Standing side-by-side with Treasury Secretary Tim Geithner yesterday in the White House, President Obama announced his successor and lavished praise on the incumbent. “When the history books are written,” he said, “Tim Geithner is going to go down as one of our finest secretaries of the Treasury.”
Certainly he’ll be among the most consequential. Presumably no secretary will ever outdo Alexander Hamilton as a world-historical figure, but by contemporary standards Geithner stands out as a colossus. The 20th-century trend in Washington was to multiply key economic policy jobs—an Office of Management and Budget director here, a Department of Labor there. How about a Council of Economic Advisers? Why not a U.S. Trade Representative. Can you really do without a National Economic Council? And don’t forget the Federal Reserve Board. Yet Geithner established himself definitively as the key Obama policymaker on all matters economic.
It’s a result few would have forecast after his first few months in Washington. Called in from the presidency of the New York Federal Reserve Bank for his expertise in financial crisis management, Geithner was initially the lowest-profile member of the economic team. He lacked the sterling academic reputations of CEA chair Christina Romer and National Economic Council director Larry Summers, or the D.C. profiles of Summers or OMB director Gene Sperling. Nor was he a longtime confidante of the president. They’d never met during Obama’s stint in the Senate, and he played no role in the presidential campaign or the broader universe of aughts-era Democratic Party politics. And in the early months it showed. Geithner was unsteady in his public appearances, and his team was an awkward blend of N.Y. Fed people who didn’t know Washington, and D.C. operatives who didn’t know him.
But what looked initially like an error by a rookie president turned into a triumph. Geithner outlasted Summers and Romer, along with three chiefs of staff and two defense secretaries. And unlike Hillary Clinton, he became not just the head of a major government agency but a real adviser to the president—part of the inner circle of decision-makers.
Yet the president’s faith in Geithner has often baffled the administration’s own supporters. Geithner’s previous work at the New York Fed deeply involved him with unpopular initiatives such as the initial design of TARP and the bailout of AIG that it would have been wiser for Obama to distance himself from. On bank regulation, Geithner managed to completely alienate Wall Street with his steady advocacy for Dodd-Frank reforms even while utterly disappointing reformers by resisting any proposals to reduce bank size or fundamentally transform how the financial sector works.
It’s an outcome Geithner himself would be unsurprised by. In various encounters over the years, he’s invariably stood out for his genuinely funny but very dark humor and keen sense of irony. He’s a man who strongly believes there’s a tension between doing the right thing and doing the popular thing. He rarely seems interested in the deep questions or the truly long-term perspective. In his world view, there are inevitably financial and political crises, and the chief mission of the policymaker to put out the fires so people can go on with their lives.
The apotheosis of his approach was the bank “stress tests” of early 2009 that, combined with TARP and Federal Reserve action, were remarkably successful at stanching the bleeding in the financial sector. To critics, this laying-on of hands and provision of federal blessing has merely papered over the underlying dysfunction and left us with a financial system that still nobody trusts. To supporters, the key point is that it worked relatively quickly and effectively. A more thoroughgoing program of bank nationalization, recapitalization, and overhaul would have required hundreds of billions in additional appropriations and sucked all the oxygen out of a Congress that was working on an ambitious legislative agenda around health care and stimulus. Geithner wasn’t deeply involved in the Obama health care overhaul, but his ability to patch the banks up without going back to Congress for new money and new legal authority made it possible.
At the same time, the Treasury Department’s management of various foreclosure mitigation and loan modification programs has basically been a disaster. It is universally acknowledged that was has been done has failed: The disagreement here is about whether Geithner had better options available to him. The consequences rattle down to this day, as seen in the latest foreclosure fraud settlement that’s more about papering over past regulatory failures than delivering help to those who really need it. In recent years, he’s emphasized congressional constraints as a limit on fiscal stimulus, but during the Democratic-controlled 111th congress his orientation toward financial markets made him an internal proponent of Obama’s premature pivot to deficit reduction.
But if the Geithner legacy looks bad compared to a hypothetical world of aggressive bank reform, wildly successful foreclosure relief, catch-up growth, and full employment, it looks pretty good compared to the alternatives. Joe Weisenthal observes that relative to other historical examples of financial crises, America’s recovery has been swift and strong. Looking around the world, the American economy has fared much better than the United Kingdom, Japan, or the eurozone. In a world of constraints and tradeoffs, we’ve made some pretty savvy moves.
Perhaps the best verdict on his tenure was delivered by the man himself. Speaking to The New Yorker’s John Cassidy, he observed that policymakers screw up financial crises “because the politics are terrible” so they end up “slow and tentative and weak.” Geithner’s succeeded compared to peers around the world precisely by being faster, more decisive, and stronger in his interventions. But not always as fast, strong, or decisive as he should have been.