(Wall Street Journal) President-elect Barack Obama is expected to nominate as Treasury Secretary Timothy Geithner, the president of the Federal Reserve Bank of New York and a figure who has been deeply involved in tackling the financial crisis.
Mr. Geithner, 47 years old, would be one of the youngest-ever U.S. Treasury secretaries. His nomination would come as Wall Street is being challenged by the financial crisis and a Washington power vacuum, and as the world’s debt markets show fresh signs of falling into deeper problems.
Mr. Obama is expected to introduce his entire economic team on Monday, according to people familiar with the matter. The president-elect has been under pressure to speed up his transition as stock markets this past week fell to lows not seen since the late 1990s.
On Friday, the Dow Jones Industrial Average jumped on the Geithner news, ending the day 6.5% higher at 8046.42, recouping more than half the week’s losses. Even some financial firms, which had been battered all week, took back some ground, although Citigroup fell another 20% to a 16-year low.
Mr. Geithner served as a Treasury attaché in Japan in the 1990s and later at the International Monetary Fund. He was a protégé of former Treasury Secretaries Lawrence Summers and Robert Rubin. Mr. Summers, who was also a potential candidate, instead is expected to take a position within the White House as an economic adviser.
Mr. Geithner has spent most of his career managing government responses to financial crises, from the 1990s bailouts of Mexico, Indonesia and Korea, to the debt-market meltdown that has brought Wall Street to its knees this year.
Mr. Geithner (pronounced GYTE-ner) pushed for earlier intervention in the financial markets to stem the financial crisis, and looks likely to continue that activist approach in his new job. Among his first priorities could be a large fiscal-stimulus package
The position of Treasury Secretary has grown vastly in importance under its current holder, Henry Paulson, who insisted on a free hand from the White House. In addition to tackling the financial crisis, Mr. Geithner will have to deal with the U.S. relationship with China, the future of mortgage giants Fannie Mae and Freddie Mac and an overhaul of the nation’s financial regulatory infrastructure. He will also be the point man on Mr. Obama’s promises to raise taxes on the affluent and cut taxes for most middle-income families.
But the likely choice appears to have been driven largely by the financial crisis, and Mr. Geithner’s public record on many of the other matters he will be required to grapple with is limited. Unlike previous picks for Treasury secretary, who hailed from Wall Street, industry or the Senate, Mr. Geithner has been a technocrat most of his career.
Mr. Geithner isn’t considered close to Mr. Obama, either, an anomaly for one of the most critical positions in the cabinet.
No Political Contributions
Mr. Geithner has never made a political contribution to any candidate for federal office, according to the Center for Responsive Politics, and has worked for both Republican and Democratic administrations.
Economist Douglas Holtz-Eakin, a senior policy adviser for Sen. John McCain’s presidential bid, said that the Republican, had he won, would also have considered Mr. Geithner for the Treasury post. “I don’t want this to sound demeaning, but he’s an excellent mechanic,” Mr. Holtz-Eakin said. “He knows the nuts and bolts.”
Mr. Geithner gained respect among Wall Street chiefs over the past year for his hands-on role in the credit crisis. For instance, he was instrumental in engineering the government-assisted rescue of Bear Stearns.
The market “was screaming for some semblance of leadership from the new administration,” said New York money manager Michael Holland. “The market is an online voting machine, and it just voted that this was the right choice.”
At the same time, Mr. Holland said, Mr. Geithner’s involvement in battling the market meltdowns might also be a problem, given that he’s been prominent in the effort to fix things already, and “and it still isn’t completely cured.”
Mr. Geithner has worked closely with Federal Reserve Chairman Ben Bernanke throughout the crisis, in many cases to implement the complicated new lending programs the Fed has conceived. The two would be expected to continue to have a close partnership as the credit crunch unfolds.
The current Treasury secretary, Mr. Paulson, has a solid working relationship with the Fed Chairman, but the two often differed by temperament and policy convictions.
Lawmakers, many of whom are disgruntled with the current administration’s handling of the crisis, could present Mr. Geithner with the hard task of proving he’s not going to follow the existing playbook. Other constituencies to be smoothed could include the labor movement, which has expressed unease at a candidate it doesn’t know.
Investors had been unnerved by the reality of a months-long presidential transition amid a financial crisis, raising the specter that months of inaction would worsen an already strained economy.
Mr. Paulson shifted gears last week when he said Treasury would no longer buy distressed assets that are clogging the books of financial institutions. He also indicated he wouldn’t embark on any new programs. Congress, meanwhile, failed to agree on a stimulus package of any kind, or on aid to Detroit’s struggling auto makers.
Another contender for the Treasury job was former Federal Reserve Chairman Paul Volcker.
Mr. Summers had a reputation for being abrasive, cemented by his tumultuous tenure as president of Harvard University. Women’s organizations were lobbying against him, still angry at comments he made in early 2005 suggesting women were innately unsuited for the sciences. Liberal economists were angry over Mr. Summers’s role negotiating the 1999 deregulation of banking and financial services.
In the end, it was Mr. Geithner’s reputation for diplomacy, his familiarity with Wall Street and the respect he commands with Democrats and Republicans alike that tipped the scales, congressional aides suggested.
Already, the backbone of an Obama economic team has emerged. Congressional Budget Office director Peter Orszag will be Mr. Obama’s budget director. Jacob Lew, a former Clinton budget director, will head the White House’s National Economic Council. Jason Furman, the economic policy director of the Obama campaign, is likely to be Mr. Lew’s deputy. And Austan Goolsbee, a University of Chicago economist and long-time policy confidante, is expected to chair the Council of Economic Advisers.
The team represents a re-emergence of more academic economists and technocrats after a Bush administration that elevated aluminum-company and railroad executives to be Treasury secretary.
If confirmed, Mr. Geithner will face a barrage of critical decisions on such things as where to aim the $700 billion rescue fund, whether to ask Congress for more money and how best to structure an economic stimulus package that some CEOs are saying should top $300 billion. His mentors, Messrs. Summers and Rubin, have both said a big stimulus is needed.
Most pressing will be the fate of the Troubled Asset Relief Program, or TARP With Mr. Paulson indicating he doesn’t plan tap the second half of the promised $700 billion, Mr. Geithner will have to determine how quickly he wants to access that money and where he wants to direct the funds.
One Obama adviser said the Treasury nominee will likely back using some of that money for its original purpose, the buying of toxic assets from ailing financial firms, and give more detail on how the incoming administration plans to tackle the falling home prices and rising home foreclosures that are at the root of the crisis.
To access that money, however, he’ll need to soothe ruffled feathers on Capitol Hill. Among other things, lawmakers want to impose conditions on banks that receive government money. They also want to see funds directed toward helping homeowners in danger of foreclosure.
Mr. Geithner will also be wading into a debate over the future of financial regulation. In March, before the financial crisis had even claimed its first major victim, Mr. Geithner attributed the market turmoil to a combination of market forces and incentives created by policy and regulatory decisions. He said the U.S. government needed to make broad changes to its supervisory structure “to address the vulnerabilities in our financial system revealed by this crisis.”
Mr. Geithner was one of the first officials to warn about a financial instrument, known as a credit-default swap, which investors buy to protect against defaults on corporate and other types of debt.