So, I have had my doubts about Tim Geithner for a while now. He certainly seems smart, capable and likable. However, the fact that he was President of the New York Fed from 2003 to now and the following things occurred on his watch troubles me:
- The rapid expansion of asset backed commercial paper, whereby nearly $1 trillion commercial paper conduits, run by money center banks, sprang up with a good amount of their investments centered in "AAA" rated residential CDOs.
- The explosion of off-balance sheet entities, run by the likes of Citigroup, also invested in "AAA" rated CDOs.
- The massive amounts of bank profits coming from magically turning poorly underwritten residential mortgages, commercial mortgages and high yield corporate bonds and loans into highly rated securities.
- The high leverage and low liquidity of New York's investment banks.
- The resulting horror show that we are witnessing now as a result of the above mentioned items.
Sure Mr. Geithner has been at the center of it all the last year and a half, trying to fix things but like Hank Paulson and Ben Bernanke, wasn't he part of the problem? When Paulson and Bernanke were consistently behind the curve on this crisis from late 2006 to summer 2008, where was Geithner? Like Richie said earlier, if he was telling his boss and the Treasury Secretary something different, we would have seen those stories already from "unnamed sources".
But lets forget about all that for a second. I read an article in the Financial Times today by Gillian Tett titled "Always the Pragmatist, Geithner Gets the Job Done" Ms Tett says this about Mr. Geithner's backround when he took the post as President of the New York Fed;
"Some wondered how he would make his mark at the New York Fed given his youth and his lack of macroeconomic qualifications. And indeed, during the first couple of years, Mr Geithner exerted relatively little influence at policy meetings - not the least because these tended to be dominated by Alan Greenspan, then chairman. However, Mr Geithner quietly sat down to boost his knowledge of macroeconomics finance and surrounded himself with a key group of advisers: men such as Gerald Corrigan, former NY Fed president, and Paul Volcker, whom he would regularly call for a "chat" and to garner ideas. He also threw himself into the task of understanding how the mechanics of modern financial markets work, right down to the level of grasping the intricacies of,say, the structure of a CDO."
WTF? How did he get that job in the first place? If you are the president of the most powerful Federal Reserve bank aren't you supposed to know things about macroeconomic finance already? I can see if he didn't have that exact knowledge base but had been in banking for twenty-five years and knew everybody and everything they did. But he was younger than I am now with umm, no real banking experience! I'm glad MsTett is impressed that Mr Geithner learned how a CDO worked, but wasn't that kind of his job since all the major banks under his watch were cranking them out by the billions each month and essentially financing half the U.S. economy with them?
I don't know, I guess this is how things work. The frightening thing is Mr Geithner has learned so much on the job the last eighteen months that he probably is now the best candidate to take over from Hank Paulson. I just wish he had learned a little earlier before he took the reigns of the New York Fed.