries of first-term presidents rarely leave before the midterm elections.
Nor does Geithner have much to fear from a whisper campaign to put JPMorgan CEO Jamie Dimon in the job, according to insiders. Despite the rumors, Dimon doesn’t want the gig. What banker would, given the current populist political climate?
It seems unlikely that radioactive Wall Street will be supplying Geithner’s eventual successor. More likely candidates: Rahm Emanuel (he of the frequent phone calls to Geithner), White House chief of staff; Janet Yellen, president of the San Francisco Federal Reserve; Lawrence Summers, director of the National Economic Council; and Roger Ferguson, CEO of TIAA-CREF and former Fed vice chairman.
But the calls for Geithner’s resignation, as well as stunts like the Congressional Black Caucus blocking a key House committee vote on financial reform, indicate a degree of desperation among congressional Democrats. They see high unemployment and dissatisfaction with Obama’s scattered focus on the issue as driving the anti-incumbent mood.
Unlike in sports, in government it’s the players, not the coach, who gets fired. And that’s why some Dems think one way to save their jobs in 2010 is by suggesting that Geithner lose his today.
Here is what I know, or at least what I think I know after talking with slew of folks today (and an expanded take to come in a bit):
1) Geithner isn’t going anywhere before November 2010.
2) JPMorgan’s Jamie Dimon doesn’t want the job.
3) If Geithner did go, Rahmbo, Yellen, and Summers are all more likely that JD.
4) The Geithner resignation talk is a sign of panic on the part of congressional Dems. Expect the AIG ruckus to get more of a push on the Hill.
5) Geithner’s uneven TV skills aren’t helping, though.
If Republicans had any fear of the Obama White House on the economy, congressmen wouldn’t be calling for Tim Geithner to resign, much less right to his face as happened today. Then there is Peter DeFazio, the Oregonian Democrat, on MSNBC’s Ed Schultz show when asked if the treasury secretary should resign:
DEFAZIO: I do, especially if you look back at the AIG scandal and Goldmans and the others who got their bets paid off in full. Instead of saying, well, you bet, you lost, they got paid back in full with taxpayer money through AIG. We channeled the money through them.
Geithner would not answer my question when I said, “Were those naked credit default swaps by Goldman or were they a counter party?” He said, “I will not answer that question.”
I think they were naked credit default swaps. They were bets. They should not have gotten their money back.
SCHULTZ: So he‘s not coming clean with the Congress?
DEFAZIO: Absolutely not.
SCHULTZ: OK. So have you asked the Obama administration to remove him, or will you?
DEFAZIO: The populist caucus is considering questions regarding both him and some other members of the economic team in the near future.
This a sign that some Democrats do fear the Obama White House on the economy — they fear being too closely aligned with it. Look, the NJ and VA elections when combined with the high unemployment rate are causing an absolute Dem freakout on Capitol Hill. Fun fact: Dems are defending 38 of the 50 most vulnerable House seats, as measured by the Cook Political Report.