Yalman Onaran and Michael McKee, Bloomberg News
It was 2004 and Tim Geithner, president of the Federal Reserve Bank of New York, had a message for the Federal Open Market Committee in Washington. He told his 18 colleagues gathered around the long mahogany table that a clearinghouse was needed to monitor risks in the burgeoning $5 trillion market for credit-default swaps — the over-the-counter derivatives that would later spin out of control and help take down Wall Street.
In a move that may have foreshadowed his role as President Barack Obama’s Treasury secretary, Geithner over the next two years nudged financial firms to voluntarily clear a backlog of swap trades. They stopped short of creating a clearinghouse to bring more transparency to the market.
“Geithner was making noise on reining in derivatives, but he didn’t push hard enough,” says Jane D’Arista, a former economist at the Congressional Budget Office in Washington and a longtime Fed observer. “Maybe he’ll be more forceful now that he’s in a position with real power. But I’m not so sure.”
From his years as a Dartmouth College student and mid-level Treasury official through his stint at the New York Fed, Geithner, 47, has thrived as a backroom negotiator and conciliator. Now, as he struggles to rescue Wall Street from a crisis that happened on his regulatory watch, investors and economists question whether the 75th Treasury secretary can transform himself into a bold leader equal to the challenges ahead.
Wall Street executives have cheered Geithner’s nomination.
“Treasury Secretary Geithner possesses the intelligence and experience needed to partner with President Obama and his economic team to lead us to a recovery,” says Robert Wolf, head of UBS AG’s Americas unit based in Stamford, Connecticut.
The rookie secretary has already learned that the honeymoon won’t last long. After Geithner presented a $2.5 trillion financial rescue plan on Feb. 10, the Dow Jones Industrials tumbled 4.6 percent because investors found it bereft of details. Geithner also gave no indication that he would act quickly to dismantle the weakest of the banks, a move that Joseph Mason, a former bank regulator who teaches finance at Louisiana State University, says he should take now.
Japan prolonged its credit crunch and recession for almost a decade before it finally nationalized two of its biggest banks, the Long-Term Credit Bank of Japan and Nippon Credit Bank, in 1998.
“The key to all our problems is the zombie banks,” Mason says. “We’re giving them money, which is not going to solve anything. We’re repeating the mistakes of Japan, which wasted a decade by not moving decisively against its zombie banks.”
No Treasury secretary since Henry Morgenthau, who served from 1934 to ‘45 under President Franklin D. Roosevelt, has faced so many crises at once. After receiving $800 billion in loans, guarantees and capital injections since October, the financial industry is still hunkered down, unwilling or unable to put the wind back into the sails of capitalism. Geithner played a role in shaping the $787 billion stimulus plan, and now he and Lawrence Summers, head of the National Economic Council, must recommend to President Obama whether to give General Motors Corp. and Chrysler LLC an additional $14 billion in loans on top of the $17.4 billion Bush administration bailout or force them into bankruptcy. At the White House, the new Treasury secretary may have to compete for the president’s attention with Summers, his former mentor, and Paul Volcker, who has been clamoring for more power as chairman of the Economic Recovery Advisory Board.
Geithner’s strengths — his methodical style and bureaucratic savvy — were honed over 21 years in government, as he dealt with crises from Asia to New York.
“He really understands process and decision making and how to advance an agenda,” says Michael Froman, who was former Treasury Secretary Robert Rubin’s chief of staff. “Some people are just better at it than others, not just having the big idea but breaking it down into the several dozen steps that need to make it work. That’s Tim.”
The Treasury secretary’s experience at the New York Fed from 2003 to ‘08 gave him an inside view of Wall Street that will help him choose the best remedies for today’s crisis, says Alex Pollock, resident fellow at the American Enterprise Institute in Washington and a former president of the Chicago Federal Home Loan Bank. “He’s very well qualified,” Pollock says.
‘He’s Not Change’
The Nation was kind enough to include one of my essays in their latest book, Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover. Obviously, the book is extremely timely and the other essays are awesome, so I highly recommend you purchase it. The Nation is a rare jewel: a highly-regarded, liberal source of news that pays freelancers well, and doesn’t shy away from provocative thoughts and sometimes naughty language (meaning my writing style).
My essay is called “Youth Surviving Subprime,” and it addresses how the subprime crisis is affecting our country’s youths, and how the shady lending practices resemble predatory tuition loans sometimes issued to students. The subprime mess is a generational problem, and I felt youths were underrepresented in the media’s discussion of the crisis. Hence, the article.
Support The Nation and independent media, and purchase this excellent book.
America’s economy is in meltdown. Banks have failed, foreclosures are sweeping the housing market, and stocks have suffered their worst losses since the Great Depression. Faced with a complex and spiraling crisis, the government has poured billions of taxpayer cash into a bailout with no end in sight.At every step of the way, The Nation, America’s oldest weekly magazine, has tackled the most urgent questions facing the nation’s leaders and its citizens with clarity and insight. Meltdown draws together nearly twenty years of the best of their coverage of the financial crisis and explores what steps President Obama and his new administration must take to ensure a more secure future for everyone.
Other contributors include:
- William Greider on Alan Greenspan’s flawed ideology
- Robert Sherrill on why the bubble popped
- Thomas Frank on the rise of market populism
- Christopher Hayes on the coming foreclosure tsunami
- Barbara Ehrenreich on the implosion of capitalism
- Kai Wright on how the subprime crisis is bankrupting black America
- Naomi Klein on Bush’s final pillage
- Joseph E. Stiglitz on Henry Paulson’s shell game
- Jesse Jackson on trickle-down economics
- Katrina vanden Heuvel and Eric Schlosser on why America needs a New New Deal
The government’s $700 billion bailout plan is in the hands of this man. Neel Kashkari, a relatively green assistant secretary in the Treasury department, will be responsible for the government’s purchasing of billions of dollars of bad assets from banks and other financial agencies. His career has been a short one.
• Kashkari grew up in Stow, Ohio, an Akron suburb. As a high school student, he was a fan of heavy metal bands like AC/DC, whose lyrics dot his high school yearbook. He is 35 years old.
• He comes from a family of scientists. Father Chaman has a doctorate in engineering, and won a Presidential award for his work in getting water to African villages. Kashkari’s mother, Sheila, is a retired pathologist, and his sister Meera, specializes in infectious diseases.
• Accordingly, Kashkari also studied science, getting his masters in engineering from the University of Illinois, Urbana-Champaign
• He and his wife Minal live in Silver Spring, Maryland, with their dog Winslow.
• Neel’s first job was as an aerospace engineer at TRW, where he worked on technology for NASA projects such as the Webb Space Telescope, which is due to replace the Hubble.
• He decided to change careers and go to Wharton Business School at the University of Pennsylvania. After getting his MBA, Kashkari joined Goldman Sachs in San Francisco, specializing in IT security.
• He followed former Goldman Sachs CEO Henry Paulson to the Treasury Department, where he was hired as a senior adviser in 2006. In short order, he was assigned to work on the department’s response to the housing crisis, during which time he grew close to Paulson.
“Neel Kashkari is not going to be in Washington much longer if there’s a change in administrations. And that’ll cause some kind of turbulence.”—Madeline Brand, of National Public Radio, on the fact that Kashkari might have to leave after only a few months on the job, Oct. 6, 2008
“When he does anything, if you ask him to make an electric car or ask him to plan an outing to Niagara Falls, he is so meticulous.”—Chaman Kashkari, father, USA Today, October 6, 2008
“I’m a free-market Republican.”—Kashkari, at an American Enterprise Institute conference, Sept. 19, 2008
Oh really? And yet he couldn’t wait for big daddy government to swoop in and stuff his pockets with taxpayer cash when the free market failed. In a rare display of testicles, Congress absolutely tore into Kashkari, but Dennis Kucinich positively MVPed it. Now, if only they would back-up the tough talk with some serious oversight.