Geithner's big week with Congress, bank plan

Embattled Treasury Secretary Timothy Geithner moved into image rehabilitation mode this week, even as he faces continued criticism that his economic rescue plans are showering undeserved benefits on firms such as AIG.

Public outrage over bonuses paid at that bailed-out insurance firm won’t be easy to defuse, especially as more Americans lose their jobs. On Tuesday, Mr. Geithner was in the hot seat again on this issue, at a Capitol Hill hearing.

Being point man for bailouts is just one challenge he’s faced in a shaky start that has stirred talk about whether President Obama might have to replace him. But it now appears that Geithner will stand or fall by whether his policies work going forward, not on early missteps. Among the signs:

- His plan to deal with so-called toxic assets of banks, unveiled Monday, was better received than an early outline of his bank-rescue plans.
- At the hearing Tuesday, concern about AIG was channeled partly in a positive direction: on the need for legislation so that in the future the government can better manage the shutdown of large failed firms that pose a risk to the economy.
- Mr. Obama has voiced strong support for his Treasury chief.

“The only thing that matters here is the judgment of the president,” says Robert Shapiro, who served President Bill Clinton as undersecretary of Commerce for economic affairs, now at NDN, a left-leaning think tank in Washington.

Obama’s own job performance is now tethered closely to the success of his Treasury secretary. He selected Geithner, after all, and has endorsed his latest rescue plans.

For Geithner’s part, his job security hinges on how well his plans work in the months ahead, Mr. Shapiro says.

The Obama administration, however, confronts a risk related to Geithner’s policies, he adds: “The larger issue is whether the administration either has been or will be too deferential to Wall Street.”

Geithner falls into one camp of finance experts who say the best way out of the financial mess is to nurse banks back to health without putting them under full government control. The main rival view, held by Shapiro and others on both the right and left, is that some large institutions may be insolvent and would be most efficiently resolved through temporary nationalization.

Politically, the Geithner course means that populist ire over bailouts could persist in coming months. Obama is already navigating delicately on this issue, affirming his own frustration with Wall Street while making the case that economic recovery hinges on more help for banks.

Economically, Geithner’s bank-rescue strategy carries its own risk. The true health of banks is a central uncertainty for the economy now. The worse off banks are, the more likely it is that nationalization of weak banks would be a cheaper and quicker way to resolve the problems.

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