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Another example of our nation’s leadership crisis: Tim Geithner’s Ninth Political Life

22 July 2010

Summary:  To prosper — perhaps even to survive — the 21st century we must have adequate leadership.  In this post by Don Vandergriff, we look at our leaders, both as a class and one in particular.  It’s not a pretty picture.

My post a couple of months ago about William Deresiewcz’s fantastic article fits here:  “Solitude and Leadership“, The American Scholar, Spring 2010 — “If you want others to follow, learn to be alone with your thoughts.”  Excerpt, about Joseph Conrad’s Heart of Darkness:

Note the adjectives: commonplace, ordinary, usual, common. There is nothing distinguished about this person. About the 10th time I read that passage, I realized it was a perfect description of the kind of person who tends to prosper in the bureaucratic environment. And the only reason I did is because it suddenly struck me that it was a perfect description of the head of the bureaucracy that I was part of, the chairman of my academic department — who had that exact same smile, like a shark, and that exact same ability to make you uneasy, like you were doing something wrong, only she wasn’t ever going to tell you what.

Like the manager — and I’m sorry to say this, but like so many people you will meet as you negotiate the bureaucracy of the Army or for that matter of whatever institution you end up giving your talents to after the Army, whether it’s Microsoft or the World Bank or whatever—the head of my department had no genius for organizing or initiative or even order, no particular learning or intelligence, no distinguishing characteristics at all. Just the ability to keep the routine going, and beyond that, as Marlow says, her position had come to her — why?

That’s really the great mystery about bureaucracies. Why is it so often that the best people are stuck in the middle and the people who are running things — the leaders — are the mediocrities? Because excellence isn’t usually what gets you up the greasy pole. What gets you up is a talent for maneuvering. Kissing up to the people above you, kicking down to the people below you. Pleasing your teachers, pleasing your superiors, picking a powerful mentor and riding his coattails until it’s time to stab him in the back. Jumping through hoops. Getting along by going along. Being whatever other people want you to be, so that it finally comes to seem that, like the manager of the Central Station, you have nothing inside you at all. Not taking stupid risks like trying to change how things are done or question why they’re done. Just keeping the routine going.

We are in a leadership crisis in this country.  As shown by “Tim Geithner’s Ninth Political Life“, Simon Johnson, The Baseline Scenario,15  July 2010 — Excerpt:

In modern American life, Treasury Secretary Tim Geithner stands out as amazingly resilient and remarkably lucky – despite presiding over or being deeply involved in a series of political debacles, he has gone from strength to strength.  After at least eight improbably bounce backs, he might seem unassailable.  But his latest mistake – blocking Elizabeth Warren from heading the new Consumer Financial Protection Bureau – may well prove politically fatal.

Geithner was a junior but key member of the US Treasury team that badly mishandled the early days of the Asian financial crisis in 1997 and received widespread criticism (Life #1).  He was promoted as a result and thereafter enjoyed a meteoric rise.

As President of the New York Federal Reserve from 2003, and de facto head of the government’s financial intelligence service, he completely failed to spot the problems developing in and around the country’s financial markets; nothing about this embarrassing track record has since stood in his way (Life #2).  He subsequently became Hank Paulson’s Wall Street point person for one of the most comprehensively bungled bailouts of all time – the Troubled Asset Relief Program, TARP, which in fall 2008 first appalled Congress with its intentions and then wasn’t used at all as advertised (Life #3).

TARP and related Bush-Paulson-Geithner efforts were so completely and clearly unsuccessful in October/November 2009 that the crisis worsened and Geithner was offered the job of Treasury Secretary by President-elect Obama; the incoming team felt there was no substitute for “experience”.  Nevertheless, he almost failed in the confirmation process due to issues related to his taxes (Life #4) and then stumbled badly with his initial public repositioning of the TARP (Life #5), which was going to buy toxic assets again but in a more complicated way (perhaps his most complete and obviously personal political disaster to date).

His next Great Escape was the stress tests in spring 2009 – it turned out, supposedly, that there was really no financial crisis.  Most of the big banks really did have enough capital; all that had been missing was the government’s endorsement of this fact (this is the story, honest).  If this seems too good to be true, look at the mass unemployment still around you and tell me if the financial sector really looks healthy (Life #6).

Life #7 was expended concurrent with the forceful arrival on the financial reform scene of Paul Volcker.  The Geithner-Summers “financial reform” package from summer 2009 was weak to start with and weakened further as it was discussed in the House; the entire effort was rudderless.  Volcker’s new proposals helped rescue the reform and restore momentum – but instead of (appropriately) discrediting the Geithner approach in the eyes of the White House, it actually helped the Treasury Secretary climb new pinnacles of influence.  Go figure.

Life #8 is the blatant failure of the Geithner strategy to “just raise capital requirements” as the way to deal with distorted incentives and the tendency to take irresponsible risks at the heart of our financial system.   Treasury insisted on “capital first and foremost” throughout the Senate debate this year – combined with their argument that these requirements must be set by regulators through international negotiation, i.e., not by legislation.  But the big banks are chipping away at this entire philosophy daily through their effective lobbying within the opaque Basel process – as one would expect.  The latest indications are that capital requirements will barely be raised in any meaningful sense. …

FM note:  in Vietnam this dynamic was equally common, describe (paraphrased) as screw up and move up.

About the author

Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, and a member of the CBO’s Panel of Economic Advisers.  He is a co-founder of The Baseline Scenario

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