Is Tim Geithner, Barack Obama’s choice to succeed Hank Paulson at Treasury, worth 500 points on the Dow? So it seems. No surprise say the professional traders: Markets hate uncertainty, and by making up his mind about this key economic post, Obama has removed a great deal of uncertainty. Plausible, but not persuasive. One thing was certain since the day Barack Obama became our president-elect. Someone would replace Paulson, and that person would implement the Obama agenda. Whether that person turned out to be Paul Volcker, Larry Summers, Timothy Geithner or some reincarnation of Adam Smith, that person would be an implementer of policy. Yes, he–no plausible “she” was ever in the frame–would also be a key adviser to the new president. But would the advice of Larry Summers be very different from that of his long-time buddy, Geithner? Not likely. So where was the uncertainty that was dispelled by the naming of the new secretary of the Treasury? Also, just what uncertainty has been eliminated? We knew no more about Obama’s plans and priorities on Friday afternoon, after the Geithner appointment was announced, than we did that morning. There will be a stimulus package of undetermined amount, there will be a GM bailout containing undetermined conditions, there will some day be an end to the secret ballot in union elections but we have no idea when–all known for some time. No uncertainty eliminated, no certainty substituted for the vagueness that has so far been the Obama hallmark. The real significance of the market pop on the Geithner announcement is that we are shifting, at least for now and for the foreseeable future, from a market-driven economy to a government-policy driven economy. When Hank Paulson announced that he had changed his mind and would not buy the rotten IOUs that litter bank balance sheets, the market tanked. Nothing about the prospect for the economy changed–earnings will be whatever they will be in this recession, so will unemployment and other variables. Only policy changed. So, too, on Friday. The economy was in as bad shape in the afternoon as it was in the morning. But a new policy player was inserted into the game. It didn’t take a genius to understand Paulson when he said that he would put the remaining $350 billion into a lockbox, to be opened by his successor–or sooner, with the blessing of that successor. Nor did it take a genius to figure out that this weekend’s deliberations about what to do about the sinking ship that is Citigroup–some wags are suggesting that CEO Vikram Pandit ask for a bailout by cash-rich Somali pirates who undoubtedly would like to move from their Mafia-like existence to financial respectability as the Corleones did when they shifted to Las Vegas–would now include Geithner as the “decider”, rather than merely as an advisor. In short, policymaking changed on Friday afternoon, and the market likes what it thinks is the new direction more than it likes Paulson’s recent moves. The economy is no different. Obama might have intended to keep his hands off policy until he is inaugurated so as to distance himself from the Bush administration. But the policy-driven economy waits for no man, not even one who claims to be able to cool the planet and turn back the flood waters. We are now in an era in which Washington trumps New York. When the economy is creating wealth, Wall Street and Main Street are the centers of the action; Washington has little or nothing to contribute. When attention shifts to redistributing wealth, the center of the action shifts to Pennsylvania Avenue, Capitol Hill and K Street. That’s where it is now.
