The New York Times, in a story about the sudden, somewhat shocking ascendance in the Obama orbit of the long-ignored Paul Volcker, gives voice to speculation that Tim Geithner’s power is on the wane and that he may not “be long for the Obama world,” something Henry Blodget says is likely (and which I called earlier this week).
It quotes him as sort of backhandedly on board with the president’s new tack:
Yet Mr. Geithner, in an interview, said he foresaw no problems.
“Just because things seem populist doesn’t mean they’re not the right thing to do,” he said.
But Reuters quoted “financial industry sources” saying that Geithner was not quite so on board with the Volcker plan:
The sources, speaking anonymously because Geithner has not spoken publicly about his reservations, said the Treasury chief is concerned the proposed limits on big banks’ trading and size could impact U.S. firms’ global competitiveness.
He also has concerns that limits on proprietary trading do not necessarily get at the root of the problems and excesses that fueled the recent financial meltdown, the sources said.
Now, that sounds more like the Geithner we know, toeing the Wall Street line.
The question for political reporters—and it’s a critical one—is which version of the story contains more truth? To determine that we need a timeline of events. The Times provides a vague one here, saying the plan had “been in the works for some time.”
But just because a plan has been in the works doesn’t mean it was going to be implemented. Was Obama’s sudden, sharp turn a quick and expedient reaction to his party’s astonishing loss in Massachusetts two days earlier—an epiphany that the public is teetotally pissed off at Wall Street and the politicians who’ve bailed them out without reining them in? Or was this part of the plan all along: Stabilize the financial sector before proposing any radical changes?
Answering that question would go a long way toward understanding what might happen over the next year. If Volcker is really on the rise and Wall Street’s pals Summers and Geithner are on the way down or out, it will have critical financial (and economic) policy implications.
And if you ask me, it will have political implications, too: Beneficial ones for the Democrats.
The Washington Post is on this angle today. Its answer: Geithner’s power is in decline. It says explicitly that he was “overruled” here:
Industry officials, however, said they were startled and disheartened that Geithner was overruled, in part because they supported the more moderate approach Geithner proposed last year.
And here’s some timeline on Volcker’s rise, although the sourcing is poorly disclosed here (emphasis mine):
His ideas began gaining traction within the administration in late October, when the president convened a meeting of his senior economic advisers in the Oval Office to hear a detailed presentation by the former Fed chairman.
There was no immediate change of course. But after the House passed a regulatory reform bill on Dec. 11 that was largely based on the Geithner’s vision, the administration began to warm to Volcker’s ideas, which had the political value of seeming tough on Wall Street, said sources in contact with the Treasury and White House.
But I don’t really buy that, and you shouldn’t either. Here’s what Volcker told Charlie Rose in BusinessWeek three weeks ago:
(ROSE) So why haven’t your views prevailed with the Administration?
(VOLCKER) I wasn’t persuasive enough.
How many meetings have you had with the President about this?
Not very many but…the President has heard my arguments a number of times.
Has he heard them one on one, where you’ve had an opportunity to say “This, Mr. President, is why you need to make sure that commercial banks…”
That’s not the way the process works.
But do you feel like you have had sufficient opportunity with the President to make your case?
Well, what’s sufficient? He’s the President. He decides.
Now, does that sound like somebody whose ideas have suddenly been warmed up to by the president?
We need a nice, long tick-tock to take us inside the White House financial and economic policy team—and Obama’s thinking—and elucidate the shifting power structure there, including Larry Summers’s station.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.