As the Door Revolves Around Timothy Geithner…

I must say that I don’t think Tim Geithner was thinking ahead last February…

New York Magazine: 43 Minutes With Tim Geithner:

Another fiction that has plagued Geithner is the idea that he is a creature of Wall Street, specifically that he worked for Goldman Sachs. He isn’t sure where it came from—probably just confusion with his predecessor, Hank Paulson, who was the former CEO—but “once it hardened, it was very hard to overcome.” Indeed, he has not really overcome it at all. I can write, right here, in all caps, TIM GEITHNER HAS NEVER WORKED ON WALL STREET, and still someone will comment on our website that he is a bankster who should just go back to Goldman Sachs. Geithner says it’s “extremely unlikely” he will take a job in the world of finance, but the idea that he is somehow, secretly, working hand in hand with that community persists, and every once in a while someone pulls out records of his phone calls and meetings with CEOs as evidence. Geithner is not really sure what to say about that. “I’m the secretary of the Treasury.” He laughs. “How am I supposed to run a financial rescue if I don’t take phone calls from people?”…

The right thing to say would have been not “extremely unlikely” but, rather, “not with any of the systemically-important financial institutions, or anything that has substantial regulatory business with the Treasury Department.” As it is, the people at New York Magazine and elsewhere who defended him as someone who never had and probably wouldn’t work on Wall Street look… rather foolish…

That said, my impression was that Warburg-Pincus was old-line private equity with real alpha.

That is, my impression was that Warburg-Pincus was something that made its money the old-fashioned way: by bearing risk, being patient, and providing venture capital services and organizational advice rather than an organization that made its money off of some form of regulatory or tax arbitrage, or out of figuring ways to expropriate the pension fund and throw the burden of keeping the retirees from starving onto the taxpayer. An ex-Treasury Secretary’s social network with the government simply does not seem to be of value to Warburg-Pincus in the same way that it would be to a systemically-important universal bank, or that an ex-Defense Secretary’s social network would be of value to, cough, Halliburton.

Neil Irwin gets it, I think, right:

Neil Irwin: Tim Geithner is cashing in:

The answer depends on which aspects of his job description you think Geithner is being hired for…. Warburg Pincus described Geithner’s role this way: He will work closely with the co-CEOs on “overall firm strategy and management, investing and portfolio management, organizational and funding structure, and investor relations.” If Geithner’s role turns out to be heavily oriented toward the last point–being a rainmaker, flying to financial capitals and using his fame and connections to persuade billionaires and foreign sovereign wealth funds to park their money with Warburg Pincus, the appointment will always seem, to use a technical government ethics term, icky. If he really is being hired to help run the firm and decide what companies to invest in, then more power to him…

And the estimable Bill Black, I think, gets it largely wrong:

Bill Black: Why Does the Media Ignore Timothy Geithner’s Disastrous Leadership of the NY Fed?:

WRemember nine months ago when Timothy Geithner assured us that it was “extremely unlikely” he would take a position on Wall Street? The media meme when Geithner announced that he was stepping down as Treasury Secretary and taking a position as a “senior fellow” with the Council on Foreign Relations (CFR) was what a superior human he was for not taking a job with Wall Street.  The “extremely unlikely” (to no one’s surprise) was announced nine months later.  The private equity firm Warburg Pincus has hired Geithner as its President….

Geithner’s disastrous “public service” at the NY Fed and the IMF made him a multi-millionaire at great cost to the public…. The NY Fed, of course, was supposed to be the leading examiner and supervisor of many of the nation’s largest banks and bank holding companies. Geithner was the top regional supervisor during the key years of the three epidemics of control fraud that drove the financial crisis and the NY Fed drew special criticism for its total failure as a supervisor during the crisis….

Even the NYT concedes that Geithner is an example of how Wall Street ensures that the revolving door makes wealthy its supporters in high government positions once they resign and that Geithner proves that this has nothing to do with the former official’s merits or fitness for the private sector position…. The bankers and their political allies put the Geithners of the world in positions of increasing power not despite their weaknesses and failures but because of their willingness to aid the bankers even when doing so will betray their office…. Ryan Grim has a nice piece emphasizing that Geithner, as Treasury Secretary, issued the insipid regulation that was weakened to the point that it would please the private equity industry…. Warburg Pincus has had Geithner’s back for at least four years. The revolving door is powered by reciprocity, and Geithner had Wall Street’s back for a decade…

As Treasury Secretary, Henry Paulson gave the systemically-important financial institutions capital in the form of 5%/year preferred stock at a time when Goldman Sachs was offering Warren Buffett 10%/year plus substantial equity kickers for capital. In my view, Henry Paulson should not have done that–if the Treasury is going to support systemically-important financial institutions that have created systemic risk on the grounds that they are too big or too interconnected to fail, it should make sure it grabs the lion’s share of the potential upside for the public rather than leaving it on the table for the bank’s executives and shareholders. In my view, Tim Geithner should have altered the terms of the deal when he became Treasury Secretary: he should have told the high executives of the systemically-important financial institutions that he was altering the deal, and that they should pray that he did not alter it any further. For Geithner to do so rather than just giving extremely valuable TARP money to the banks and allowing their executives and shareholders to profit immensely would have run enormous risks, yes. But the regulatory benefits for the future–as bankers had the lesson taught to them that if you create systemic risk do not expect to profit from the bailout–and the political-economy benefits would have been immense. And in my judgment the risks would have been well worth running, and I am looking forward to reading Tim Geithner explaining in his memoirs just why he does not agree.

But if Geithner had done so, I suspect that would have made him more rather than less attractive to Warburg-Pincus: mercy to your counterparties in a one-shot interaction is not a character trait highly prized. This view that “Wall Street” is a monolith, with a single mind directing all of its tentacles, strikes me as simply wrong.

And Warburg-Pincus has not had Geithner’s back because Geithner has had Wall Street’s back. Warburg-Pincus has had Geithner’s bank because Warburg-Pincus’s W. Bowman Cutter worked with and saw (as did I) Tim Geithner in action in 1993-1995 in the Clinton administration, and was (as was I) very impressed.

And Tim Geithner’s time at the IMF and the New York Fed did not make him a multi-millionaire–$1,000,000 in assets, yes, but almost surely not $5,000,000. He was then (and is now) a comfortable member of the 1.45 million 1% whose household incomes are $400,000/year or more, but not of the 145,000 0.1% whose household incomes start at $1,900,000/year or the 14,500 0.01% whose household incomes start at $10,000,000/year.

1351 words…