The Cautious Optimism of Timothy Geithner
United States Treasury Secretary Timothy Geithner will be leaving for greener pastures on January 25. Geithner has been looking to leave his post for a while, but has delayed an exit because of the tremendous fiscal problems facing the country. First it was the fiscal cliff, and now it’s the debt ceiling, which has become politically tied to the half of the fiscal cliff that has yet to be resolved: the sequester.
At the end of the day, Geithner will probably be most remembered for his contribution to the discussion on “too big to fail” financial institutions. Previously the president of the Federal Reserve Bank of New York, Geithner served as Treasury Secretary in the fallout of the 2008 financial crisis, assuming the title from Henry Paulson.
Paulson’s place in history is punctuated by overly-optimistic and perhaps short-sighted claims in 2008, as the financial collapse began, that America had a “safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.” In retrospect, as a former CEO of Goldman Sachs (NYSE:GS), Paulson’s view may have been biased.
But Geithner’s term as Secretary marked a total reversal in oversight, and came loaded with unprecedented action. Geithner’s strategy to avoid total financial collapse now seems to be working, in the long run, but there’s no doubt that things could have gone better. In an interview with the Wall Street Journal on January 17, Geithner was asked if, looking back now, there was anything he would have done differently.
“I’m sure it’s fair to say that we could have done a better job,” he responded, but he added that the backlash was probably unavoidable. “There’s no way you can expect people to understand why is it necessary to do the things we have to do to essentially protect them…You look like you’re giving aid to the arsonist.”
While the banking discussion is by no means behind the American economy, more current and pressing events have stolen the spotlight. Chiefly, the debt ceiling, which the U.S. hit on December 31, 2012. As Treasury Secretary, Geithner was responsible for finding a way — any way — to fund America’s obligations while Congress sorted itself out.
Through extraordinary measures Geithner found a way to finance operations for about two months. This is just as long as Congress gave itself to reach a decision on the sequester, but political gamesmanship threatens a solution. On January 14, just about two weeks before he was set to depart, Geithner sent a letter to Congress urging them to act.
“I am writing to provide additional information regarding the extraordinary measures Treasury has undertaken in order to avoid default on the nation’s obligations,” he wrote.
“Treasury currently expects to exhaust these extraordinary measures between mid-February and early March of this year…If the extraordinary measures were allowed to expire without an increase in borrowing authority, Treasury would be left to fund the government solely with the cash we have on hand on any given day. As you know, cash would not be adequate to meet existing obligations for any meaningful length of time because the government is currently operating at a deficit.”
In theory, Congress understands the deficit very well. It is at the heart of the financial issues that have plagued the economy for months (years, really), and it is in the name of deficit reduction that some radical members of the GOP have threatened to use the debt ceiling as a bargaining chip to enact spending cuts.
“It is important to point out that extending borrowing authority does not increase government spending,” he wrote, “it simply allows the Treasury to pay for expenditures Congress has previously approved.”
So Geithner is leaving behind a Congress that holds the fate of the U.S. economy, and perhaps the global economy, in its dubious hands. It’s hard to call that a win, but Geithner will take what he can get.
“I think people are too dark about the economy now, in part because of the shadow of pessimism, skepticism about our political system today. But, and for the moment it’s very hard to do, if you look past the political dysfunction, the economy looks encouragingly resilient. We’ve got much more diversity of strengths, from energy to high tech to manufacturing than is true for any major economy, and people should find comfort and some optimism in that,” he told the WSJ.
So, barring Congress violating the full faith and credit of the United States, we’ve got sunny skies ahead. President Barack Obama has nominated White House chief of staff Jack Lew to succeed Geithner.