Geithner's Written Responses to the Senate Finance Committee

Does Kentucky senator Jim Bunning read Market Movers? If not, we're certainly thinking along very similar lines. If you scroll down to page 45 of the 102 pages (!) of written responses from Tim Geithner to the Senate Finance committee, you'll find a question from Bunning which is almost identical to the one I wanted to see asked. Geithner's answer isn't nearly as contrite as you might expect:

Bunning: The New York Fed oversees the Fed's Large Financial Institutions regulation. Therefore, as President of the New York Fed, one of your most important responsibilities is regulating and preventing the collapse of systemically important banks. And that has been your job since 2003, which means it was your job to watch those institutions during the time they acted most irresponsibly and made the decisions that eventually led to our current crisis. All one has to do is look at the near-total collapse of Citigroup to see that you failed at that job. Why did you fail at that job and why should that not disqualify you from overseeing the entire financial system?
Geithner: There were systematic failures of risk management and supervision across the financial system, and addressing these failures will require comprehensive changes to financial regulation here and around the world. As President of the New York Fed, I led a number of initiatives to strengthen the financial system ahead of this crisis. Those efforts were important and effective in addressing many of the weaknesses at the center of past financial crises, and they helped limit the damage caused by the present crisis. But those efforts were inadequate.

Essentially, Geithner is saying that it wasn't his fault -- he did what he could -- but rather the fault of the entire global regulatory set-up. This might be true, but the New York Fed was hardly powerless, and could certainly have done more to constrain Citigroup's risk-taking. As Geithner himself says elsewhere:

Citigroup's supervisors, including the Federal Reserve, failed to identify a number of their risk management shortcomings and to induce appropriate changes in behavior.

It would have been nice to see a first-person pronoun in that answer somewhere, instead of seeing Geithner blame only the Fed generally, rather than himself specifically.

In general, Geithner's answers are highly diplomatic and content-free, with lots of stuff like this:

The U.S.-China economic relationship presents significant challenges, but also opportunities. It is one of our most important relationships. There are many specific issues in our economic relationship that require our careful and prompt attention. If confirmed, I am committed to a deep engagement between our senior economic officials to address differences and effectively resolve problems on these topics.

Geithner's ability to "answer" numerous questions about Cuba without giving any hint of what he actually believes on the subject is weirdly impressive in its own way, but also makes him look like a politics-as-usual Washington insider. Even his answer to Orrin Hatch's point-blank question about nationalization is uncomfortably mealy-mouthed:

Hatch: Do you believe that nationalizing our financial institutions is necessary to save our economy?

Geithner: I believe that the best outcome for the economy is a financial system that resides in private hands, with appropriate and effective oversight and regulation, and strong incentives for private market participants to invest. We nonetheless face a situation in which the U.S. government is currently providing extraordinary support to many financial institutions in order to avoid a catastrophic collapse in the functioning of the system and in the flow of credit to households and businesses. We believe these aggressive actions are necessary to prevent the need for an even greater outlay of funds in the future. However, we will make sure that the support the government is providing comes with strong, carefully designed conditions to protect the taxpayer, to provide much greater transparency about how the money is being spent and the results being generated, and to improve the possibility that private capital comes in and replaces government capital as quickly as possible.

I, for one, have no idea what that means -- which is almost certainly Geithner's intent. But Geithner must have smiled when he wrote this: it's a statement which he will surely be called on to repeat, mantra-like, with great regularity.

A strong dollar is in America's national interest.

I'm not entirely sure why it's such an important part of the Treasury secretary's job to recite those exact words, but Geithner clearly understands that it's one thing he has to do.

There are a few more areas where Geithner's answers provide a bit of real substance: he says explicitly, for instance, that "China is manipulating its currency", and he also says that he's going to start forcing banks getting government assistance to lend:

As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending above baseline levels.

But the weirdest bit of the testimony, for me, is the way in which Geithner recused himself from the negotiations with Citigroup. Was that because of his status as a former underling of Bob Rubin?

As part of my responsibilities as President of the New York Fed, I had a number of discussions with senior Citigroup executives and Board members in the weeks leading up to the most recent package of support. I did not, however, participate in the negotiations with this firm...
I participated in internal discussions with the Secretary of the Treasury, the Chairman of the Federal Reserve and the other heads of agencies on broad options, but I removed myself from any direct role in discussions with the firm on Friday evening, November 21, 2008.

Or maybe Geithner just felt like grabbing a movie that night. We'll probably never know.