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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.

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  1. Profile photo of tabula rasa Member

    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.  

     

    • #1
    • August 9, 2011 at 9:33 am
  2. Profile photo of AmishDude Member
    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.

    • #2
    • August 9, 2011 at 9:34 am
  3. Profile photo of Capt. Aubrey Member

    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.

    • #3
    • August 9, 2011 at 10:16 am
  4. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    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?

    • #4
    • August 9, 2011 at 10:27 am
  5. Profile photo of G.A. Dean Member

    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.

    • #5
    • August 9, 2011 at 10:36 am
  6. Profile photo of AmishDude Member
    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.

    • #6
    • August 9, 2011 at 10:38 am
  7. Profile photo of Israel P. Member

     Can you do a recess appointment of a Cabinet member?

    • #7
    • August 9, 2011 at 10:50 am
  8. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    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.

    • #8
    • August 9, 2011 at 11:14 am
  9. Profile photo of Capt. Aubrey Member

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

    • #9
    • August 9, 2011 at 11:15 am
  10. Profile photo of Ed G. Inactive

    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.

    • #10
    • August 9, 2011 at 11:17 am
  11. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    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.

    • #11
    • August 9, 2011 at 11:52 am
  12. Profile photo of Hang On Member
    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.

    • #12
    • August 9, 2011 at 11:58 am
  13. Profile photo of Illiniguy Member

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

    • #13
    • August 10, 2011 at 1:27 am
  14. Profile photo of Western Chauvinist Member
    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.

    • #14
    • August 10, 2011 at 1:30 am
  15. Profile photo of Sisyphus Member

    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.

    • #16
    • August 10, 2011 at 2:03 am
  16. Profile photo of Sisyphus Member

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

    • #17
    • August 10, 2011 at 2:19 am
  17. Profile photo of tabula rasa Member
    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.

    • #18
    • August 10, 2011 at 2:26 am
  18. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    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.

    • #19
    • August 10, 2011 at 2:27 am
  19. Profile photo of Sisyphus Member
    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.

    • #20
    • August 10, 2011 at 2:45 am
  20. Profile photo of Sisyphus Member
    tabula rasa

    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. · Aug 9 at 2:26pm

    And put a crimp in his golfing? When Bill Ayers is so affordable?

    • #21
    • August 10, 2011 at 2:49 am
  21. Profile photo of Roberto Inactive
    Paul A. Rahe 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.  ·

    This is where your analysis errs Professor Rahe. Chairman Bernake has made it very plain he will take whatever measures necessary in order to compel funds into the stock market and that requires making it a painful proposition to hold US treasuries. From today’s FOMC statement:

    …the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013

    The Chairman has already demonstrated his willingness to monetize the debt to make this happen. What the consequences of that will be I shudder to consider but one thing is clear for those who optimistically hope that the President has fallen into a “trap” set by Boehner they are being very optimistic indeed.

    • #22
    • August 10, 2011 at 3:55 am
  22. Profile photo of Dan Hanson Thatcher

    There’s another reason why this debate may heat up before the election – the 2.1 trillion dollar debt ceiling increase may not be enough to take Obama through the election season.  The minute it was passed, Geithner had to take something like 240 billion of it and use it to pay back the loans he made.  The deficit projection for this year of 1.6 trillion dollars was based on an assumption of GDP growth that we recently found out wasn’t warranted.  The economy looks like it’s heading back into recession, and the fed’s announcement of long-term low interest rates suggests that they also believe a double-dip is coming or is already here.

    If that’s the case, the government could still burn through another trillion dollars this year, or close to it.  Obama wants to extend unemployment benefits, which will drive up the deficit more, because even more people are unemployed.  And there are always expenses that crop up during the year.  Obama will be lucky if the debt ceiling increase takes the country into past the 2012 election, and at this point I don’t think it’s likely.

    • #23
    • August 10, 2011 at 4:20 am
  23. Profile photo of Stuart Creque Member

     My prediction: Obama, having rejected Geithner’s proffered resignation, will wait a couple of weeks and then fire him — on the political calculation that accepting a resignation is weakness, while firing is boldness.

    • #24
    • August 10, 2011 at 4:23 am
  24. Profile photo of Stuart Creque Member
    Dan Hanson: There’s another reason why this debate may heat up before the election – the 2.1 trillion dollar debt ceiling increase may not be enough to take Obama through the election season. 

    Granted, but unless it was going to cover anticipated debt through the 2016 election, the debt ceiling was bound to come up as a 2012 election issue.  The problem for the Democrats is that because that next big debt ceiling increase deal will (nominally) be after the 2012 election, the election itself becomes a means for the voters to weigh in meaningfully on the debate.  The Dems lost the opportunity to co-opt the Republicans into a messy tax increase or government shutdown in summer 2012, and instead handed the GOP an issue.  The Republicans can run on, “Do you want the next debt deal to be a complete mess like the one in August 2011, or do you want to elect Republicans who will Cut, Cap and Balance?”

    • #25
    • August 10, 2011 at 4:29 am
  25. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Stuart Creque

    Paul A. Rahe

    Stuart Creque:  My prediction: Obama, having rejected Geithner’s proffered resignation, will wait a couple of weeks and then fire him — on the political calculation that accepting a resignation is weakness, while firing is boldness. · Aug 9 at 4:23pm
    Poetic justice, then? · Aug 9 at 5:19pm
    Well, not exactly.  Just the idea that you have to wait until Yom Kippur to offer up the scapegoat for the offering to have its intended effect.

    It’s a case of, “You can’t quit, you’re fired!” — political theater.  No one will think that somehow last week Geithner was doing a heckuva job and deserved to stay, and yet in a few weeks from now will have done any worse of a job to deserve firing… but the President will want people to think precisely that. · Aug 9 at 5:45pm

    Yes.

    • #26
    • August 10, 2011 at 5:16 am
  26. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Stuart Creque
    Dan Hanson: There’s another reason why this debate may heat up before the election – the 2.1 trillion dollar debt ceiling increase may not be enough to take Obama through the election season. 
    Granted, but unless it was going to cover anticipated debt through the 2016 election, the debt ceiling was bound to come up as a 2012 election issue.  The problem for the Democrats is that because that next big debt ceiling increase deal will (nominally) be after the 2012 election, the election itself becomes a means for the voters to weigh in meaningfully on the debate.  The Dems lost the opportunity to co-opt the Republicans into a messy tax increase or government shutdown in summer 2012, and instead handed the GOP an issue.  The Republicans can run on, “Do you want the next debt deal to be a complete mess like the one in August 2011, or do you want to elect Republicans who will Cut, Cap and Balance?” · Aug 9 at 4:29pm

    I agree entirely. The deal the Republicans negotiated may not satisfy us and should not do so — but it left Obama as the tax-man.

    • #27
    • August 10, 2011 at 5:18 am
  27. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Stuart Creque:  My prediction: Obama, having rejected Geithner’s proffered resignation, will wait a couple of weeks and then fire him — on the political calculation that accepting a resignation is weakness, while firing is boldness. · Aug 9 at 4:23pm

    Poetic justice, then?

    • #28
    • August 10, 2011 at 5:19 am
  28. Profile photo of Stuart Creque Member
    Paul A. Rahe
    Stuart Creque:  My prediction: Obama, having rejected Geithner’s proffered resignation, will wait a couple of weeks and then fire him — on the political calculation that accepting a resignation is weakness, while firing is boldness. · Aug 9 at 4:23pm

    Poetic justice, then? · Aug 9 at 5:19pm

    Well, not exactly.  Just the idea that you have to wait until Yom Kippur to offer up the scapegoat for the offering to have its intended effect.

    It’s a case of, “You can’t quit, you’re fired!” — political theater.  No one will think that somehow last week Geithner was doing a heckuva job and deserved to stay, and yet in a few weeks from now will have done any worse of a job to deserve firing… but the President will want people to think precisely that.

    • #29
    • August 10, 2011 at 5:45 am
  29. Profile photo of Chris Johnson Member

     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.

    • #30
    • August 10, 2011 at 12:33 pm
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