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If Timothy Geithner were a Broadway show, the producers would shut it down.
Treasury secretaries get attacked all the time and have to take it with aplomb. It’s in the job description. The criticism serves a purpose: A secretary who can withstand the withering attacks of congressmen has what it takes to manage a real crisis.
Against this backdrop, Geithner’s performance last week was the most pitiful by a major economic policy maker in ages. Geithner broke the cardinal rule for Treasury secretaries. He lost his cool.
On the ropes at a hearing at the Joint Economic Committee on Nov. 19, Geithner defended himself with the only weapon in the Obama administration’s playbook: whining. But this wasn’t the hip, self-assured whining so artfully employed by President Barack Obama. It was shrill. It was unseemly. It was offensive.
When Representative Kevin Brady, a Texas Republican, asked Geithner to resign, Geithner chose not to defend his actions. Instead, he pointed his finger back at Brady: “You gave this president an economy falling off the cliff.”
After another Texas Republican, Michael Burgess, suggested that the government should offer tax relief to business and then get out of the way, Geithner took the question as an opportunity to bash the entire free enterprise system: “That broad philosophy helped produce the worst financial crisis and the worst recession we’d seen in generations.”
The problem, in Geithner’s view, seems to be that Brady, Burgess and other Republicans so messed up the world that even his brilliant policies have yet to fix the problem.
It is an iron law of Washington that policy makers lose their cool when they are on shaky ground in terms of substance. Geithner must know in his heart that he, far more than Brady or Burgess, is responsible for the financial crisis. That’s why minor political theater sets him off.
Look at the facts. Geithner was president of the Federal Reserve Bank of New York for the five years leading up to the financial crisis. The crisis occurred, in part, because Wall Street firms spun out of control. The New York Fed is the cop charged with patrolling Wall Street, the eyes and ears of the financial regulatory system. It fundamentally failed on his watch.
Why did the Fed fail? Might it have been because it was run by a man who misunderstood the circumstances?
No More Worries
Here is what Geithner had to say about financial markets in a speech in Atlanta in May 2007, just about a year before the crisis really ignited:
“Changes in financial markets, including those that are the subject of your conference, have improved the efficiency of financial intermediation and improved our confidence in the ability of markets to absorb stress.”
Later he added, “The larger global financial institutions are generally stronger in terms of capital relative to risk. Technology and innovation in financial instruments have made it easier for institutions to manage risk.”
That rosy description by a Fed president kind of makes you want to run out and buy stock in Lehman Brothers Holdings Inc., doesn’t it? No wonder the Fed failed to press the industry harder. It thought that financial innovations had worked a miracle.
Geithner used to be asleep at the wheel in New York. Now he is asleep at the wheel in Washington.
The Treasury secretary is supposed to stand up for correct policy. This Treasury Department sat back and let Congress dictate a costly and ineffective stimulus plan.
It looked the other way while politicos in the White House hatched a plan to produce false and laughable claims of jobs created from that stimulus, a procedure that is so flawed that it has attributed job creation to congressional districts that don’t exist.
He has allowed Democrats to play budget tricks to understate the costs of their health-care proposals by trillions, even as deficits soar to levels not seen since World War II. He failed to remind, or at least to convince, the president that a deep recession is a bad time for the government to increase fiscal imbalances by staging a takeover of health care.
During the presidential campaign, Obama correctly pointed out that a cap-and-trade system to reduce greenhouse gas emissions should use an auction to distribute the pollution permits. Geithner snoozed while Congress decided to hand out the permits as political favors.
And don’t get me started on the dollar. The operatives in the White House clearly picked Geithner because they could count on him to look the other way while they play their economically destructive political games, just as he looked the other way while Wall Street undermined the economy.
Geithner is a reliable political sidekick. As for substance, that is another story. New York Times columnist David Brooks wrote that when he asked him what government could do to promote innovation, Geithner “said that government’s limited job was to get the underlying incentives right so the market could figure out what innovations work best.”
Wait. Isn’t that the “broad philosophy” that produced the financial crisis?
It is time for Geithner to go.
Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.
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