What Geithner Must Prove

The incoming treasury secretary sure knows bailouts. Now, he has to master the beltway.

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He's certainly had plenty of bailout practice. As president of the Federal Reserve's New York branch, Tim Geithner has been one of the handful of guys in the room for every Wall Street flameout this year: Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Citigroup, and now, once again, Citigroup. That's why the markets cheered his appointment as Barack Obama's treasury secretary: He's already on the job and will take the baton from the outgoing Henry Paulson with as little disruption as anybody Obama could have picked.

But Geithner is still a risky choice, and in a few months' time, the markets could very well have turned on him. Here's why:

He's never been top dog. Geithner has played a key role in the government's ongoing Wall Street rescue, but he's been a junior partner to Paulson and Fed Chairman Ben Bernanke. Those two men have been the face of the bailout, the ones who strong-arm Wall Street execs into accepting offers they can't refuse and explain the details to an antsy Congress and a skeptical press. Paulson, the former CEO of Goldman Sachs, is a true financial heavyweight, with a booming voice and imposing bald head that add to his commanding credentials as a top Wall Street player. Yet even he has faltered, changing directions on the bailout several times and drawing deep criticism from investors. If Paulson hasn't been able to calm markets or lock down the financial rescue, will Geithner be able to do better?

He's a career regulator. That's a good thing, but it could also work against Geithner. After graduating from Dartmouth and getting a master's at the Johns Hopkins School of Advanced International Studies, he spent much of his career at the Treasury Department, followed by a two-year stint at the International Monetary Fund before joining the New York Fed in 2003. His only private-sector experience was a brief stop-off at Henry Kissinger's consulting firm. Geithner has had some prominent mentors, like Robert Rubin, the former treasury secretary who's now chairman of Citigroup. But more time in the private sector would have enhanced his standing—and connections—with the big shots he'll now be regulating. Including Rubin.

"Just about everyone felt that he was the best choice," wrote Charles Payne, CEO of the research firm Wall Street Strategies, in a note to clients. "That said, I still have misgivings about the lack of any real business people in the mix. I'm talking about folks that started a business from the ground floor, dealt with uncertainty, competition, and economic life and death on a daily basis." Beyond that, a range of experience both inside and outside government is the best background for a job that involves careful steering of the "free market." Geithner might have the skills to transcend that shortfall. But he'll have to work at it.

His political chops are unknown. As Paulson has proved, financial expertise isn't enough for the top treasury spot these days. With Congress committing huge sums to the bailout, crisp political instincts are nearly as important to keep the money flowing without the kind of discord that conveys a sense of aimlessness and spooks investors. Paulson screwed up, for instance, by asking for $700 billion and a free hand to spend it as he saw fit—as if congressional oversight barely mattered, even though the House and Senate were the ones providing the money. CEOs can get away with demands like that, but regulators answerable to Congress in the midst of an epic crisis can't. As we're learning, the bailer in chief must possess an uncanny mix of ironclad authority, political deftness, and a top-shelf Rolodex.

Does Geithner have it? We don't know yet. He has testified before Congress himself but usually as supporting cast to Paulson and Bernanke. For what it's worth, he comes off as polished, smart, decisive, and deferential. That's just the kind of guy you want on your team if you're on a vital rescue mission. Now, we'll see how he does leading the team.