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Prospect of Geithner at Treasury buoys markets. Will it last?

An auto bailout, a second stimulus package, and foreclosure help are on hold as Washington awaits the new administration.

By By Peter Grier / November 21, 2008

Timothy Geithner, head of the New York Federal Reserve Bank, is reportedly Obama's top pick for Treasury secretary.

Larry Downing/Reuters/File

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Washington

At a time when the US economy is as fragile as it has been in a generation, Washington may have entered a hazardous interregnum, as the Bush administration’s ability to drive policy quickly ebbs while real power for Barack Obama remains months away.

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In a move to calm the volatile stock markets, the president-elect is expected to announce his economic team on Monday. Mr. Obama's pick for Treasury secretary – apparently Timothy Geithner, president of the New York Federal Reserve Bank, according to news reports – will play a key role in directing federal efforts to rescue the economy.

US markets surged on the news that Mr. Geithner would be tapped, with the Dow Jones Industrial Average climbing 6.5 percent to close at 8046.42 on Friday.

The move, however reassuring to Wall Street in the short term, does little to change the lack of forward movement in Washington.

It’s now all but certain there won’t be any new government stimulus package until after Inauguration Day, for instance. A bailout for the auto companies? Maybe. And Secretary of the Treasury Henry Paulson says he’s going to sit on the remaining half of the $700 billion financial rescue package, saving it for the incoming Obama administration.

Meanwhile, stocks have plunged since Election Day, notwithstanding Friday's rebound. Unemployment forecasts are up. Wall Street is wringing its hands – and looking to the nation’s capital.

On Friday, for instance, Goldman Sachs lowered its prediction for economic growth in the current quarter from a 3.5 percent contraction of gross domestic product to a 5 percent decline.

“Although persistent downside surprises are a major driver of the current-quarter adjustment, the main reason for the downgrade to our forecast is the policy impasse that has developed in Washington and the tightening in financial conditions it has provoked,” wrote Goldman economists in their Friday "GS Skinny."

As evidence of the capital’s curious state, which combines frenetic movement with lack of forward progress, look at what happened this week with the auto-industry bailout. Or what didn’t happen, rather, as the effort collapsed amidst Democratic infighting.