Friday, November 21, 2008

Early Thoughts on Tim Geithner at Treasury

New York Fed president Tim Geithner has been chosen to lead Obama’s Treasury, according to news reports. The stock market cheered by rising 500 points on the announcement.

Geithner is generally well regarded on Wall Street in his handling of the banking crisis. He’s been the point man for both the Fed’s Ben Bernanke and Bush Treasury man Paulson in their various rescue efforts to deal with the ongoing credit crisis.

It is generally believed that Geithner would have bailed out Lehman Brothers, according to street gossip and some news speculations (although this has never been definitively confirmed). Nonetheless, Geithner has done a good job in dealing with the multitude of crises and setting up various lending facilities to keep the banking system afloat.

He was a protégé of Larry Summers in the Clinton Treasury and rose up through the ranks to become undersecretary for international affairs. Geithner collaborated closely with Robert Rubin and Summers in dealing with the Asian currency crisis and other fire drills in the late 1990s.

He is highly regarded by those who worked with him as a very smart, sharp, and insightful player. He has developed a strong working knowledge of markets and the economy as a central figure in the dramatic events of the past couple of years.

Presumably, as a former deputy to Rubin and Summers, Geithner shares their policy views on free-trade and a strong dollar. While it is too soon to know how trade and the dollar will play out in the Obama administration, it is likely that Geithner would represent a free-trade and strong-currency position.

Regarding tax policy, it is harder to say. When Bill Clinton finally signed a Republican capital-gains tax cut in 1997, it was reported that Rubin and Summers opposed the move. But I don’t know that with any certainty. And Geithner’s thinking on Obama tax policy — especially the threat to raise the capital-gains tax and upper-income tax brackets — is at this point unknown.

As for the TARP bailout story, it is generally believed that Geithner is a strong interventionist. And so we can expect him to move toward raising the second $350 billion tranche of the originally authorized $700 billion package by Congress.

Certainly, Geithner’s announcement today shows some movement by team Obama to fill the economic power vacuum that has taken over Washington during the transition. Stock market traders are cheering this movement. Nobody knows what Geithner might say about the GM/Detroit/carmakers bailout story. But Congress may actually take action on that in a couple of weeks — even before Obama is inaugurated.

It is interesting that Obama chose Geithner over Larry Summers and other names like Paul Volcker. Geithner is a young guy at 47 years old. And to the country at large and most of the Washington political establishment, he’s a new face.

Yes indeed, change is coming.