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Geithner Twisting in the Wind

Yesterday, Peter Robinson called for Tim Geithner’s resignation. He was by no means alone in doing so. Indeed, Geithner himself not along ago signaled a desire to move on, but he has not done so, and quite recently he indicated that he will probably stay on well into 2012. President Obama has reportedly asked him to remain. I think I know why.

Back in late September, 2009, Charles Gasparino wrote a column for The New York Post in which he reported that, although they would not admit anything of the sort in public, people like Morgan Stanley’s John Mack, BlackRock’s Larry Fink, Greg Fleming (once at Merrill Lynch), JP Morgan’s Jamie Dimon, and Goldman Sachs’ Lloyd Blankfein – all of whom backed Barack Obama at the time of the financial crisis in the Fall of 2008 –  had come, in private, to express grave misgivings regarding the President’s policies. Even more to the point, he added,

I’m told that Treasury Secretary Tim Geithner and chief economic adviser Lawrence Summers have both complained to senior Wall Street execs that they have almost no say in major policy decisions. Obama economic counselor Paul Volcker, the former Fed chairman, is barely consulted at all on just about anything — not even issues involving the banking system, of which he is among the world’s leading authorities.

At most, the economic people and their staffs get asked to do cost analyses of Obama’s initiatives for the White House political people — who then ignore their advice. It’s almost the opposite approach, the Wall Street crowd complains, from the last Democratic president, Bill Clinton, whose main first-term achievement — deficit reduction — was crafted by his chief economic adviser, Robert Rubin. . . .

Obama, according to Wall Street people who regularly deal with his economic and budget officials, is acting as if he has a blank check to do what he wants, while ignoring the longterm costs of his policies.

As one CEO of a major financial firm told me: “The economic guys say that when they explain the costs of programs, the policy guys simply thank them for their time and then ignore what they say.”

In other words, the economic people feel that they have almost no say in this administration’s policy decisions.

At the time, I wrote for Powerline a piece entitled Obama’s Wrecking Crew. After quoting liberally from Gasparino’s column, I observed:

None of this is surprising. Everything that Gasparino says makes perfect sense. Tim Geithner may have played fast and loose with his income tax returns, but he is no fool. Nor is Larry Summers, and Paul Volcker – who, under Jimmy Carter and then Ronald Reagan, began the painful progress of bringing the stagflation of the 1970s to an end – is a man to whom we all owe a debt of gratitude.

Geithner is a relatively young man whose time has come. It is understandable that he would suffer, at least for a time, in relative silence. Larry Summers is in a different position. Within the world of economics, his is a name to be conjured with; and, unlike Paul Krugman, he has not in public prostituted himself for partisan advantage. It must be excruciating to watch while Obama’s wrecking crew destroys the foundations for American prosperity. For Paul Volcker, who is a senior statesman, it must be much worse.

At some point, if these men have any self-respect, they will have to separate themselves from the current administration. At the time of the campaign, there were plenty of indications of Obama’s radicalism. But the Democrats on Wall Street and many of our leading economists chose to look the other way. Now a number of the latter find themselves associated with an administration that cares far less about American prosperity than about rearranging economic, social, and political relations in the country to their own liking.

Paul Volcker, who is now eighty-four, quietly retired from the fray back in January. If he is dismayed at what he helped Obama accomplish, he has not yet spoken up. Larry Summers left at about the same time. Christina Romer and Peter Orzsag went even earlier. None of them resigned in protest at what Obama was up to. None of them has to date leveled criticism at the administration. Orszag’s recent response to the S&P downgrade of our debt could have been written from inside the ring. In the end, these folks prefer partisanship to prudence when it comes to policy. But they have the advantage of having distanced themselves from the policy. Tim Geithner, who stayed on too long, is now left twisting in the wind. He wants out, but the President will not let him go.

Geithner2.jpgFor this there is a reason. Barack Obama desperately needs to get past the debt debate. The deal that he signed on to with Senator McConnell and Speaker Boehner was aimed at getting the question of our insolvency off the front pages, and for this he was ultimately willing to pay a price – modest cuts in expenditures without tax increases – that would infuriate his political base. But, of course, this maneuver did not work (as, I suspect, McConnell and Boehner expected). As they had long threatened, the folks at S&P responded to the grotesque budgetary imbalance by downgrading our debt. If Moody’s and Fitch are honest, they will follow suit.

If Tim Geithner were to resign right now (or anytime soon), it would be a public admission of failure on the part of the Obama administration, and, I suspect, it would be for Obama himself a terrible psychological blow. He is nothing if not vain. For such a man to admit to himself and to the world that he has been wrong, exceedingly wrong, and that he has done his country and its poorer citizens truly terrible harm would be a horror insufferable.

ObamaProgress.jpgThat is one problem. There is another. Geithner’s resignation in the face of a catastrophe would not only be an admission of failure. It would inevitably be the first step towards a change of policy. The introduction of new men is nearly always preparatory to the introduction of new measures. Geithner is a weakling. Had he been a man of strength, he would have resigned on an issue of principle when it became clear that his advice regarding economic policy was unwanted. In the current circumstances, President Obama needs – or thinks he needs – a weakling in Geithner’s post. The President could not find a reputable economist willing to take up office as Secretary of the Treasury today and not be listened to. Nor would the U. S. Senate be willing to consent to the appointment of another toady. In effect, the President would be hostage to the man he chose. Moreover, the hearings on the man’s nomination would bring the debt crisis back into the news. From an electoral perspective, Obama’s greatest nightmare is an ongoing, fierce public debate on the deficit and the national debt that he cannot possibly win.

Nonetheless, that is what he is apt to get. Boehner and McConnell set a trap, and the President fell into it. To put the debate about the deficit on the back burner, the President will have to institute what he and his followers regard as draconian cuts. Otherwise, step by step, the economy will deteriorate, and the debate will not only persist. It will heat up. After all, the natural sequel to a downgrading of debt is a rise in the interest rate the federal government has to pay for the money it borrows. Such an increase would add dramatically to the deficit and intensify the crisis we face. If Obama circles the wagons, keeps Geithner in place, and digs in his heels – as he is wont to do – things will go downhill quickly.

This is an historic moment. We are facing the crisis of the administrative entitlements state. Progressivism is about to make its last stand.

  1. tabula rasa

    So does this mean that Obama gives himself economic advice, or gets it from Valerie Jarrett and David Axelrod?  Those are scary thoughts.  But then Obama does think he’s the smartest guy in any room.  

     

  2. AmishDude
    This is an historic moment. We are facing the crisis of the administrative entitlements state. Progressivism is about to make its last stand. ·

    A drowning man will still flail and he runs the risk of taking under anyone who is trying to rescue him.

  3. Capt. Aubrey

    I think you are right about Geithner for all his faults and in addition to an admission of failure I cannot imagine who the President could hope to replace him with. Anyone who would be willing to take the job would probably be some redistributionist bernie sanders and anyone who might calm the markets would be insane to take the job.

  4. Paul A. Rahe
    C
    Capt. Aubrey: I think you are right about Geithner for all his faults and in addition to an admission of failure I cannot imagine who the President could hope to replace him with. Anyone who would be willing to take the job would probably be some redistributionist bernie sanders and anyone who might calm the markets would be insane to take the job. · Aug 9 at 10:16am

    Yes, indeed. Can you imagine Obama nominating . . . Paul Krugman?

  5. G.A. Dean

    I believe you are correct to call this a “trap” that the President is caught in, but it is a trap of his own making. Credit the the Speaker with the good sense to trip the trap when he saw the chance, although even here the Republicans had help from the President when he declared that he was bluffing.

    If we are very lucky the generally clueless White House can be held in a position of irrelevancy, while Congress slowly eases us into some painful but responsible measures. That, and we benefit from Europe’s race to look even worse off than the U.S.

  6. AmishDude
    Paul A. Rahe

    Capt. Aubrey: I think you are right about Geithner for all his faults and in addition to an admission of failure I cannot imagine who the President could hope to replace him with. Anyone who would be willing to take the job would probably be some redistributionist bernie sanders and anyone who might calm the markets would be insane to take the job. · Aug 9 at 10:16am

    Yes, indeed. Can you imagine Obama nominating . . . Paul Krugman? · Aug 9 at 10:27am

    I think he should go Caligula and nominate Bo the dog.  I figure that’s good for a 1000-point bounce in the Dow.

  7. Israel P.

     Can you do a recess appointment of a Cabinet member?

  8. Paul A. Rahe
    C
    Israel P.:  Can you do a recess appointment of a Cabinet member? · Aug 9 at 10:50am

    An excellent question. I do not remember an occasion in which it has been done. Politically, if it is legal, it would cause a firestorm — not that Obama pays much attention to formalities.

  9. Capt. Aubrey

     Bo the Dog would be better than Krugman…free bones for everyone would cost a lot less and probably calm the markets.

  10. Ed G.

    Have any of you actually heard how Dems (Durbin, Obama, Kerry, etc) are reacting? A tea party downgrade. We may think they’re delusional, but much of the country likes what they’re selling – wants what they’re selling to be the truth. It’s far from clear that Obama is in any trap. We still need to make the case and keep pressing the advantage. Nothing is assured yet.

  11. Paul A. Rahe
    C
    Ed G.: Have any of you actually heard how Dems (Durbin, Obama, Kerry, etc) are reacting? A tea party downgrade. We may think they’re delusional, but much of the country likes what they’re selling – wants what they’re selling to be the truth. It’s far from clear that Obama is in any trap. We still need to make the case and keep pressing the advantage. Nothing is assured yet. · Aug 9 at 11:17am

    No, nothing is assured. That is why I suggested that Boehner get the House to pass Cut, Cap, and Balance again. We have one great, great advantage. The truth about markets and the economy is on our side. We must over and over again demonstrate our willingness to confront the crisis head on. The other side has presented no plan, and the reason is that it would not pass muster with the public.

  12. Hang On
    Paul A. Rahe

    Capt. Aubrey: I think you are right about Geithner for all his faults and in addition to an admission of failure I cannot imagine who the President could hope to replace him with. Anyone who would be willing to take the job would probably be some redistributionist bernie sanders and anyone who might calm the markets would be insane to take the job. · Aug 9 at 10:16am

    Yes, indeed. Can you imagine Obama nominating . . . Paul Krugman? · Aug 9 at 10:27am

    That is exactly whom I was going to say he might nominate. Credibility with the base, and there was a time when he was economically credible. And he wants Obama to spend even more money which Obama and his base might well like.

    The Geithner-CIA-Obama’s mother’s family connections/friendship over a couple of generations might also be why Geithner stays on.

  13. Illiniguy

     John Bolton was appointed UN ambassador as a recess appointment in 2005. I believe that’s now a cabinet level position.

  14. Western Chauvinist
    CJRun:  Obama can’t make any recess appointments because the House won’t go into recess; they hold pro forma sessions, I suppose each day, to eliminate the possibility. · Aug 9 at 12:33pm

    Thank God for the House!

    Shortly after he took the job, someone noticed Geithner was having trouble filling positions at Treasury and cracked that there was no one there to answer the phones (was it Steyn?).  Ever since then, I’ve pictured Geithner as the hardest working guy in the Obama administration.

    After a full day of trying, unsuccessfully, to get through to the WH with the phone tucked between his shoulder and ear, while simultaneously talking on his smart phone to Bernanke about the next round of quantitative easing, I see him zipping himself into his blue janitorial jumpsuit to mop his way out the door.

    Geithner is Treasury.  He’ll only go if and when Obama does, I suspect.

  15. Paul A. Rahe
    C

    Here’s the latest news: Gallup: Obama loses three points overnight, economic confidence plunges to 2-year low

    My bet is that this is just the beginning of the public’s downgrade of Barack Obama.

  16. Sisyphus

    An astonishing analysis, Dr. Rahe. With Krugman as the public voice of the spend it all, spend it now mantra the notion that Geithner et. al. were arguing anything but the same never occurred to me. Having studied rhetoric, I never had faith in Obama’s empty speechifying. There never was a there, there. Not even a glimmer of the lucidity or insight of a Thatcher or a Reagan.

    Well done.

  17. Sisyphus

    With 52 days left in the federal government’s fiscal year 2011, when will Congress take up the FY 2012 budget?

  18. tabula rasa
    Western Chauvinist

    CJRun:  Obama can’t make any recess appointments because the House won’t go into recess; they hold pro forma sessions, I suppose each day, to eliminate the possibility. · Aug 9 at 12:33pm

    Thank God for the House!

    Approving senior level administration positions is purely a function of the Senate (the House has no role), so I believe Obama could make a recess appointment, which remains valid until the end of the current session.  However, I agree that a recess appointment of someone like Krugman would assure us that Obama could begin his third volume of autobiography in late January 2013.

  19. Paul A. Rahe
    C
    Sisyphus: With 52 days left in the federal government’s fiscal year 2011, when will Congress take up the FY 2012 budget? · Aug 9 at 2:19pm

    Never, I suspect. Obama’s original budget for 2011 was rejected. He proferred no alternative. He has not made a budget proposal for 2012, as far as I can tell, and his strategy is to avoid responsibility.

  20. Sisyphus
    Paul A. Rahe

    Sisyphus: With 52 days left in the federal government’s fiscal year 2011, when will Congress take up the FY 2012 budget? · Aug 9 at 2:19pm

    Never, I suspect. Obama’s original budget for 2011 was rejected. He proferred no alternative. He has not made a budget proposal for 2012, as far as I can tell, and his strategy is to avoid responsibility. · Aug 9 at 2:27pm

    Obama’s budget does not matter. Bill Clinton’s budgets from 1995 on were dead on arrival in the Congress. Yet we managed to pass budgets. The failure to pass budgets at all is wholly new under Obama, and a shameful metric of this dysfunctional government.