Geithner’s role in the unfolding scandal around the London interbank offered rate, or Libor, centers on whether he responded aggressively enough in 2008 after he learned of potential rate-fixing while serving as head of the Federal Reserve Bank of New York. The Libor is a benchmark for hundreds of trillions of dollars worth of credit cards, mortgages, student loans and financial securities.
At the hearing, Geithner stuck to a defense he expressed last week — that once he learned of the manipulation, he sounded alarms to British and U.S. regulators.
“We brought those concerns to their attention and we felt, and I still believe this, that it was really going to be on them to take responsibility for fixing this,” he told the House Financial Services Committee.
But Republicans hammered Geithner about why he did not inform lawmakers during numerous congressional hearings or in the lengthy debate over Wall Street regulation. Rep. Jeb Hensarling (Tex.) charged that Geithner treated the Libor manipulation “as a curiosity, or something akin to jaywalking, as opposed to highway robbery.”
Other GOP members noted that even though Geithner knew of possible rate-fixing, the Federal Reserve still used Libor in several financial rescue programs.
“We were in the position of investors all around the world,” Geithner responded. “We had to make a choice about what was the best rate. It was a rate that was vulnerable to manipulation, but we tried to initiate reform with the British.”
The scene, at times combative, thrust the soft-spoken Geithner into the familiar role of political punching bag with just months left in his tenure, which he said will end after Obama’s first term, whether or not the president is reelected. Among the most partisan activists on the right and left, Geithner has been accused of too aggressively regulating Wall Street and for being too lax on big banks.
The Libor scandal, which exploded last month after the British banking giant Barclays agreed to a $450 million settlement with regulators, has allowed Geithner’s longtime critics to renew their gripes over the Obama administration’s response to the global economic crisis.
Yet even as the president’s antagonists on the Hill attempted to make political hay of the situation, the White House responded forcefully, as it has each time Geithner has come under fire. During an election season focused on Obama’s handling of the economy, White House officials said they welcomed a debate over how the administration has dealt with the banking industry.
“It’s ironic that Republicans are jumping on this,” White House press secretary Jay Carney said. “They continue to fight alongside lobbyists for Wall Street to undo, repeal or water down Wall Street reforms.”
Of the Libor scandal, Carney added that Geithner “took aggressive action on this issue and also made recommendations to our United Kingdom counterparts.”
Geithner has been down this road before. Many liberals view his past service leading the New York Fed at the time of the 2008 Wall Street bailout with deep suspicion. Sen. Bernie Sanders (I-Vt.) started a petition drive aimed at Geithner, accusing the Treasury secretary of not supporting legislation that would break up the biggest banks. As of Wednesday afternoon, more than 230,000 people had endorsed the petition.
Conservatives have been just as critical. Rep. E. Scott Garrett (R-N.J.), a senior member of the Financial Services Committee, blamed Geithner for siding with Obama’s political team in crafting the stimulus package and the Dodd-Frank law that governs financial markets.
“Democrats look at him as part of the Bush era. Republicans look at him as an Obama guy,” said Rep. Peter T. King (R-N.Y.). But, he added, Geithner “is the classic example of someone who has a constituency of one: He has the president.”
Last summer, Obama famously asked Geithner to serve out the administration’s first term when the Treasury secretary was considering resigning. Geithner agreed, only to be in the cross hairs again during the debt-ceiling standoff that resulted in the nation’s first-ever credit rating downgrade.
Political analysts said they doubted that Obama would suffer a major political hit from Geithner’s latest confrontation on Capitol Hill, with liberals not wanting to create a breach with the White House in an election year. Rep. Barney Frank (D-Mass.) vigorously defended Geithner at Wednesday’s hearing.
Republicans, meanwhile, will not want to pick a fight over financial reform at a time when Obama continues to push for additional Wall Street regulations, analysts said.
Brookings Institution fellow William Galston, a policy adviser in the Clinton administration, said: “Whether you look from the standpoint of the left or the standpoint of the right, they are limited in how they can exploit it.”
That won’t stop some lawmakers from trying. Geithner is due to testify before the Senate on Thursday.
Paul Kane and Amy Gardner contributed to this report.