(Summers x White House now) ÷ Fed in Future = Geithner in Treasury

The other shoe in the great Treasury Secretary sweepstakes dropped this morning as Obama’s team outlined a way to eat their cake and have it too. As David Kotok is quoted in the New York Times:

The most important thing for the market and for the economy is that these decisions are made and uncertainty is removed,” Mr. Kotok said. “It probably would have been the same rally had it been someone else on the short list.”

Not that the Times doesn’t want to represent Geithner as meaningful choice:

“The markets will remain disrupted through Jan. 20 without some thoughtful government action,” said Todd Steinberg, head of equities and commodity derivatives at BNP Paribas Americas. “The naming of Geithner certainly increases the possibility of action for a couple of reasons: he is in the government in one of the most influential seats, and he is already actively in dialogue with the current administration’s decision makers.”

Still, as several commentors point out, Geithner’s weakness hasn’t gone away. He’s does not have a significant public presence–though the last 10 weeks have greatly increased his visibility. Here’s Bloomberg on the matter:

“He certainly has relevant experience,” said Alex Pollock, resident fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank. “The whole public part of the job, the political part of Treasury secretary, will, I expect, be a challenge.”

The Wall Street Journal alludes to this last point here:

The position of Treasury Secretary has grown vastly in importance under its current holder, Henry Paulson, who insisted on a free hand from the White House. In addition to tackling the financial crisis, Mr. Geithner will have to deal with the U.S. relationship with China, the future of mortgage giants Fannie Mae and Freddie Mac and an overhaul of the nation’s financial regulatory infrastructure. He will also be the point man on Mr. Obama’s promises to raise taxes on the affluent and cut taxes for most middle-income families.

But the likely choice appears to have been driven largely by the financial crisis, and Mr. Geithner’s public record on many of the other matters he will be required to grapple with is limited. Unlike previous picks for Treasury secretary, who hailed from Wall Street, industry or the Senate, Mr. Geithner has been a technocrat most of his career.

Mr. Geithner isn’t considered close to Mr. Obama, either, an anomaly for one of the most critical positions in the cabinet.

The solution, which we’re likely to see on Monday, is to have Summers play an inside role–Council of Economic Advisors?–using his outside personality and fame to provide air cover for Geithner. The political deal for Summers is that the Obama team is putting it around that Summers will succeed Bernanke in 2010. (Wonder how Bernanke feels reading that?)

On the face of it, this is a good deal all around. Obama gets all of Summers’s strengths without some of the liabilities–the impression that the Clinton team is moving back into the White House and the dislocation going from Paulson to a new team. The promise of the Fed job is, of course, highly contingent. No one knows what world we’ll be living in two years from now. But shaking up the Fed might not be a bad thing either. Looking back, we were fools to allow Greenspan to serve so long. The Fed chairman who defied the first Bush presidency–under extreme pressure to reduce interest rates–became the power-loving egotist who would do anything to maintain his image as the Maestro. A deep bench for Fed chairmen would serve the country–and the world better.


Fed Official Is Said to Be Choice for Treasury
New York Times, November 22, 2008

Geithner Is Said to Be Obama’s Pick for U.S. Treasury Secretary
Bloomberg.com, November 22, 2008

Obama Likely to Pick Fed’s Geithner for Treasury
Wall Street Journal, November 22, 2008

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