Barack Obama should cut loose from Timothy Geithner as his Secretary of Treasury pick. Geithner will soon find himself before confirmation hearings again (they have been rescheduled) because he: failed to pay appropriate income taxes and had an illegal nanny in his employ. But more important than this, Geithner is tied to the past; he has been head of the Federal Reserve Bank at a time when the financial meltdown was occurring and did nothing to oversee it. Quite to the contrary, Geithner has been a champion of deregulation which led to the problem. Obama should pick instead from someone like these two Nobel Prize winners: Paul Krugman or Joseph Stiglitz, both of whom warned against the coming storm, unlike Geithner.
Let me first consider together Geither's difficulties with properly paying his income taxes and the nanny issue. This is certainly a problem especially since the Treasury Secretary is in charge of the IRS. A recent Wall Street Journal Article summed up Geithner's situation on both questions:
"The tax issue relates to Mr. Geithner's work for the International Monetary Fund between 2001 and 2004. As an American citizen working for the IMF, Mr. Geithner was technically considered self-employed and was required to pay Social Security and Medicare taxes for himself as both an employer and an employee.
The IMF and World Bank reimburse employees, including U.S. citizens, for their U.S. income taxes. They don't, however, make contributions toward Social Security and Medicare taxes, which individuals are expected to pay on their own.
In 2006, the IRS audited Mr. Geithner's 2003 and 2004 taxes and concluded he owed taxes and interest totaling $17,230, according to documents released by the Senate Finance Committee. The IRS waived the related penalties.
During the vetting of Mr. Geithner late last year, the Obama transition team discovered the nominee had failed to pay the same taxes for 2001 and 2002. "Upon learning of this error on Nov. 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years, plus interest," a transition aide said. The sum totaled $25,970.
The Obama team said Mr. Geithner's taxes have been paid in full, and that he didn't intend to avoid payment, but made a mistake common for employees of international institutions. That characterization was contested by Senate Finance Republicans, who produced IMF documents showing that employees are repeatedly told they are responsible for paying their payroll taxes.
As to why Mr. Geithner didn't pay all his back taxes after the 2006 audit, an Obama aide said the nominee was advised by his accountant he had no further liability. Senate Finance aides said they were concerned either Mr. Geithner or his accountant used the IRS's statute of limitations to avoid further back-tax payments at the time of the audit.
Other tax issues also surfaced during the vetting, including the fact Mr. Geithner used his child's time at overnight camps in 2001, 2004 and 2005 to calculate dependent-care tax deductions. Sleepaway camps don't qualify.
Amended tax returns that Mr. Geithner filed recently include $4,334 in additional taxes, and $1,232 in interest for infractions, such as an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use.
The other cloud for Mr. Geithner involved an immigrant housekeeper whose work-authorization papers expired during her tenure working for Mr. Geithner. For three months, until she stopped working for the family to have a baby, the woman was working on the expired papers. An Obama aide said the woman reapplied for the papers and received them, and now resides legally in the U.S."
http://online.wsj.com/...
But the tax matters and the nanny issue are secondary ones and the prime reason for the disqualification of Geithner from being Sect. of Treasury is his incompetence. He has been at the heart of the financial crisis and rather than foresee it or reign it in, he was an enabler. In October 2003, he was named president of the Federal Reserve Bank of New York where his salary in 2007 was $398,200. Once at the New York Fed, he became Vice Chairman of the Federal Open Market Committee component. In March 2008, he arranged the "rescue" and sale of Bear Stearns and later, in the same year, he is believed to have played a pivotal role in both the decision to bail out AIG as well as the government decision not to save Lehman Brothers from bankruptcy. Source: Wikipedia, http://en.wikipedia.org/... (citing New York Times articles). As head of the NYFed Res. Bank he was one of the enablers of the financial meltdown. Moreover, as one of the architects of the financial bailout, he bears responsibility for the lack of transparency of it and its failure to provide effective oversights and penalties for abuses. "Timothy Geithner, President-elect Barack Obama’s choice for Treasury secretary, has some explaining to do," The New York Times wrote in a Dec. 14, 2008 editorial that catalogued Geithner’s errors in judgment during the fall financial crisis. "We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers," said Christopher Whalen of Institutional Risk Analytics. "Throw in the Bear Stearns/Maiden Lane fiasco for good measure," he said. "All of these ‘rescues’ are a disaster for the taxpayer, for the financial markets and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion." Ouch", concluded the New York Times. http://www.nytimes.com/...
No one really knows where the first $350 million dollars has gone or to what effect, including Geithner. That is poor thinking, poor planning, and poor administration. This in itself should disqualfy Geithner from the Secretary of Treasury role, and indeed, any significant role in the new administration.
Surely foresight and wisdom is something that is necessary in the new Treasury Secretary position. What about Geithner? Was he one who early saw the problems developing in the credit markets and the subprime mortgage sector? Judge for yourself. Here is a partial transcript for a speech Geithner gave on March 23, 2007 at the Credit Markets Symposium hosted by the Federal Reserve Bank of Richmond, Charlotte, North Carolina:
The latest wave of credit market innovations has elicited some concerns about their implications for the stability of the financial system, concerns similar to those associated with earlier periods of rapid change in financial markets. Will the most recent credit market innovations amplify credit cycles, contributing to "excessive" lending in times of relative stability, and then magnify the contraction in credit that follows? Will they introduce greater volatility in financial markets? Will they create greater risk of systemic financial crisis?
These concerns have been heightened in some quarters by the problems currently being experienced in the subprime mortgage sector. It will take some time before the full implications are understood and the full impact can be assessed. As of now, though, there are few signs that the disruptions in this one sector of the credit markets will have a lasting impact on credit markets as a whole.
Indeed, economic theory and recent practical experience offer some reassurance against both these specific concerns and more general worries about the implications of credit market innovations for the performance of the financial system... .
(emphasis added)
(Thanks to poster, Bankbane who called my attention to this quotation and posted it below).
Geithner in this talk focuses on innovations in the credit market and said: "Default rates do not appear to have risen, nor recovery rates fallen as these credit innovations have spread, despite concerns they might lead to excess lending, the mis-pricing of credit risk and more messy and more complicated workouts, resulting from the greater diffusion of the investor base." Geither continued with his rosy, and completely inaccurate view: "...recent experience as well as theory provide some reassurance against the concern that credit market innovation would make markets more volatile and the financial system more vulnerable... ." http://72.14.235.132/...
Geithner, in short, saw no red flags as late as March 2007; a reason why the Senate should see red flags all over his nomination.
Here's another reason to oppose Geither articulated by Pulitzer prize winning historian, David Oshinsky, who teaches at NYU and Texas:
"Obama has a unique opportunity here: the public is looking to him to show that government truly can be an instrument to make their lives better. It's an opportunity that arises once or twice in a century. He'd better not squander it. And here is where my doubts creep in. I'm disappointed by some of the choices Obama has made thus far. Bill Richardson? What, in the name of God, was he thinking? Eric Holder and Timothy Geithner? Why must Obama make the public choose between 'competency' and 'decency?' It was painful to hear him describe the repeated failure of a cabinet-designee to pay his full share of taxes as an 'honest mistake.' If this sort of baggage continues to accumulate, Obama may soon be viewed as just another politician, thereby squandering his most valuable personal asset." http://www.huffingtonpost.com/...
So, President Obama, why tie yourself to Geithner and squander your political capital? There are far more accomplished and insightful economists out there (Geithner only holds an MA in International Relations) whom you could and should choose from such as Joseph Stiglitz and Paul Krugman, both Nobel Prize winners in economics. Neither is a captive to the financial meltdown and both saw problems coming.