Monday, December 17, 2012

Geithner to Replace Bernanke?

William D. Cohan in a column at Bloomberg is out with what appears to be a  completely speculative piece that says Geithner may replace Bernanke at the Federal Reserve in 2014, when Bernanke's term expires:
Another important position in Washington that stands to be filled early in Obama’s second term -- but isn’t getting a whole lot of attention at the moment -- is the one currently held by Ben Bernanke, the chairman of the Federal Reserve. Bernanke’s second, probably final, four-year term ends on Jan. 31, 2014. Obama will have to make the nomination of a new Fed chairman a high priority soon after his Cabinet is assembled.

The usual list of highly qualified candidates to replace Bernanke -- including Lawrence Summers, the former Treasury secretary and Harvard University president; Janet Yellen, a current vice chairman of the Fed; and Alan Krueger, the precocious chairman of the White House Council of Economic Advisers -- misses the person who probably wants it the most and continues to have Obama’s ear on a regular basis: Geithner.

While many people -- understandably -- assume that Geithner worked at Goldman Sachs Group Inc. before he became Treasury secretary in 2009, actually he was president of the Federal Reserve Bank of New York from 2003 to 2009, the critical years leading up to and including the financial crisis. He has never worked on Wall Street. By design, the New York Fed has traditionally been the most powerful of the Federal Reserve banks, because of its proximity to the powerful Wall Street banks that it regulates. And Geithner played a major role, along with Bernanke and then Treasury Secretary Henry Paulson, in the bailouts of Bear Stearns Cos., Merrill Lynch, American International Group Inc. (AIG) and in the decision to allow Lehman Brothers Holdings Inc. to go bankrupt.

Crisis Veteran

Although Geithner failed to pull the punch bowl away just as the party was getting started -- which is what William McChesney Martin, the long-serving Federal Reserve chairman, said was the chief responsibility of a Fed governor in order to avoid the kind of financial crisis we experienced on Geithner’s watch -- he does possess a keen understanding of what went wrong.

“As is often the case during periods of rapid change, more significant concentrations of risk were present than was apparent at the time,” Geithner told the Council on Foreign Relations on March 6, 2008, just days before the bailout of Bear Stearns. “Banks and investment banks sold insurance against what seemed like low probability events, but did so at what even at the time seemed like low prices. And on the assets they retained, these same institutions purchased insurance from financial guarantors and other firms that were exposed to the same risks. The crisis exposed a range of weaknesses in risk management practices within financial institutions in the United States and throughout the world.”

Last spring, Geithner told Obama he wanted to leave Treasury as soon as possible and return to New York so that he could rejoin his family, while his youngest child was still in high school. But Obama prevailed on Geithner to stick around until after the election. And he remains in Washington to help Obama negotiate a deal on spending and taxes with Congress.

Had Geithner been serious about wanting to leave town, he probably would have thrown his hat into the ring to become president of Dartmouth College, his alma mater. But that position went to Philip Hanlon, the provost of the University of Michigan, without Geithner’s name being mentioned. Expect Geithner to seek a short-term sinecure at a liberal think-tank, such as the Brookings Institution, or to return to the Council on Foreign Relations, or to cash in as an adviser to a hedge fund (as Summers did at D.E. Shaw & Co. after he left Treasury) while he awaits the possibility of getting nominated as Fed chairman. If he is serious about the Fed job, he won’t risk taking an appointment -- such as the president of Dartmouth job -- that would be hard to leave after nine months.

Unless Cohan knows more than he is saying, he is reading too much into the facts, but he may know more. At this point, though, I put the odds of Geithner ending up at the Fed as 75 to 1 (and yes I know we are talking case probability not class, 75 to 1 is just a figure of speech.)


  1. Yes. Turbo Timmy running the FED. Lets go full retard shall we?

    1. I don't know if he looks more like Beavis or Butthead, but maybe we can find a suitable replacement for him so we can say that Beavis and Butthead run America's financial system.