The NYT has the lengthy rundown of Treasury Secretary Tim Geithner's cozy relationship with Wall Street. You should read the whole thing. It's less about new revelations (other than Sandy Weill offering Geithner the top job at Citi, which Geithner promptly turned down.) The play-by-play is thorough (and thoroughly exhausting) so let's get to the point:
With his deep connections among senior finance execs and (relatively) well-respected stature as an honest regulator, Tim Geithner was the guy to call during the early days of the financial crisis. He knew the players, could get them in a room, and he understood (at least partly) what was at stake. The choice made a sort of sense, despite the unavoidable fact that the New York Fed under Geithner missed an alarming number of chances to regulate before the crisis exploded. The passage below illustrates his role, and his successes and failures:
In 2005, for instance, Mr. Geithner raised questions about how well Wall Street was tracking its trading of complex financial products known as derivatives, yet he pressed reforms only at the margins. Problems with the risky and opaque derivatives market later amplified the economic crisis.
As late as 2007, Mr. Geithner advocated measures that government studies said would have allowed banks to lower their reserves. When the crisis hit, banks were vulnerable because their financial cushion was too thin to protect against large losses.
In fashioning the bailout, his drive to use taxpayer money to backstop faltering firms overrode concerns that such a strategy would encourage more risk-taking in the future. In one bailout instance, Mr. Geithner fought a proposal to levy fees on banks that would help protect taxpayers against losses.
The bailout has left the Fed holding a vast portfolio of troubled securities. To manage them, Mr. Geithner gave three no-bid contracts to BlackRock, an asset-management firm with deep ties to the New York Fed.
To Joseph E. Stiglitz, a Nobel-winning economist at Columbia and a critic of the bailout, Mr. Geithner’s actions suggest that he came to share Wall Street’s regulatory philosophy and world view.
“I don’t think that Tim Geithner was motivated by anything other than concern to get the financial system working again,” Mr. Stiglitz said. “But I think that mindsets can be shaped by people you associate with, and you come to think that what’s good for Wall Street is good for America.”
In this case, he added, that “led to a bailout that was designed to try to get a lot of money to Wall Street, to share the largesse with other market participants, but that had deeply obvious flaws in that it put at risk the American taxpayer unnecessarily.”
But Ben S. Bernanke, the chairman of the Federal Reserve, said in an interview that Mr. Geithner’s Wall Street relationships made him “invaluable” as they worked together to steer the country through crisis.
“He spoke frequently to many, many different players and kept his finger on the pulse of the situation,” Mr. Bernanke said. “He was the point person for me in many cases and with many individual firms so that we were prepared for any kind of emergency.”
That sums up Geithner's promise and his problem. "Insider" status made him a great fixer. It also makes him the wrong person to re-regulate the financial sector. Now more than ever, the Treasury Department must redeem itself as an unimpeachable safeguard of both taxpayer money and the health of the banking system. As we've seen so far, FASB rule changes, less-than-stressful stress tests, flip-flopping on TARP and other missteps continue to slowly chip away confidence in the government's ability to fix problems in the economy. It's not even that Geithner was the wrong man for the job. He wasn't. He's just the wrong person to finish it.