For Treasury Post, Geithner Is Leader Schooled in Crisis
Saturday, November 22, 2008
On the evening of Friday, Sept. 12, Timothy F. Geithner gathered 20 Wall Street executives in a conference room at the Federal Reserve Bank of New York.
Treasury Secretary Henry M. Paulson Jr. began the session, according to sources familiar with the meeting. Standing up, his voice boomed. Lehman Brothers was on the brink of failure, he said, and the government would not save it.
Next up was Geithner, president of the New York Fed. He remained seated and spoke more quietly, staring the executives in the eyes, according to the sources. The Fed had developed plans to deal with the failure of Lehman, he said, and wasn't afraid to use them.
Geithner is now expected to be President-elect Barack Obama's nominee as Treasury secretary, and the episode two months ago highlights the leadership style he would likely to bring to Washington as Paulson's successor. He is intense, but collaborative. He is deeply versed in the government's response to the financial crisis so far, but bears part of the responsibility for its failures.
In his five years at the New York Fed, Geithner has immersed himself in the arcana of complex financial instruments that are the root of the economy's malaise and engaged in subtle and not-so-subtle arm-twisting of executives in an effort to contain the crisis. If nominated and confirmed, he would have even broader responsibility for the economy.
Geithner has a boyish face that belies his 47 years, and in meetings sometimes puts his knees up on the conference room table. After a recent White House meeting to discuss the financial crisis, President Bush asked an aide who had brought the intern. According to sources who recounted the incident, Bush was referring to Geithner, who happened to be in town.
But while he'd be young compared with most of his predecessors at the Treasury, Geithner is deeply schooled in responding to financial crises. Before becoming the Federal Reserve's chief emissary to Wall Street in 2003, he helped manage the international crises of the 1990s as a senior official in the Clinton Treasury Department.
Since the latest crisis began in August 2007, Geithner has been a strong advocate within the Fed for more extensive action to try to contain it. This year, he aggressively advocated cutting interest rates to try to protect the economy and led the creation of a wide range of policy tools in an effort to stabilize the banking system. At the time, presidents of many of the Federal Reserve's regional banks wanted to stop cutting rates, for fear of inflation, and were wary of the new tools Geithner and his team were creating.
For the Obama administration, Geithner's appointment would offer a sense of continuity at Treasury. He has, after all, worked closely with Paulson and Fed chairman Ben S. Bernanke. But with continuity comes baggage.
As president of the New York Fed -- one of 12 regional outposts that regulate banks and help set the nation's monetary policy -- Geithner has been the central bank's chief emissary to Wall Street as it has disintegrated. In speeches during the years leading up to the crisis, Geithner repeatedly raised concerns about frailties in the financial system -- pointing out, for example, weaknesses in the settlement and clearing systems by which financial transactions occur and the absence of oversight in the market for obscure financial products known as derivatives.
But many of those speeches ultimately concluded with Geithner suggesting the financial system was becoming more stable rather than less. He did not wage aggressive campaigns on Wall Street or Capitol Hill to step up regulation.
"The changes in credit markets that have accompanied the latest wave of innovation in derivatives and the large role played by leveraged financial institutions in those markets may exacerbate some of the traditional sources of challenges in financial markets," Geithner said in a 2006 speech in Hong Kong. But, he continued, "On balance, we believe these changes in the financial environment are likely to come with substantial benefits in terms of overall market efficiency."
In fact, derivatives and leveraged financial institutions have been major reasons for the financial crisis, which is the most severe since the Great Depression.
Geithner is a Dartmouth College graduate and has a master's degree from Johns Hopkins School of Advanced International Studies. He lives in Westchester County, N.Y., with his wife and two young children, and is an avid tennis player and fly fisherman.
He was a career staffer in the international affairs division of the Treasury Department in the early 1990s when then-undersecretary Lawrence H. Summers noticed and promoted him. By the end of the Clinton administration, Summers was Treasury secretary and Geithner was an undersecretary. Now, Obama is apparently passing over Summers for his onetime protege, though Summers is also said to be returning to government as a White House adviser.
In congressional testimony following the March rescue of Bear Stearns, Geithner and other officials faced tough questions about their actions. An angry Sen. Jim Bunning (R-Ky.) demanded to know how the financial system became so fragile. The chairman of the Fed, a Treasury undersecretary and the chairman of the Securities and Exchange Commission sat silently.
Geithner responded: "What produced this is a very complicated mix of factors. I don't think anybody understands it yet. But we have to spend a lot of time and effort trying to figure out how to get a better handle on this sort of stuff . . . because it's very important that we try to figure out a way to make this system less vulnerable to this in the future."