Last week, I wrote about the AIG-New York Federal Reserve bank swap controversy. At that time, I speculated that it could be a problem for Treasury Secretary Timothy Geithner, given that he resided over the NY Fed at the time. Today, Bloomberg reports that powerful Democrats are standing behind Geithner. I find this quick support a little surprising and premature. Shouldn't Democrats wait to better investigate the situation before drawing a conclusion about Geithner's innocence?
Bloomberg says virtually every Democrat in a prominent place of power has Geithner's back:
Asked yesterday for comment, White House Press Secretary Robert Gibbs said he stood by his earlier statements that the president had full confidence in Geithner. Jim Manley, a spokesman for Senate Majority Leader Harry Reid of Nevada, said "Secretary Geithner enjoys the strong support of the Senate Democratic caucus."
. . . he maintains the backing of Democratic leaders including Representative Barney Frank, House and Senate Democratic aides said in interviews Jan. 8.
So what might change that? According to the article:
Only a revelation that he was directly involved would erode that support, a Senate Democratic aide said on condition of anonymity.
And here's what they're saying his role consisted of:
The Obama administration and the New York Fed came to Geithner's defense, saying he had nothing to do with the e-mail exchange between lawyers for AIG and the district bank. Treasury spokeswoman Meg Reilly said that Geithner was already recused from AIG matters when the e-mails were written.
Now listen: Geithner may now have written the e-mails, but are we really to believe that, as President of the NY Fed, he shouldn't have been expected to run a tight ship? Should we take comfort in the fact that he ran an organization where this kind of thing could happen -- and now he runs the U.S. Treasury? I know I don't. That's why I don't particularly care if he wrote the e-mails himself, but I think it's more telling that this kind of thing could happen under his watch.
Of course, at the end of the day, this is just politics:
Geithner's role as the administration's point man on overhauling financial-industry regulation makes him more of an asset than a liability on Obama's team as the November midterm elections approach, said former congressional aide Charles Gabriel, managing director at Capital Alpha Partners LLC, a Washington-based firm that provides research to institutional investors.
I agree that this is probably the thinking. If Democrats suddenly shunned Geithner, that would cast a very dark shadow over financial regulation. After all, the House bill -- which is likely to closely resemble whatever eventually passes -- was essentially created from the Treasury's, i.e. Geithner's, framework. If Democrats reveal doubt about Geithner's character or ability to discern what's right for the financial industry, then Republicans would surely connect the dots to their financial regulation proposal.
Yet, I'm not as convinced as Gabriel that this is smart politics. Geithner's presence could still harm the financial regulation push if more moderate or fringe Democrats in Congress are angered by his association. Moreover, by keeping Geithner around, Republicans will have a delightful time during the midterm elections explaining how the Obama administration and Democrats in Congress cater to more business as usual when it comes to Wall Street -- just look at their Treasury Secretary!
So I'm not entirely convinced that Democrats' "support first, ask questions later" policy makes a whole lot of sense from a practical or political standpoint. As the President of the NY Fed, if the buck doesn't stop with Geithner, with whom does it stop?