Tim Geithner is the subject of two major profiles in recent days. He doesn’t come out so well in either of them.
Today’s New York Times has a deeply researched blowout on Geithner running some 5,400 words—not many of them favorable.
The Times portrays Geithner as inside the bubble inhabited by the people he regulates. It peers into Geithner’s daybook (via a “FOIA”) from his days as president of the New York Federal Reserve and finds he was pretty cozy with Wall Street titans—heading a Sandy Weill-founded nonprofit, palling around with Citigroup executives, dining at a BlackRock founder’s home and then giving his firm three no-bid contracts to help manage the Fed’s assets.
Basically, what the Times is trying to tell readers about Geithner is summed up in one telling quote:
Willem H. Buiter, a professor at the London School of Economics and Political Science who caused a stir at a Fed retreat last year with a paper concluding that the Federal Reserve had been co-opted by the financial industry, said the structure ensured that “Wall Street gets what it wants” in its New York president: “A safe pair of hands, someone who is bright, intelligent, hard-working, but not someone who intends to reform the system root and branch.”
There are no smoking guns here regarding Geithner. There’s no implication of dirty business. The Times doesn’t push things too far. It does well in presenting the facts, which illustrate quite clearly the closeness of the Treasury Secretary to the finance industry. The Times wants us to ask: Is this guy aware enough and strong enough to do the hard things that displease Wall Street?
The answer is pretty clearly “no.”
After all, the Times reports that Geithner was trying to lower capital requirements in May 2007, after clear cracks had already started showing in the financial system in the form of blown-out spreads on credit-default swaps and mortgage instruments.
In a May 15, 2007, speech to the Federal Reserve Bank of Atlanta, Mr. Geithner praised the strength of the nation’s top financial institutions, saying that innovations like derivatives had “improved the capacity to measure and manage risk” and declaring that “the larger global financial institutions are generally stronger in terms of capital relative to risk.”
Two days later, interviews and records show, he lobbied behind the scenes for a plan that a government study said could lead banks to reduce the amount of capital they kept on hand.
While that’s two years ago and before the extent of the crisis became clear, it’s a pretty tough blow the
Times lands. And it makes FDIC Chairwoman Sheila Bair look good—again.
At the Federal Deposit Insurance Corporation, which insures bank deposits, the chairwoman, Sheila C. Bair, argued that the new standards were tantamount to letting the banks set their own capital levels. Taxpayers, she warned, could be left “holding the bag” in a downturn. But Mr. Geithner believed that the standards would make the banks more sensitive to risk, Mr. Dugan recalled. The standards were adopted but have yet to go into effect.
Finally, the Times reports that Weil discussed offering the Citigroup CEO job to Geithner in 2007. Geithner apparently did the right thing and recused himself from Citi discussions while this was being bandied about. But again, there’s no hint of outright corruption here. It’s the question of a regulator maintaining an arm’s-length from those he regulated so as not to become overly influenced by them, colored by their views or sympathetic to them as friends.
The Times neatly folds this too-closeness into the view of Geithner’s critics that his bailouts have been far too generous to Wall Street.
The other major Geithner profile is the cover story of Portfolio’s new issue, apparently its last. Gary Weiss hits on the “captured by Wall Street” worldview.
The whispers continue: Is Tim Geithner nothing more than Henry Paulson Lite, a creature of Wall Street but without the Goldman-Sachs-CEO financial chops?
But Weiss takes a different tack, too, reporting that Geithner basically is in way over his head.
There are reports of ignorance:
In the Q&A session that followed Geithner’s speech, Whalen asked a question about a topic that remains pertinent today—the 2004 Basel II accords, which set new global bank-capital standards. Whalen pointed out that one of the objectives of Basel II “was to actually grind the particular risk exposures”—that is, to require lenders to compute the probability of their borrowers’ defaulting on loans. “But banks said, ‘Oh, no, this is too expensive. You can’t do that.’ It didn’t fit with the quant, credit-derivative worldview,” Whalen said. It didn’t happen.
“I said, ‘Tim, isn’t this backsliding?’”
Geithner fixed Whalen with a vacant gaze and simply moved to another questioner, mumbling that he wasn’t prepared to answer the question.