Remember the good old days when President Obama and Congressional Democrats voiced their staunch support for Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner? That was just last month. But these days, Democrats are suddenly distancing themselves from these figures. Could this mean an end to their reign as the leaders of U.S. government finance? I don't buy it.
First, let's consider Geithner. The Washington Post reports that the Volcker plan is evidence that Geithner and Obama's relationship may be on the outs. After all, why would Obama make such a huge policy announcement with someone other than his trusted Treasury Secretary by his side? The article says:
"His influence may have slipped," said a senior industry official who spoke on the condition of anonymity to preserve his relationship with the administration. "But you could also argue that it wasn't Geithner who lost power. It's just that the president needed Volcker politically" to look tough on big banks.
Right, you could argue that, or you could argue a few other things. First, it was Volcker's idea. He's been advocating for a while that banks need to be broken up Glass-Steagall style. So why would this be the Geithner plan, when it wasn't Geithner's idea? He does support the plan, bear in mind -- he just doesn't deserve credit for dreaming it up.
But, in fact, maybe this was a political decision. Geithner and Obama may have agreed that it would be best for Geithner to keep his distance from the Volcker plan. Why? Because it is going to fail. The Volcker Plan is a political maneuver to distract the public from the health care debacle. If the banking lobby has persuaded the Senate to think twice about the Consumer Financial Protection Agency, then it certainly isn't going to allow Washington to break up the banks or to take away its billions-of-annual-dollars prop trading business. While much of the Volcker Plan is very good, almost none of it will likely make its way into whatever financial regulation bill the President eventually signs.
As a result, it would be politically dangerous to tie someone as important as Geithner to a plan that's destined to fail. But it's easy to sacrifice Volcker: his position in the administration as an advisor is much further from the public eye than the Treasury Secretary. There's very little political risk involved for the President in a Volcker Plan failing, but far more in a Geithner Plan failing.
Finally, the President has stood behind Geithner unrelentingly thus far. To suddenly cast him aside now would also make President Obama look bad. Republicans could then blame the President for the continued economic turmoil saying, "Why do you think he fired his Treasury Secretary?" There's no way the President wants to give Republicans any additional ammo for their attacks in this year's midterm elections.