February 09, 2016
Timothy Geithner's Semi-Charmed Life
Posted by Matt Bodie

Former NY Fed Chair, Secretary of Treasury, and tax scofflaw Timothy Geithner is in the news again.  The now-president of Warburg Pincus has set up a line of credit from JP Morgan to invest in one of his firm's private equity funds.  The move is fairly standard for both Morgan and private equity members looking to scale up their investment.  In fact, it may be evidence that Geithner is relatively worse off, financially, than many of his private equity compadres -- he's been called "one of the least wealthy Treasury chiefs in recent history."  But it comes in the wake of allegations that Senator Ted Cruz failed to properly disclose a loan from Goldman Sachs -- another instance of those with connections getting loans that most could never dream of.  And it's a reminder of the chumminess between the feds and the Street that the whole Bernie Sanders revolution finds repugnant.

Timothy Geithner is something of a Rorschach inkblot for modern economic politics.  You may see him as the son of microfinance advocate with an international upbringing who worked a series of modestly paid government jobs in service to a progressive economic agenda, ultimately saving the economy from complete collapse and worldwide depression.  Or you may see him as the son of a wealthy Mayflower descendant who skated through the financial crisis, landed the top job at Treasury despite opposition across the political spectrum, and now sits as president of an established private equity firm.  And this line of credit is in line with that duality.  As Matt Yglesias describes it:

There's no evidence to believe Geithner did any special favors for Warburg Pincus in any of his government jobs, and little reason to believe that JPMorgan had anything other than a basic business interest in advancing this line of credit. From JPMorgan's perspective, it's a no-brainer move to make, and if one bank hadn't been willing to do it, another bank would have. There's no quid pro quo here, and by conventional standards there's no scandal.

But even if there's nothing technically wrong with this setup, it is exactly why Sanders's message is resonating. By conventional standards it's normal for the Democratic Party to appoint someone like Geithner: a Treasury secretary who is also the kind of person who could comfortably be a partner at a private equity firm and get a line of credit from a major global bank to paper over the fact that he's not as rich as those colleagues. It's not a scandal; it's just how the game is played.

And for many Sanders supporters, that is precisely what's wrong.

The Sanders perspective may not seem to matter much here -- after all, President Obama went out of his way to appoint Geithner, and that's a pretty good validation of progressive bona fides.  But there is evidence that Sanders may not simply be a dismissable Socialist crank.  (We'll find out more tonight.)  If that's the case, Geithner may find himself as a pariah in the very party that ensconced him in power.  Regardless, he's a symbolic personification of the Janus-faced fiscal and economic policies that the current Democratic Party represents.

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