Geithner, Taxed

The blogosphere is rumbling about Tim Geithner and his back taxes: Henry Blodget has even put up a post with the headline "Geithner Tax Scandal Threatens To Derail Confirmation".

Er, no, it doesn't. As Blodget himself admits, it's (a) not much of a scandal, and (b) even if it were much of a scandal, Congressional Republicans would have to "raise a stink" in order for the nomination to even come close to being derailed; so far, there's no sign of any of them doing so, and indeed key Republicans such as Orrin Hatch and Judd Gregg have already thrown their weight behind Geithner.

The WSJ is seeing more sense: after getting a little bit ahead of itself with the headline "Geithner's Past Tax Problems Throw Wrench in Confirmation", it soon switched to the less inflammatory "Geithner's Tax History Muddles Confirmation".

There's no realistic chance that Geithner will fail to become Treasury secretary as a result of this scandalette, if only because there's zero chance that Republicans would be any happier with Obama's second choice. Geithner is clearly qualified, and has worked very well with Republicans in the past: not only Bernanke and Paulson, in his present job, but also Anne Krueger, at the IMF. Had Mitt Romney, say, been elected president, Geithner would probably have been on his shortlist for Treasury secretary too.

Instead, the tax affair will act as a baptism of fire for Geithner, toughening him up for the nastiness which lies ahead. Just as Obama ultimately benefitted from the drag-out fight with Hillary Clinton in the Democratic primaries, getting through a little bit of adversity before he gets the job might well do good things for Geithner too.

The three most systemically important banks in America -- Citigroup, Bank of America, and JP Morgan Chase -- are trading on price-to-book ratios of 0.31, 0.38, and 0.67 respectively, and the $10 billion loss that Citigroup is expected to post in the fourth quarter is 31% of its entire market capitalization. The chances are that as Treasury secretary, Geithner will have to choose between bailing out and nationalizing at least one of them, and quite possibly all three. And whichever choice he makes, the screams of protest will be orders of magnitude louder than the mutterings surrounding him today. He'd better get used to it.

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