Obama's Treasury Pick Has All the Wrong Ideas
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A year ago, when Barack Obama said it was time to turn the page, his campaign declaration seemed to promise a fresh start for Washington. I, for one, failed to foresee Obama would turn the page backward. The president-elect's lineup for key governing positions has opted for continuity, not change. Virtually all of his leading appointments are restoring the Clinton presidency, only without Mr. Bill. In some important ways, Obama's selections seem designed to sustain the failing policies of George W. Bush.
This is not the last word and things are changing rapidly. But Obama's choices have begun to define him. His victory, it appears, was a triumph for the cautious center-right politics that has described the Democratic party for several decades. Those of us who expected more were duped, not so much by Obama but by our own wishful thinking.
Let us stipulate that these are all honorable people, smart and experienced veterans of Washington combat. But they represent the Democratic party that mainly sees itself as managerial -- making government work better. The long era of conservative dominance has taught them to keep their distance from big reform ideas that promise fundamental change of the system. Their operating style is incremental and cautiously practical. They conscientiously avoid (or actively block) propositions that sound too liberal or radical. Alas, Obama is coming to power at a critical moment when incrementalism is irrelevant. The system is in collapse. Financial chaos won't wait for patient deliberations.
Events have confronted Obama with a fearful symmetry between past and present, illustrated by his choice of economic advisers. On Friday, we learned that Timothy Geithner, president of the New York Federal Reserve, would become his new treasury secretary and Larry Summers, who held the same position in the Clinton administration, would be the White House overseer of economic policy. On Monday, Geithner was busy executing the government's massive rescue of Citicorp -- the very banking behemoth that Geithner and Summers helped to create back in the Clinton years, along with Federal Reserve chairman Alan Greenspan and Robert Rubin, Clinton's economics guru. Now Rubin is himself a Citicorp executive and his bank is now being saved by his old protege (Geithner) with the taxpayers' money.
The connections go way beyond irony. They raise very serious questions about where the new president intends to lead and whether he has the nerve to break from the weak and haphazard strategy of the Bush administration. It has dumped piles of public money on the largest financial institutions and demanded little or nothing in return, hoping for the best. Geithner has been a central player in the deal-making, from Bear Stearns to AIG to Citi. The strategy has not only failed, it has arguably made things worse as savvy market players saw through the contradictions and rushed out to dump more bank stocks.
On Wall Street, Geithner is known as a highly competent technocrat, well versed in the financial complexities. But he has also been seen as a weak and compliant regulator of Wall Street firms, someone who did not see the storm coming. Occasionally, Geithner would anguish publicly about the accumulating time bombs like credit derivatives and urge bankers to do something, but he did not use his supervisory powers to compel action. In bailout negotiations with Wall Street titans, Geithner and the Federal Reserve were spun around like a top more than once.
No wonder the stock markets rallied explosively when they heard Geithner would be their new boss in Washington. They think he is their guy. Summers may be a brilliant economist -- everyone says so -- but he, too, is a club member in good standing and now manages a huge hedge fund while he advises Obama. The president-elect needs to get a "second opinion" -- someone from outside the financial club who can explain the flaws in the rescue strategy preached by Bush's treasury secretary Henry Paulson and Tim Geithner at the New York Fed.