In early March, as the AIG bonus controversy fueled public outrage at Wall Street’s chief enablers in Washington, it looked like Treasury Secretary Geithner would be forced out of his post before he got a chance to smell the cherry blossoms. Their backs to the wall, Geithner and friends subsequently waged a confidence game, slinging together an alphabet soup of Wall Street rescue programs (remember TALF?) formulated in close consultation with market movers.
The strategy worked, and we’ve seen an extended sucker’s rally since March — enough to convince the media and political establishment that the economy is sound, despite plenty of evidence to the contrary (chief sucker: David Brooks). This is best illustrated by this chart of the Dow in 2009:
But Geithner is coming under fire again. Earlier this week, Democratic Rep. Peter DeFazio called on Geithner and Summers to resign, saying that “we may just have to sacrifice two jobs to save millions.” Yesterday, two House Republicans joined DeFazio in calling on Geithner to resign. One telling exchange, between Rep. Kevin Brady and Geithner:
“Mr. Secretary, the public has lost all confidence in your ability to do the job,” Brady responded. “Conservatives agree, Democrats agree that it really is time for a fresh start, and I would urge you to consider it.”
“If you look at any measure of consumer and investor confidence today,” replied Geithner, “if you look at any measure of the strength and stability and health of the American economy, if you look at any measure of confidence in the financial system, it is substantially stronger today than when the president of the United States took office and that happened not on its own, it happened because of a set of tough difficult choices.
Geithner apparently didn’t consider this measure of the economy in his remarks:
Of course, economy and Dow have decoupled in part because of Geithner’s con game (though the Dow has always been a poor measure of economic health), and the Treasury Secretary has bet his job on the continued resurgence of the stock market. My guess is that he is right — that his prospects closely track the Dow, and that if (when) it dips again for any sustained period of time, Geithner will be in a very tenuous position. Perhaps the various calls for his resignation are early indicators that the game is nearing its end.
Ironically, in the end, the same measure that saved him — the Dow — may come back to haunt him. But as Clusterstock suggests with its “Geithner-to-Goldman” clock, you don’t need to worry about the Treasury Secretary’s future — he’ll have an office ready and waiting at 85 Broad (Goldman’s New York headquarters).