Is it time for Tiny Tim Geithner to cash in on all he's done to make the banksters happy (and richer)?

Know anyone who could be a bigger friend to the
banksters? That could be our next Treasury secretary.

"I feel the time has come for me to start cashing in for all I've done to help the big boys in the financial sector live long and prosper."

-- what Treasury Secretary Tim Geithner might have said in
response to reports yesterday that he's preparing to step down

by Ken

The reports, circulated by not exactly fly-by-night sources like Bloomberg and the Wall Street Journal, indicated that the Tinyman "is considering stepping down soon after policy makers agree to raise the government's borrowing limit, a person familiar with the matter said." As Robert Kuttner notes in an American Prospect online piece, "So Long, So Long, and Thanks from All the Banks": "That might be a long time from now given that the Republicans could agree to temporary extensions to maximize their leverage."

Naturally, the Tinyman promptly denied the rumors, telling Bill Clinton ("while sharing the stage at a Clinton Global Initiative event"): "I live for this work. I’m going to be doing it for the foreseeable future." Are you starting to feel a bit teary? (If not, you may in a moment, but not for the same reason.) As Kuttner also points out, "His status as a lame duck would undermine his authority on a variety of fronts, from the debt-ceiling negotiations to implementation of Dodd-Frank." But if our Tim has given any thought to his bargaining position, wouldn't that be a first for anyone in the Obama administration?

I read Kuttner's American Prospect while vaguely gathering my thoughts on the subject, and discovered it was no longer necessary to gather my thoughts. Here are his:

Well, good luck and good riddance to Geithner. The problem, given Obama’s own extreme caution and the Republican ability to block anyone who’d be a tough regulator of Wall Street, is that his successor is likely to be even worse.

Geithner’s main role in the great financial crisis was to shore up the large Wall Street banks without demanding any serious systemic reform in return. The window of opportunity in the spring of 2009 came and went with several zombie banks being propped up with hundreds of billions of taxpayer dollars and trillions of dollars in advances from the Fed, but no progress toward the too-big-to-fail problem, much less any major change in the bankers’ business model that caused the collapse.

Geithner’s main function in crafting what became the Dodd-Frank Act and the lobbying around its key provisions was to argue for weaker rather than stronger ones. Backbenchers in Congress like Senators Merkley, Levin, Kaufman, Reed of Rhode Island, and Franken were instead the advocates of strong reforms. Geithner explicitly opposed many efforts by progressive senators to toughen the bill, as when he opposed a ban on “naked” credit-default swaps (the Dorgan Amendment) or setting explicit limits on the market share of large banks or returning to the strict separations between speculation and investment of the Glass-Steagall Act. Obama, to Geithner’s great discomfort, invoked that reform as the “Volcker Rule,” but then Geithner successfully fought to undermine a serious version of it.

One of Geithner’s first administrative acts in making a decision to implement Dodd-Frank was to water down a key provision on derivatives so that any derivative involving foreign currency (a huge part of the derivatives market and Wall Street profits) was exempt from Dodd-Frank’s sunshine and anti-manipulation provisions. The Wall Street Journal piece on Geithner’s likely departure quotes Jim Vogel, a strategist at FTN Financial Capital Markets, as saying, “Since 2009, the capital markets have gotten very comfortable with Secretary Geithner’s steady approach to both the debt markets and financial policy.”

Well, yes, why wouldn’t they be very comfy? Wall Street has returned to pre-collapse profitability without any fundamental change in its business model. Overly complex financial products and proprietary trading, too-big-to-fail banks, and immense Wall Street influence over policy continue to undermine the recovery and pose the risk of a second collapse.

You can see the lingering influence of an unreformed system in the Greek mess. The European authorities are putting Greece through the austerity ringer, in part to protect banks that are major holders of Greek bonds. But the same banks are also holders of credit-default swaps. Hedge funds use swaps to bet on a Greek default, putting the banks at double risk. So a restructuring of Greek debt, of the sort used in the case of much larger Latin American countries in the 1990s, becomes prohibitively expensive.

Geithner’s legacy will be this: He took a historical moment that offered a rare and overdue chance for systemic financial reform and used it instead to paper over the cracks in a dangerous system.

Now, as to why you might be moved to tears, Kuttner has already said it: "The problem, given Obama’s own extreme caution and the Republican ability to block anyone who’d be a tough regulator of Wall Street, is that his successor is likely to be even worse." This morning a colleague was gathering "insider" speculations, and came up with:

* Ben White, Politico "Morning Money": argues first "Why [JPMorgan CEO Jamie] Dimon May Replace Geithner," then "Why Dimon Won't Replace Geithner," then turns to assorted other possibilities: OMB Director Jack Lew, Clinton White House chief of staff Erskine Bowles, current WH COS Bill Daley {"though Daley has the Wall Street problem" --d'oh!), former Deputy Treasury Secretary Roger Altman ("considered a strong candidate though he too is very much enmeshed in the investment banking culture"), and outgoing FDIC Chair Sheila Bair ("would have more credibility with progressive groups" -- well, scratch her from the list).

* Ben White again, with Carrie Budoff Brown, yesterday evening at Politico: Bowles, Altman, Dimon, Daley, and Bair again, plus now New York City Mayor Michael Bloomberg and GE CEO Jeff Immelt -- in case you thought it couldn't get worse.

* Mark Landler, NYT: Bowles, Altman, Fed Vice Chair Janet Yellen, National Economic Council director Gene Sperling.

* Kuttner is intrigued by the idea of Bair, "Geithner's nemesis," and argues that "Obama could send a salutary signal" by appointing her.

The odds of that happening, of course, are infinitesimal. He will probably name someone even closer to Wall Street, if that's possible.

As for Bair, she has told friends that she is likely to teach or go to a think tank, write a book, and speak out. She has no plans to cash in by going to K Street or Wall Street, where she could pull in a salary of $5 million to $10 million.

Let's see where Tim Geithner goes.

Now are you crying?

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