Left Flank

I think I'm setting into the anti-Summers camp.

It's not just that, if Obama picked Summers, he'd suddenly have two people in very senior positions who don't quite fit his «no drama» mantra. It's that he'd have two people who don't quite fit the «no drama» mold as two of his first appointments. Worse, he'd have two people whose mere announcements (to say nothing of they're actual tenures) stirred up more than a little drama--Rahm because of his public anguishing and Summers because of the lefty mau-mauing he's already inspiring.

It's just I want Tim Geithner, the only other name seriously mentioned, to stay at the New York Fed. So, who does that leave? Robert Rubin? Paul Volcker.

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New York Federal Reserve Governor and former deputy assistant secretary at Treasury, Tim Geithner, and his former boss, the second Clinton administration Treasury secretary, Lawrence Summers, are the two top candidates for an Obama administration's Treasury Department,according to Noam Scheiber. Robert Rubin is a distant third. Henry Paulson's return would probably cause President-Elect Obama's unfavorables to explode.

As in the annals of military history, there is such a deplorable practice as promoting people beyond their level and ruining them even for the lower-level jobs they did so well in the first place. It seems Geithner had a better handle on the recent Lehman Brothers situation. But, in 1997, Geithner, Summers, and Rubin oversaw what is now regarded a contributory blunder for the current global financial crisis.

In this mix, Geithner often made action possible by setting Rubin's tortured soul at ease. When, for example, the collapse of the Korean financial system in 1997 triggered a global crisis, Summers recommended an overwhelming response--a U.S.-sponsored bailout on top of an accelerated IMF package worth tens of billions. But the idea gave Rubin agita. It was Geithner who, according to one colleague, nudged Treasury toward a successful middle ground. Summers himself viewed Geithner as such a crucial counterweight that, the following year, he helped make Geithner Treasury's top international official.

(...)

Geithner generally gets high marks for his stewardship of the Fed over the last five years, particularly his longstanding calls for reforms that, in his words, would strengthen the system's «shock absorbers» and make it less prone to crises in the first place. Among other things, he has repeatedly urged greater transparency in the use of complicated financial instruments, like derivatives (essentially bets on the price movements of assets like stocks and bonds). And he has called for scrutiny of the way Wall Street creates and sells asset-based securities, which have generated huge losses in recent months.

Geithner also won solid reviews for his handling of the Bear Stearns meltdown in March, when he greased JP Morgan's purchase of the failed investment bank by insuring it against up to $29 billion in losses on Bear's dowry of toxic assets. As the economist Brad DeLong has written, Geithner seemed to strike the right balance between preventing a crisis (by effectively saving Bear's bondholders and counterparties) and discouraging irresponsible risk-taking (JP Morgan's bargain-basement purchase-price saddled Bear's stockholders with huge losses). Though some complain that JP Morgan itself made out too well, few disagree with the deal's basic contours.

Still, for the purposes of his own future, if not the global economy's, the more relevant judgment may concern Geithner's role in the collapse of Lehman Brothers in September, a collapse that was arguably the proximate cause of the recent financial turmoil. In the aftermath, critics wondered why the feds would bail out Bear and not Lehman, which, owing to its greater size and complexity, was more likely to bring the financial markets down with it.

While the deliberations among Geithner, Paulson, and Bernanke remain opaque, there is a growing consensus on Wall Street and in Washington that Geithner would have been more reluctant to let Lehman go if left to his own devices. Perhaps more importantly from the perspective of Geithner's career, this is the view that holds sway in Obamaland. «I don't know anyone who doesn't think the Lehman decision was a terrible error,» says one Obama confidant. «But there is some sense ... that Geithner would have handled it differently. ... That, in terms of understanding and pushing on the severity of the problem relatively early, Geithner was strong that way.» This person relates a recent conversation between an associate and a Fed official, in which the latter complained, «Christ, Geithner wants to save everybody.»

To the extent there's a black mark on Geithner's record, it may have to do with the banking system more broadly. As early as last fall, there were hints that U.S. banks were undercapitalized--which is to say, they didn't have enough money to absorb potential losses on all the loans in circulation. In April, the IMF released a report suggesting the shortfall could be in the hundreds of billions of dollars. Which raises the question: As one of the nation's top banking regulators, why wasn't Geithner more forceful in urging the banks to raise money--or, if that was impossible, in making the case for government support?

Geithner's defenders argue that estimates like the IMF's are overstated and that the problem arose fairly abruptly in recent months. Prior to September, grouses a former New York Fed official, «[i]f one went to the Congress with that information and said, 'We have to pass a law so you can provide governmental capital to banking institutions,' they would have been laughed out of town.» Even those who believe the problem was evident earlier concede there was little Geithner could have done to browbeat banks, because the mandate of the New York Fed is to work closely with them.

Yet, Joseph Stiglitz has called into question Treasury's decisions under Summers and Geithner in 1997. Stiglitz, in Globalization and Its Discontents, accuses Treasury, among other western officials, of hubris, because of a refusal to consider alternative proposals that challenged market fundamentalism and American interests (p. 129). Perhaps Geithner is in the right place, the New York Fed, and neither Summers, nor Rubin deserves a portfolio when international, not national, perspective is needed in the teeth of a global recession.

Has-been's make bad leaders, and stars should stay where they shine brightest. And, if it takes a troika to reach one decision, that's just too many chiefs to run a department.

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«Investigative journalist Seymour Hersh believes that the United States may be closer to armed conflict with Iran than previously imagined. He writes about Congress' funding of covert military operations in the upcoming issue of The New Yorker.» Also, be sure to listen to Hersh discuss the article on NPR's Fresh Air.

One other alarming conjecture involves DPRK, and the recent destruction of an abandoned Yongbyon cooling tower and the subsequent release of its nuclear declaration on its plutonium program, all of which resulted in Washington's decision to de-list DPRK from the roster of states sponsoring terrorists. Brendan Keefe paraphrases:

Hersch sees Bush's recent easing up on North Korea as possibly part of the this plan, speculating that Bush will attempt to spin this as North Korea was reasonable, so we were able to come to an accommodation. Iran, on the other hand …

...did the Bush administration secure its right flank for the left hook into Iran?

I'm always astounded that there's money for these adventures. Alexander Cockburn, in a May 2, 2008 Counterpunch article, to which Hersh alludes in his New Yorker piece also brings up the issue of America's «financial weakness»:

Sometime in the next two weeks, fleet radar operator may notice a blip on their screens that represents something rather more profound: America's growing financial weakness. The blip will be former Treasury Secretary Robert Rubin's plane commencing its descent into Abu Dhabi. Rubin's responsibility these days is to help keep Citigroup afloat despite a balance sheet still waterlogged, despite frantic bail out efforts by the Federal Reserve and others, by staggering losses in mortgage bonds. The Abu Dhabi Sovereign Wealth Fund injected $7.5 billion last November (albeit at a sub-prime interest rate of eleven percent,) but the bank's urgent need for fresh capital persists, and Abu Dhabi is where the money is.

Even if those radar operators pay no attention to Mr. Rubin's flight, and the ironic contrast it illustrates between American military power and financial weakness, others will, and not just in Tehran. There's not much a finding can do about that.

I've lately taken comfort from the hope, that the US can survive the Bush administration and reach the general elections and the next inauguration without another incident of its own misguided design. I never thought, as someone for whom President Nixon's resignation was the catalyst for my political consciousness, that I would ever see those depths again.

Please contact your congressional representatives at Congress.org, to voice your opposition.

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