The Geithner Appointment

November 24, 2008

News that President-Elect Obama will reportedly appoint Tim Geithner, New York Fed President, to be Treasury Secretary has received very favorable reviews for the most part. Geithner has good relationships with Obama, Henry Paulson, Ben Bernanke, Henry Kissenger, Robert Rubin, and Larry Summers. His specialty is crisis management. Geithner represents continuity and will not need any on-the-job training to understand what has been done to address the financial crisis up to this point. He has a worldly background. His father worked for the U.S. Agency for International Development and then the Ford Foundation, and the family lived mostly abroad when Geithner was growing up — places like New Delhi, Bangkok, and East Africa. He spent two summers in Beijing and did a stint as Treasury attache to Japan. Geithner was educated at Dartmouth like his predecessor Paulson. He majored there in political science and Asian studies, not economics, and then earned a masters at John Hopkins School of Advanced International Studies, concentrating in international economics and Japanese. He also knows Chinese. His professional career took him to Kissinger Associates for three years, the Treasury Department for 13 years where he advanced rapidly through numerous assignments to the rank of Under Secretary for International Affairs, six months at the International Economic Council for Foreign Relations, two years at the IMF as Director of Policy Development and Review, and finally president of the New York Federal Reserve Bank, a post also once held by Paul Volcker. Geithner is praised for his intelligence and cool under fire. He has impressed seniors like Larry Summers, who does not suffer fools lightly. Reportedly, he has been selected for Treasury Secretary over his former boss and former Treasury Secretary Summers mainly because of his lower disapproval ratings and better peoples skills.

Geithner’s international credentials and broad earlier experience at the Treasury Department give him a sophistication in foreign exchange policymaking that many previous Treasury Secretaries lacked. We should not see a repeat of the rookie gaffes made by Paul O’neill,  Lloyd Bentsen, or Michael Bloomenthal, each of whom sent the dollar reeling will careless or undiplomatic remarks about currency management.

So what’s not to like? He never worked at a commercial bank or investment bank and thus lacks the private-sector portfolio management experience that Robert Rubin brought to the job. He didn’t do Ph.D. graduate work in economics like Summers and thus lacks the runner-up’s theoretical foundation. It is said that Summers will join the Administration too, as a top White House economic advisor. The point is that base is adequately covered, but is it really? Having one’s mentor around at such a high level can get in the way. Lloyd Bentsen was not as effective a Treasury Secretary for Clinton with Rubin as a special advisor. The job was handled more effectively when Rubin was promoted to the top job at Treasury. Baker become a better Treasury Secretary than Regan when the two men swapped jobs in 1985. William Rogers as Secretary of State was overshadowed by National Security Advisor Henry Kissinger. And that plot was repeated when Zbig Brzezinski became the go-to guy instead of Secretary of State Cyrus Vance under Carter.  Most recently, a similar scenario played out with Condi Rice and Colin Powell. When there are multiple senior personalities handling a similar responsibility, one of them generally emerges on top. When that person is not a cabinet official, tensions develop that get in the way of policy governance.

The biggest issue to be concerned about in this appointment is that Geithner played an integral role in most of the key government decisions in the credit crisis, some of which like the different handling of Bear Stearns, AIG and Lehman, that clearly backfired. Is continuity such a virtue when the choices taken up to this point have been controversial and subject to considerable second guessing? We’re about to find out the answer.



2 Responses to “The Geithner Appointment”

  1. Morrision says:

    I am appalled that the failure to pay self-employment tax by Tim Geithner on his 2001-2004 tax returns would be explained away as an “honest mistake”, and that the Obama administration would continue to support Mr. Geithner as the nominee for Treasury Secretary. Employees of international organizations are briefed on their tax responsibilities, including the requirement that US citizens pay self-employment tax. Employees of international organizations receive special tax treatment as the result of international treaties, and the employees are well-informed that they are being taxed under a different tax regime as a result of working for an international organization.
    Mr. Geithner did not pay the self-employment taxes for 2001 through 2004, but of even greater concern is the fact that he did not correct 2001 and 2002 when his 2003 and 2004 returns were audited in 2006. At that point, he could certainly no longer feign ignorance. In fact, he did not correct his “honest mistake” until after his nomination to serve as Treasury Secretary, thus negating any possible argument that he was “not aware” that he owed self-employment taxes for 2001 and 2002 since he had already been audited on that exact point.
    For an administration that prides itself on transparency and high moral and ethical standards, I am truly disappointed that Obama spokesman Robert Gibbs has come out with an official statement of the Obama administration indicating that this “honest mistake” does not rise to the level of disqualification. To the contrary, I think that the fact that he most assuredly was aware that he owed self-employment taxes during the course of his employment with the IMF, and absolutely knew from 2006 after his audit yet failed to correct the prior year returns, is more accurately referred to as cheating on his taxes rather than making an honest mistake. His failure to correct 2001 and 2002 after the audit of 2003 and 2004 reflects an attitude of arrogance and being above the law which is not acceptable.
    Regardless of his experience and ability to serve as Treasury Secretary, I firmly believe that this failure to pay self-employment taxes, even after the audit when there was no doubt of his awareness of his legal obligation to do so, should eliminate him from consideration. To allow him to continue as the nominee under these circumstances is a slap in the face to all Americans who honestly report their income and pay the tax due.

  2. […] by his failure to pay self-employment taxes on time in the past. A comment posted today to my initial assessment of the Geithner choice by a reader showing knowledge on such tax matters makes a compelling case for rejecting […]