Obama team right for job
Toolbox
Published: January 8, 2009
President-elect Obama has had a rough time recently with several of his choices for positions in his administration. So it may be timely to reaffirm several solid choices he has made, which came in for rather strong criticism in a recent (Dec. 31) letter to the Herald by Mr. K.M. Forlie. Mr Forlie's letter opens with "I'm outraged that President-elect Obama has appointed Tim Geithner as treasury secretary and Larry Summers as his chief economic adviser." Because, as Mr. Forlie goes on to explain, Messrs. Geithner and Summers were "central players in crafting the lax regulatory policies ... that have contributed to the economic situation we now find ourselves in."
In support of this proposition, he quotes a Naomi Klein "Democracy Now!" interview, which calls for "reregulating exactly what Larry Summers and Tim Geithner deregulated under the Clinton administration." I set out below the reasons I believe Mr Forlie's complaint — and thus his call for withdrawal of the appointments — to be unjustified and erroneous.
First, some necessary background. Deregulation of the financial markets — which I completely agree has been a disaster — took place over a period of more than a decade (roughly, mid-1980s to 1999), and included a number of agencies and individuals. Any list of prime deregulators would have to include Alan Greenspan (Federal Reserve Board chairman, 1987-2006) and Sen. Phil Gramm (free-market enthusiast and an author of the 1999 Gramm-Leach-Bliley Financial Services Modernization Act, which finally repealed Glass-Steagall.) I cannot speak to the specific role of the Treasury Department in this extensive deregulation process, but can suggest a likely scenario from personal experience (Disclosure: I was an international economist at the U.S. Treasury Department for 28 years, 1968-1996; Tim Geithner, then deputy assistant secretary for international affairs — was my boss for my last couple of years prior to my retirement.)
First, Robert Rubin — who came to Treasury with an extensive Wall Street background and contacts — would have had the deciding word on Treasury positions regarding such important policy matters as financial (de)regulation during his tenure as secretary of the treasury (January 1995 to July 1999). (Kevin Phillips, among other knowledgeable observers, has identified then-Secretary Rubin as a prime exponent of financial deregulation during his tenure as treasury secretary.)
So while Larry Summers was deputy secretary of the treasury for several years before succeeding Rubin as secretary in mid-1999, he had neither the Wall Street contacts nor the clout of Mr. Rubin when it came to financial market policymaking. He may have been complicit in Treasury's role in the process, but it is hard to assign him a leadership role. The case for Tim Geithner as demon deregulator is even more tenuous. His entire Treasury career was in international affairs, including deputy, then assistant secretary, then under secretary. Given the organization and resulting division of labor within Treasury — as well as time constraints — the demands of his various international affairs portfolio(s) would have made it virtually impossible for him to be involved in any meaningful way in matters regarding deregulation of the domestic financial services industry.
By November 2003, when Tim Geithner became president of the Federal Reserve Bank of New York — where he was very much involved with the financial service sector — the deregulatory horse was well and truly out of the barn. So inclusion of Tim Geithner in any list of deregulators is purest guilt by association.
I will close by noting that both Larry Summers and Tim Geithner are fully representative of the broad, deep talent pool Mr. Obama has assembled to advise him and to serve in his Cabinet — as is Paul Volcker, one of the truly great public servants of his generation, recently appointed as head of Mr. Obama's Economic Recovery Advisory Board. (Another personal note: Paul Volcker was under secretary of the treasury for monetary affairs when I joined the Treasury staff in 1968, fresh out of graduate school. I have never seen a more able public official; his subsequent record, notably as Federal Reserve chairman, 1979-87, simply reinforces this impression.) All three are highly intelligent, experienced in the ways of both Washington and Wall Street, and will arrive on the job ready to hit the ground running. Given the severity of the economic situation, this ability to get down to business without any break-in period will be invaluable in putting the necessary programs and stimulus measures in place with maximum impact and minimum delay. Strength to their arms!
DAVID J. KLOCK
Wallingford
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