Geithner is spelled P-a-u-l-s-o-n
By: John Berlau, OpEd Writer
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December 18, 2008
President-Elect Barack Obama has received surprising praise from some conservatives for his economic team. After running a successful populist campaign against Wall Street and financiers, Obama has chosen to staff his administration with centrists, a few of whom championed some of the very policies of tax cuts and financial deregulation for which Obama's supporters on the Left castigated Republicans.
Obama indeed deserves praise for most of these choices, such as former Treasury Secretary Larry Summers and economic historian Christina Romer, both distinguished Center-Left thinkers.
However, principled conservatives and liberals should take strong exception to Obama's selection of Timothy F. Geithner, president of the Federal Reserve Bank of New York, to be the new Secretary of Treasury.
It's not a case of Geithner being too liberal; there are choices to the Left of Geithner that would not be cause for the specific concerns his nomination raises. Rather, the problem with Geithner is that appointing him appears to be scarcely different from reappointing Treasury Secretary Henry Paulson.
Based on his orchestration of much of this year's financial bailouts in his current post, Geithner would be "more of the same" of the worst aspects of the Bush administration — more bailouts, more lack of transparency in the bailouts, and more corporate welfare.
As head of the New York Fed, Geithner has been, in The Washington Post's words "a primary architect of the Bush administration's response to the financial crisis," and "has worked closely with [Paulson]to devise responses to the most critical events of the market turmoil."
Other than organizing bailouts, however, Geithner's resume is quite thin compared to that of others who have held the office for which he has been nominated. As liberal columnist Robert Kuttner noted recently in The American Prospect, Geithner "has neither a doctorate in economics nor an M.B.A."
Also, Geithner has never been a corporate leader, nor an economics professor with a trail of published academic papers. Instead, Geithner's career has been almost entirely in the bowels of the bureaucracy. He started at the Treasury Department in 1988 as a career civil servant before being appointed under-secretary of the Treasury for international affairs in 1999.
Geithner would not have even been under consideration had he not come to prominence in circumventing rules to arrange the bailout of Bear Stearns' creditors earlier this year, with $29 billion in backing from U.S taxpayers.
According to accounts from both conservative columnist Robert Novak and the financial magazine Conde Nast Portfolio, Geithner was the main instigator of the bailout, getting Paulson and Fed Chairman Ben Bernanke to sign on to his handiwork.
The Bear deal faced criticism from the Left and Right as both a stretch of the Fed's power and a precedent that spread "moral hazard," thus leading to the further bailouts down the line — bailouts that Geithner would be heavily involved in, working hand-in glove with Paulson.
But in addition to the questionable results of bailouts in saving the economy, also troubling has been the Federal Reserve's lack of openness when it has put taxpayer money on the line, an area where Geithner shares much of the blame.
A recent editorial in The Wall Street Journal noting that "Geithner was the driving force behind the government takeover of insurance giant AIG" also criticized "the New York Fed's lack of transparency, both about the nature of the 'systemic risk' that required the takeover and why it was superior to bankruptcy."
Geithner's judgment has also been questioned with recent reports of alleged favoritism toward Citigroup -- the financial firm where Geithner's mentor, former Treasury Secretary Robert Rubin, serves as a director and senior counselor.
According to a Bloomberg News report, Geithner unsuccessfully pushed for Citi to take over troubled banker Wachovia Corp. with government guarantees of billions of dollars, even after Wells Fargo & Co. offered to take over the company at no cost to taxpayers and a higher price for Wachovia shareholders.
Considering Citi's recent need for a second bailout from the Treasury Department, one can only imagine the additional troubles for the U.S. financial system had it been allowed to take over Wachovia as Geithner desired.
Given that bailouts are just about his only significant policy accomplishment, confirming Geithner without heavy scrutiny would be giving the Bush-Paulson bailouts a free pass. And that would be a blatant dereliction of the Senate's constitutional duty to give President-Elect Obama its best advice and consent.
John Berlau is director of the Center for Entrepreneurship at the Competitive Enterprise Institute and blogs at OpenMarket.org.
