David Prosser: Geithner is fast running out of time and excuses
Monday 23 March 2009
How did it go so wrong so quickly for Timothy Geithner, facing calls to resign just a few months after President Barack Obama won near-universal acclaim for appointing him US Treasury Secretary? Mr Geithner is failing both politically and strategically. It became painfully obvious last week that the Treasury had not foreseen how explosive the bonus scandal at AIG would become.
It is still not clear exactly what Mr Geithner knew about the bonuses the failed insurance giant had agreed to pay staff, but this was not a problem he simply inherited. As president of the New York Federal Reserve before joining the administration, he was closely involved with the bailout of AIG; he had no excuse for not knowing about the bonuses and not questioning them. That lack of foresight, when combined with the Treasury's initial reluctance to demand AIG tackle its greedy executives head-on, has handed President Obama's administration its biggest headache so far. But it is not this lack of political nous that most worries the world's financial community: it is more concerned about Mr Geithner's ability to deal with the banking crisis.
On arrival in office, he made it clear he would reconsider the plans of his predecessor, Hank Paulson, to deal with the toxic assets inhibiting the willingness of US banks to lend to consumers and businesses. But when he presented his alternative ideas last month, stock markets around the globe fell sharply, so vague was the vision.
More detailed plans will be unveiled this week, but Mr Geithner's proposal for the state to buy up those horrid mortgage-backed securities has already prompted a storm of criticism. Paul Krugman, the Nobel prize-winning economist, calls it an "awful mess".
One problem, not of the boss's making, is that many posts at the Treasury remain unfilled, with senior appointments mired in a vetting process that has become interminable since the government was spooked by the embarrassing revelations about the tax arrears of its putative health secretary.
Even if the Treasury were fully staffed, it would be ludicrous to expect it to have solved the biggest financial crisis for 80 years in the time Mr Geithner has had. Unless he works out how to put out political fires such as AIG, and come up with a more credible route-map out of the financial crisis, he is not going to get much longer.
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