(Summers x White House now) ÷ Fed in Future = Geithner in Treasury
The other shoe in the great Treasury Secretary sweepstakes dropped this morning as Obama’s team outlined a way to eat their cake and have it too. As David Kotok is quoted in the New York Times:
The most important thing for the market and for the economy is that these decisions are made and uncertainty is removed,” Mr. Kotok said. “It probably would have been the same rally had it been someone else on the short list.”
Not that the Times doesn’t want to represent Geithner as meaningful choice:
“The markets will remain disrupted through Jan. 20 without some thoughtful government action,” said Todd Steinberg, head of equities and commodity derivatives at BNP Paribas Americas. “The naming of Geithner certainly increases the possibility of action for a couple of reasons: he is in the government in one of the most influential seats, and he is already actively in dialogue with the current administration’s decision makers.”
Still, as several commentors point out, Geithner’s weakness hasn’t gone away. He’s does not have a significant public presence–though the last 10 weeks have greatly increased his visibility. Here’s Bloomberg on the matter:
“He certainly has relevant experience,” said Alex Pollock, resident fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank. “The whole public part of the job, the political part of Treasury secretary, will, I expect, be a challenge.”
The Wall Street Journal alludes to this last point here:
The position of Treasury Secretary has grown vastly in importance under its current holder, Henry Paulson, who insisted on a free hand from the White House. In addition to tackling the financial crisis, Mr. Geithner will have to deal with the U.S. relationship with China, the future of mortgage giants Fannie Mae and Freddie Mac and an overhaul of the nation’s financial regulatory infrastructure. He will also be the point man on Mr. Obama’s promises to raise taxes on the affluent and cut taxes for most middle-income families.
But the likely choice appears to have been driven largely by the financial crisis, and Mr. Geithner’s public record on many of the other matters he will be required to grapple with is limited. Unlike previous picks for Treasury secretary, who hailed from Wall Street, industry or the Senate, Mr. Geithner has been a technocrat most of his career.
Mr. Geithner isn’t considered close to Mr. Obama, either, an anomaly for one of the most critical positions in the cabinet.
The solution, which we’re likely to see on Monday, is to have Summers play an inside role–Council of Economic Advisors?–using his outside personality and fame to provide air cover for Geithner. The political deal for Summers is that the Obama team is putting it around that Summers will succeed Bernanke in 2010. (Wonder how Bernanke feels reading that?)
On the face of it, this is a good deal all around. Obama gets all of Summers’s strengths without some of the liabilities–the impression that the Clinton team is moving back into the White House and the dislocation going from Paulson to a new team. The promise of the Fed job is, of course, highly contingent. No one knows what world we’ll be living in two years from now. But shaking up the Fed might not be a bad thing either. Looking back, we were fools to allow Greenspan to serve so long. The Fed chairman who defied the first Bush presidency–under extreme pressure to reduce interest rates–became the power-loving egotist who would do anything to maintain his image as the Maestro. A deep bench for Fed chairmen would serve the country–and the world better.
>
Sources:
Fed Official Is Said to Be Choice for Treasury
JACKIE CALMES
New York Times, November 22, 2008
http://www.nytimes.com/2008/11/22/us/politics/22policy.html?_r=1&hp
Geithner Is Said to Be Obama’s Pick for U.S. Treasury Secretary
RICH MILLER
Bloomberg.com, November 22, 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6UEGcgjYF.c&
Obama Likely to Pick Fed’s Geithner for Treasury
JONATHAN WEISMAN, DEBORAH SOLOMON AND JON HILSENRATH
Wall Street Journal, November 22, 2008
http://online.wsj.com/article/SB122729804822648663.html
November 22nd, 2008 at 9:47 am
I’m getting close to not watching the news any more. Whenever the market does something that they don’t understand they find a reason for it. Friday’s move had absolutely nothing to do with cabinet appointments.
Futures could not trade below S&P 746, which was the most probable wave 5 target of 1.618. Then wave 1 took us up to the 800, which not at all coincidentally is where a ton of options were sitting (nice round number). Whatever big player had sold a ton of puts for 800 decided it was cheaper to move the market back up than pay out.
November 22nd, 2008 at 10:05 am
As per my comment on CDS thread
By embracing Geithner and the AIG derivatives bailout, President-elect Obama is embracing the scheme directed by Hank Paulson et al at Goldman Sachs and executed by Tim Geithner and Ben Bernanke. Having Larry Summers waiting in the wings to replace Uncle Ben does not reassure me in the least and only confirms that the culpables are in command under whatever party pretends to hold power. Does anyone find it remarkable that members of the BIG MEDIA wax effusive about the influence of Bob “MIA” Rubin in the Obama camp as Citigroup slides into a government takeover?
There seems to be very little “change” under Obama when it comes to the financial portfolio of the government of the United States.
November 22nd, 2008 at 10:20 am
“The promise of the Fed job is, of course, highly contingent. No one knows what world we’ll be living in two years from now. But shaking up the Fed might not be a bad thing either.”
excellent point. thus to assume that Summers will be FED chair in 2 years is just that, an assumption.
and no one is taking into consideration that Mr. Geithner perhaps might have ideas of his own, beyond what he has been directed to do from his recent bosses (Summers, Bernanke, the banks, et al).
and considering that Mr. Geithner majored in East Asian studies, it does seem like “On the face of it, this is a good deal all around. ”
plus, anything to make Mr. Bernanke squirm a little bit (even if it’s a bluff) is a good thing.
November 22nd, 2008 at 1:12 pm
I like the fact that Geithner doesn’t talk much. His obvious preference to be in the background rather than on TV will be a tremendous asset, and he will eschew the Greenspan tradition of Fed Chair as cult figure. Paulson and Bernanke’s penchant for empty statements has caused enormous damage to the markets of late. Fed Chairs should be seen (but only on the way toFOMC meetings) and not heard.
Hopefully Geithner will take a page from the Volcker playbook and let his actions do the talking. I completely share Chris Whalen’s distaste for Summers and Rubin, but I am already encouraged by the fact that Obama did not choose either of them for this most important post of all. The way I see it is that it was not possible to get through this crisis without a link to Paulson. You have to have someone who knows where the bodies are buried and Geithner is the most acceptable, or least objectionable alternative as Chris would probably express it. Having Summers along is also a necessary evil to keep the Clinton wing happy. The junior members of the team will be of interest - they often do the heavy lifting.