Saturday, March 22, 2008
Timothy F. Geithner - Wall Street's Banker of Last Resort
Timothy F. Geithner, the 9th president of the Federal Reserve Bank of New York and the Vice Chairman of the Federal Open Market Committee (FOMC), is Wall Street's banker of last resort - In more ways than one. In addition to the NY Fed's routine open market operations of buying and selling U.S. treasuries, Geithner is playing an increasingly critical role in setting the Fed's emergency response policy and has been named as the driving force behind the Fed's decision to initiate measures on multiple fronts, all aimed at pulling in tainted mortgage backed securities (MBS) off the market, at the same time easing the credit crunch by cutting rates and providing lending facilities directly to primary brokers.Syndicated columnist Robert D. Novak has, in a recent column, identified Timothy Geithner as the man who pressed for the Central Bank to intervene and help Bear Stearns from going under. Quick action last week when Bear Stearns was going under contrasted sharply with the normally glacial pace of the U.S. government. Ben Bernanke, Alan Greenspan's scholarly successor as Federal Reserve chairman, of course approved the bailout (as did Treasury Secretary Henry Paulson). But the initiator was the 46-year-old Geithner, who as head of the New York Fed maintains a traditionally intimate relationship with Wall Street.
Greg Robb, MarketWatch, follows up on Novak's article, and explores Geithner's actions, life, his work at the NY Fed, and his relations with fellow bankers and Wall Street. Although not a household name, he has been a point man on the U.S. response to almost every major financial blowup of the past decade, including the Mexican peso crisis, the Asian financial meltdown, the government's bailout of Long Term Capital Management, and now the current storm that's still raging. Those who've worked closely with Geithner over the past decade say he's most comfortable working behind the scenes, where he's succeeded in getting some of the most powerful and competitive financiers in the world to compromise in the name of taking one for the team. In a prescient speech a year ago, he surveyed the vast unregulated financial system that had grown up in recent decades and declared himself to be worried. "Broad changes in financial markets may have contributed to a system where the probability of a major crisis seems likely to be lower, but the losses associated with such a crisis may be greater or harder to mitigate," he said. He compared unraveling all risks to "unscrambling an egg."
The Financial Times has a more personal and psychological profile of Geithner, with focus on his personality, hands-on style of working (as opposed to an ivory tower view of economics and the markets), and his 'instinct' for smelling out impending trouble in the markets and putting fixes in place to deal with it. Mr Geithner tends to "smell" his way through situations, a senior central banker says. He attributes this to his background as a Treasury official rather than a high-flying economist or banker - something he shares with Mr Trichet [Jean-Claude Trichet, president of the European Central Bank]. "The key thing about people such as Trichet or Geithner is that they have come from treasuries - they know how politics and power works," the central banker says.
Have to say the FT has a point. I'd much rather prefer people like Henry Paulson, Robert Rubin or Timothy Geithner at the wheel who understand and have a feel for the markets and innovate on the fly, rather than bookish nerds like Bernanke.
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