Timothy Geithner

Treasury Department

In 1988, Geithner joined the Treasury Department as a career civil servant, working on issues involving Japan as a special assistant to an undersecretary. He worked there through the George H.W. Bush administration and into the Clinton years, when then-undersecretary Summers was deeply impressed by the young staffer. Geithner had the same intellectual intensity as Summers. But Geithner had a more affable manner than the often brusque Harvard economist. “In Geithner, Summers recognized the perfect complement,” The New Republic reported. Indeed, Geithner was one of the few officials who had the brains and self-confidence to stand up to Summers in internal debates. “He’s the only guy that would walk in and say, ‘on this one, Larry, you’re full of it,’” Summers said.Schreiber, Noam, ‘Obama’s Choice,” The New Republic, Nov. 5, 2008

Summers promoted Geithner to be a deputy assistant secretary in 1994, and later to assistant secretary and then undersecretary for international affairs. In those jobs, Geithner helped manage the Treasury’s response to the Meixcan peso crisis in 1995, the East Asian crises of 1997-1998, and the Russian debt default in 1998 and near-collapse of the hedge fund Long Term Capital Management. Geithner was the first career civil servant to serve as a Treasury undersecretary.

IMF

At the end of the Clinton administration, Geithner moved to the International Monetary Fund, where he was director of policy development. That period led to a blot on his personal record. The IMF, unlike most employers, does not pay the employer match on Social Security and Medicare taxes. Geithner was responsible for paying those taxes himself. He did not to do so until he was audited in 2005, and even then only paid the back taxes for 2003 and 2004. He did not pay the back taxes for 2001 and 2002 until after Obama tapped him to be Treasury secretary at the end of 2008.McKinnon, John D. and Davis, Bob, Wall Street Journal Online, "IMF Informed Geithner on Taxes," Jan. 15, 2009

Federal Reserve Bank of New York

In 2003, after a long search, Geithner was named president of the Federal Reserve Bank of New York. In that job, he was the Fed’s eyes and ears on Wall Street, the primary regulator of some of the largest U.S. banks, and one of its lead crisis managers.

In the years before the financial crisis began in 2007, Geithner delivered many speeches discussing weaknesses in the financial regulatory system, especially frailties in the market for credit default swaps and other over-the-counter derivatives. Those warnings turned out to be prescient, as those markets contributed to the deep crisis underway. However, Geithner’s speeches often argued that as a whole the financial system was becoming more stable, and he did not take aggressive action to rein in the risk-taking of Wall Street firms.http://www.washingtonpost.com/wp-dyn...103939_pf.html

Troubled Asset Relief Program (TARP) Funds

Geithner and other aides to President Obama promised Congress more accountability on how banks that received goverment investments use the money. They wanted to ensure that banks use their new capital to expand lending, rather than just horde it.

Geithner and Obama signaled that besides investing the money in financial institutions, they would explore new ways to take bad assets off the books, which was the original approach to using the money that Paulson sold Congress on, before changing direction. The leading option was creating a government-funded “Bad bank,” which would buy up the troubled assets. The approach would be similar to the Resolution Trust Corp. that cleaned up the mess left by the savings-and-loan crisis in the early 1990s.

Geithner also said he will use part of the bailout money to help individual homeowners avoid foreclosure, perhaps with a strategy similar to that embraced by Federal Deposit Insurance Corp. Chairwoman Sheila Bair, in which the government provides financial incentives for mortgage companies to renegotiate loans.

Increased Financial Regulation

Geithner took a leading role in revamping financial regulation, a priority of both Obama and congressional leaders. In a 2008 speech, he laid out his views on how it should be done, noting that it is an “exceptionally complicated” task.

Geithner wants financial regulators to increase their focus  on the stability of the financial system as a whole rather than on just the finances of individual banks. “Risk management and oversight now focuses too much on the idiosyncratic risk that affects an individual firm and too little on the systematic issues that could affect market liquidity as a whole,” he said.http://www.newyorkfed.org/newsevents...tfg080609.html 

In June 2009, the plan to increase financial regulation began to take shape when Geithner and Summers published an op-ed in the Washington Post. The two officials outlined five moves the administration would take to help assure that a downturn as severe as the 2008-2009 recession would never occur again. First, they proposed issuing requirements for raising capital and liquidity levels. Although they didn't name specifics, Geithner and Summers said that the larger, more interconnected firms would have more stringent liquidity requirements. Firms whose failure could threaten the financial system would be subject to supervision from the Federal Reserve.Geithner and Summers also said that a "council of regulators"  would be created with a broader mandate of keeping the financial system safe.Geithner, Timothy and Summers, Lawrence, "A New Financial Foundation," The Washington Post, June 15, 2009

The second move that Geithner and Summers announced was the stricter regulation of securities and derivatives, a sophisticated financial tool that takes its value from the success or failure of other assets. The plan is to impose more rigorous requirements when selling asset-backed securities, while convincing regulators and investors to decrease their dependence on credit agencies. They said that all derivatives will be regulated.Geithner, Timothy and Summers, Lawrence, "A New Financial Foundation," The Washington Post, June 15, 2009

Geithner and Summers also want to increase efforts to protect consumers and investors, while promising to work with and encourage the rest of the world to boost supervision of financial markets. Finally, the two called for the creation of a mechanism to handle the dismantling of a financial firm that could have significant impact on the market, if it failed. "This authority will be available only in extraordinary circumstances, but it will help ensure that the government is no longer forced to choose between bailouts and financial collapse," wrote Geithner and Summers.Geithner, Timothy and Summers, Lawrence, "A New Financial Foundation," The Washington Post, June 15, 2009

First Steps

In February 2009, Geithner announced his first initiative in stabilizing the financial system. Called the Financial Stability Plan, Geithner outlined what he would do with the $350 billion remaining from the TARP fund, including direct capital injections to banks. But Geithner went much further than his predecessor. He announced an initial $250 billion to $500 billion "bad bank" program that would be a joint effort between the Federal Reserve and the Treasury to buy toxic assets that banks have not been able to sell. Also included was financing for up to $1 trillion for consumers and student loans, including for small businesses, car payments and tuition.

Geithner fought hard for these initiatives, as the New York Times reported that many in the administration, including Obama senior adviser David Axelrod, wanted tougher restrictions on executive pay and how banks spend taxpayer money. But the final copy of the plan had Geithner's fingerprints all over it.Andrews, Edmund L. and Labaton, Stephen, "Geithner Sets Out Sweeping Overhaul of Bank Bailout," The New York Times, Feb. 10, 2009

In May 2009, the administration released the results of stress tests that financial regulators, including the Fed, FDIC and Treasury’s Office of the Comptroller of the Currency, performed on struggling banks that were deemed "too big to fail." The tests were designed to measure what the banks needed, in terms of capital, to withstand a prolonged recession. For three months, regulators examined the bank’s financials, deciding how each company would react if the economy worsened, jobless rates rose and home prices continued to fall. Many analysts predicted the banks would need to raise more than $100 billion in capital, to pass these tests.Andrews, Edmund L., “Ailing Banks Need $75 Billion, U.S. Says,” The New York Times, May 7, 2009

But when the Treasury announced the final figures, many of the banks fared much better than expected. Ten of the 19 banks would need to increase their capital holdings by $75 billion dollars, collectively. Bank of America needed to raise the most capital at nearly $34 billion.Board of Governors of the Federal Reserve, “The Supervisory Capital Assessment Program: Overview of Results,” May 7, 2009,
 
With the stress tests showing an overall positive outlook for the financial system, banks with sufficient capital could start paying back TARP funds.“Geithner sees banks repaying even more TARP funds,” Reuters News, May 7, 2009,  “With this support, and with the clarity provided by today’s announcement, banks should be able to get back to the business of banking,” said Geithner when releasing the results of the stress tests.“Statement from Treasury Secretary Tim Geithner regarding the Treasury capital assistance program and the supervisory capital assessment program,” May 7, 2009 

Two weeks after the results of the stress tests were announced, Geithner testified in front of the Senate Banking Committee. He announced that the 10 banks that needed to increase capital had raised or announced plans to raise over $48 billion.Healy, Jack, "Banks Have Raised Billions Since Test, Geithner Says," The New York Times, May 20, 2009

Geithner said in his written statement to the committee that "there are important indications that our financial system is starting to heal.""Statement by Timothy F. Geithner U. S. Secretary of the Treasury before the Senate Banking Committee," Department of the Treasury, May 20, 2009

China

In written remarks to the Senate Finance Committee, Geithner signaled a more aggressive approach while negotiating trade policies with China. The Chinese government artificially deflates its currency, the yuan, which leads to cheap exports. As reported by the Washington Post,  Geithner told lawmakers that "all the diplomatic avenues" will be used when negotiating with the Chinese government regarding the yuan.

Geithner added that the recession is the most pressing issue and pointed to 2008 economic data that showed China's growth slowing significantly. He said that this deceleration of growth could lead to a more prolonged global downturn. "The immediate goal should be for us to convince China to adopt a more aggressive stimulus package as we do our part to try to pass a stimulus package here at home," Geithner wrote to lawmakers.Montgomery, Lori and Faiola, Anthony Faiola, "Geithner Says China Manipulates Its Currency," The Washington Post, Jan. 23, 2009