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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (45667)	11/23/2008 6:51:24 PM
From: stockman_scott	Respond to of 149317

Geithner's Style Puts Him in Sync With Obama online.wsj.com NOVEMBER 23, 2008, 6:13 P.M. ET Timothy Geithner devoted much of his five-year tenure at the Federal Reserve to pinpointing potential risks to the nation's sprawling financial system. His approach was methodical and cautious, searching for a middle ground between Wall Street's needs and the public interest. But in a crisis Mr. Geithner took a far more activist bent: pushing for aggressive government intervention -- sometimes forcing decisions onto firms at risk -- when faced with imminent disasters for the economy and financial system. "The choice is between which mistake is easier to correct: underdoing it or overdoing it," he told the Journal this spring. The New York Fed president's style puts him in sync with President-elect Barack Obama, who is expected to name Mr. Geithner as the nation's next Treasury secretary on Monday. Both have a track record of identifying economic risks in advance through speeches and public statements. But neither has had enough power in their positions to address them fully to get ahead of the problems. In his new role, Mr. Geithner will play a key role in resolving the nation's worst economic downturn in decades and formulating a sweeping overhaul of financial regulation. He'll also be central to numerous policy issues -- from taxes to fiscal policy -- in which his views are unknown publicly. Through about three dozen speeches since taking over the New York Fed in November 2003, Mr. Geithner's public comments have focused largely on financial policy. But he has occasionally touched on other issues he'll consider at Treasury, discussing the threat from the nation's rising indebtedness while throwing passing mentions of income inequality -- a top concern of many Democrats -- into speeches. But most have been short on specific details about what should be done. "The major economic policy challenges facing the nation today -- pick your favorites among the usual suspects of low public and household savings, concerns about educational quality and achievement, high and rising income inequality, the large imbalances between our social insurance commitments and resources -- are not about monetary policy," he said in a 2005 speech. Early in his tenure, Mr. Geithner suggested that financial innovation -- with risk now spread beyond only the banking system -- limited the chance that shocks would result in a self-reinforcing downturn. But he was careful in straddling the fence, maintaining all along that the risk of credit cycles, continued "manias and panics" and financial shocks had not been eliminated. Many of Mr. Geithner's statements have proven to be particularly prescient -- echoing what ultimately occurred in the past three months. Financial shocks in the U.S. and globally over the past quarter century "typically involved the dynamic in which a sharp change in risk perception results in a fall in asset prices," he said early last year. "As market participants move to protect themselves against further losses, by selling positions, requiring more margin, hedging against further declines, the shock is amplified and the brake becomes the accelerator." Mr. Geithner has been criticized for not doing enough to force companies to change. Even he has acknowledged that action to address the scope of the problem "did not achieve enough traction" in some areas. He used his role as the central bank's point man on Wall Street -- keeping a close eye on the nation's financial markets -- to focus on the risks from hedge funds and credit derivatives, in particular a largely unregulated market for insurance against corporate defaults. Credit-default-swaps became a key threat this year, just as the New York Fed advanced prior initiatives that would mitigate their risk to the financial system. As the credit crisis struck in August 2007, Mr. Geithner played a leading role in determining its impact on financial institutions. He coordinated the Fed's $30 billion rescue package in March to facilitate the sale of a nearly bankrupt Bear Stearns Cos. to J.P. Morgan Chase. He was central to discussions with a long list of other troubled financial institutions, from Lehman Brothers to insurance giant American International Group. His track record on bailouts -- particularly in dealing with AIG -- offers some clues to how he might deal with troubled automakers as they're on the verge of bankruptcy. With AIG, he formulated the government takeover of the firm to protect the overall economy -- but instituted harsh terms that gave U.S. taxpayers a nearly 80% stake in the company with new management effectively overseen by the Fed. Last month, when the Treasury and Fed decided to inject capital directly into the banking system -- starting with the largest financial institutions -- Mr. Geithner sat at the table with top government officials and bank executives. He detailed how much U.S. money each firm would receive, giving them no choice but to sign off to ensure that the capital-injection program wouldn't be seen as going only to the weakest firms. As Treasury Secretary, Mr. Geithner will play a key role in overhauling the patchwork of financial regulation after a year of turmoil that exposed oversight failures. In recent months, he's stressed the importance of building "shock absorbers" for the financial system so the failure of a major firm does not ripple through markets. His views indicate support for a proposal by other top officials to create a resolution system for failing financial firms, akin to the Federal Deposit Insurance Corp.'s procedures for depository institutions. Mr. Geithner has offered few specifics, arguing that officials need broad authority while insisting that full decisions cannot be made until the crisis is over. He was the first Fed official to publicly dispute a Treasury proposal earlier this year that would've removed some authority for direct bank supervision from the Fed, while giving it an overall role as a supercop for financial markets to ensure stability. Mr. Geithner said the recent turmoil shows the central bank needs more authority, not less, to match its responsibility overseeing firms that ultimately may need financial support from the central bank in a crisis. Major "globally active" banks and investment banks need to operate under a single framework with stronger consolidated supervision, he said in a June speech. In addition to tougher standards for capital, liquidity and risk-management at financial firms, Mr. Geithner said regulatory policy needs to be broadened beyond supervision of firms to look at practices in markets, such for those for mortgages and other debt. Mr. Geithner maintained that hedge funds and private-equity firms don't need mandated capital requirements. But he said regulated firms must consider the stability of the overall financial system when they're judging risk. "The conventional risk-management framework today focuses too much on the threat to a firm from its own mistakes and too little on the potential for mistakes to be correlated across firms," Mr. Geithner said. He called the existing regulatory structure "an enormously complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion, and creates the risk of large gaps in our knowledge and authority."