Geithner's Staying -- So Get Over It
When President Obama holds a prime time news conference tonight, you can be sure of at least one question he'll get --- and equally sure of his answer. The question will concern the future of Treasury Secretary Timothy Geithner, and Obama will say, as emphatically as he can, that Geithner isn't going anywhere.
The White House undoubtedly breathed a sigh of limited relief Monday when Geithner put some flesh on the administration's plan for dealing with toxic assets and Wall Street responded with a loud cheer -- an almost 500 point jump in the Dow. After all, it was just six weeks ago, on Feb. 11, when Geithner gave only a sketchy outline of the plan, and the market jeered, falling 380 points. That led to a spate of comments and editorials declaring that Wall Street had no confidence in the three-week old administration. When Obama suggested the market shouldn't be treated as a poll, the Wall Street Journal and others mocked him.
That doesn't mean the pressure on Geithner is easing any. Far from it. Republicans -- notably Reps. Connie Mack of Fla. and Darrell Issa of Calif. -- repeated their calls for his resignation as recently as this morning, and Geithner will be on the hot seat on the Hill this morning over those infamous AIG bonuses. He's also getting plenty of criticism from the media (especially the Wall Street Journal). All that is a lot of hot air and a costly distraction. He's not going anywhere and his time is too valuable to waste arguing about what's past.
It's still a big open question whether the toxic asset plan will work, and certainly Obama was right: The Dow is a lousy indicator. Yesterday's steep climb means little. The far more important indicator is whether private investors sign on (some already have) and whether banks are willing to sell to them (a huge unanswered question). Even if they do, it's still unclear whether the toxic assets will be priced at a reasonable level and whether banks start lending more.
Congress is once again proving to be more of a problem than a solution. Fortunately, the way the Geithner plan is structured, there may be enough money left in the last bailout (and with the Fed's hefty contribution) to let Obama try it out for a while before asking lawmakers for more cash. That will help a lot. The big risk is that Congress will try to impose unrealistic pay caps, which will scare investors and banks away. Geithner has already come out against that, but too many in Congress care more about fueling voter outrage than solving the underlying problem.
The lesson from the AIG bonus scandal is that Wall Street needs to show some restraint but that Congress is lousy at keeping its eyes on the big picture. Fortunately, there are signs that cooler heads are beginning to prevail and that the potentially disastrous attempt to seize the bonuses through taxation will fall by the wayside.
As for Mr. Geithner, any call for his head is far too premature. And it would be impossible to let him go now -- in the middle of implementing a new plan and ahead of the big summit in London next week. More important is the fact that there's no reason to believe anyone else can do a better job in tackling an impossibly tough list of problems. Certainly Congress, which refuses to accept its own role in creating the mess, is in no position to demand anyone's head, as my former colleague John Cranford pointed out this week for Congressional Quarterly.
There's still a long way to go, and Monday's stock market gains can easily turn into Tuesday's losses. But keep less of an eye on the Dow and more on the private investors and banks needed to make the Treasury plan work. And see if President Obama can use his prime time news conference to show he's the leader we need at this trying time.