Obama picks Geithner to run Treasury
President-elect Barack Obama on Friday selected the head of the Federal Reserve Bank of New York as his nominee for Treasury secretary, choosing a vigorous advocate of government intervention in the troubled economy who nonetheless commands wide respect among conservatives.
Timothy F. Geithner, 47, has been a central player in the Bush administration’s response to the economic crisis, and his selection indicated the incoming administration’s desire to hit the ground running. Obama is expected to announce Geithner’s selection as early as Monday, people familiar with the situation said.
News of the choice of a successor to Henry M. Paulson was welcomed as a reassuring signal, coming as it did amid rising concern over a perceived leadership vacuum in the capital.
Though panicky financial markets posted heavy losses on several days this week, and Congress remains deadlocked over a bailout for Detroit automakers and a new economic stimulus package, the administration has indicated that it plans no new economic initiatives for the rest of the year.
On Thursday, the Dow Jones industrial average plummeted to its lowest point since 2003 and the Standard & Poor’s 500 index fell back to its 1997 level. But the news about Geithner helped send the Dow rocketing Friday. It closed up 494 points, or 6.5%, erasing Thursday’s drop of nearly 450 points.
The decision drew support across the political spectrum.
“He’s smart and levelheaded,” said Alice M. Rivlin, a Democrat and former vice chairwoman of the Federal Reserve. “His involvement in the crisis . . . is a very important qualification.”
“It’s a terrific choice,” said Kevin Hassett, director of economic policy studies at the American Enterprise Institute, a conservative think tank. “He’s been in the middle of this, he has been at Treasury and he’s a very bright guy, highly respected by people in both parties.”
“He’s decisive, experienced, young, with a lot of energy,” said Gary Schlossberg, senior economist at Wells Capital Management. “He’s going to need it.”
Obama also moved to solidify the rest of his economic team, offering former Clinton administration Treasury Secretary Lawrence H. Summers a role as senior White House advisor.
Summers, known as a brilliant economist with a tendency to generate controversy, had been a leading contender for Treasury secretary, along with former Federal Reserve Chairman Paul A. Volcker.
Geithner is a protege of Summers’ and of former Clinton administration Treasury chief Robert E. Rubin.
Geithner worked with Paulson and Federal Reserve Chairman Ben S. Bernanke on the government-engineered sale of Bear Stearns Cos., the bailout of American International Group Inc. and the decision not to prop up Lehman Bros. Holdings Inc.
Born 14 days after Obama, Geithner would be one of the youngest Treasury secretaries in U.S. history.
News of Obama’s choice leaked just as he began facing criticism for not moving quickly enough to show Wall Street how he planned to address the crisis. Proponents of naming a team now said Obama should show that appointees would have time to prepare to act as soon as he assumed the powers of the presidency Jan. 20.
“This is all about confidence. It’s going to get worse. Fear is going to take over,” former General Electric Co. Chief Executive Jack Welch said on financial news channel CNBC. “We have a new president, and the fastest we can get the policies out there that tell us where we are going to go and what this administration is going to do, the better off we’re going to be.”
Other probable members of Obama’s economic team are New Mexico Gov. Bill Richardson as Commerce secretary and Congressional Budget Office Director Peter R. Orszag as head of the White House Office of Management and Budget, according to people knowledgeable about the decision-making process.
Before becoming head of the New York Fed in 2003, Geithner was an official with the International Monetary Fund. He also spent 13 years at the Treasury Department beginning in 1988, serving under three presidents. At the agency, Geithner rose to undersecretary for international affairs, where he worked under Rubin, then Summers, from 1999 to 2001.
His ascent began with a mid-1980s stint at Kissinger Associates, the high-powered consulting firm of former Nixon administration Secretary of State Henry Kissinger, and then at Treasury in Washington during the late 1980s and early 1990s.
But his big break came in the second half of the 1990s, when, as an assistant financial attache at the U.S. Embassy in Tokyo, he wrote what was widely considered a brilliant analysis of the South Korean financial crisis.
The document drew the attention of both Rubin and Summers. They elevated the then-38-year-old Geithner to Treasury undersecretary for international affairs during the final years of Bill Clinton’s term in the White House.
As president of the New York Fed, Geithner has in effect been the central bank’s chief representative to Wall Street and the international financial community. As the crisis escalated over the last 15 months, he became one of the chief architects of the Fed’s response.
In March, he helped orchestrate the shotgun marriage of investment house Bear Stearns to JPMorgan Chase & Co., a deal that required the Fed to take over the management and risk of nearly $30 billion of troubled assets. In September, he sought but failed to find a buyer for investment bank Lehman, paved the way for Bank of America Corp.’s abrupt purchase of Merrill Lynch & Co. and helped design what amounted to a government takeover of insurance giant AIG.
That deal was supposed to have the Fed lending AIG $85 billion in return for nearly 80% of the firm. But AIG’s fortunes continued to sag, requiring a second and then a third infusion that has boosted Washington’s commitment to the company to about $125 billion. Some outside observers had wondered whether problems with the AIG deal might sour Geithner’s chances to lead Treasury.
Throughout the crisis, Geithner has consistently pushed for aggressive intervention in companies’ troubles and forcefully defended the actions of Bernanke and Paulson, including in an exchange of speeches with Volcker, a former Fed chairman and Bernanke critic.
“The current episode has a basic dynamic in common with all past crises. As market participants have moved to reduce exposure to further losses, to step on the brake, the brake became the accelerator, amplifying the shock,” Geithner said of the worsening credit impasse in March.
“The speed and agility with which public-policy makers and private financial institutions respond to the continuing pressures in a rapidly evolving environment will determine how quickly and how smoothly market conditions return to normal -- and how rapidly the risks to the economic outlook are mitigated.”
Jan Hopkins, president of the Economic Club of New York, said Geithner has been “at the very center of the crisis.”
“Every other player, whether banker or central banker or reporter, wants to talk with him,” Hopkins said.
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peter.gosselin@latimes.com
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