Geithner: Obama's Likely Treasury Choice

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Still, Geithner's key role in the government's response to the financial crisis in recent months has garnered him his share of criticism. Take, for example, this passage from the recent issue of Institutional Risk Analyst, an influential newsletter written by managing director Christopher Whalen of Institutional Risk Analytics: "We have only two things to say about Tim Geithner, who we do not know: AIG and Lehman Brothers. Throw in the Bear, Stearns…fiasco for good measure. All of these 'rescues' are a disaster for the taxpayer, for the financial markets, and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion."

But Bill Larkin, fixed-income portfolio manager at Cabot Money Management, said it will be tough to criticize the choice too much. The Treasury pick "had to be someone who is currently in the system," because a fresh newcomer wouldn't understand the players and couldn't hit the ground running, he says.

Stepping Out from Summers' Shadow

Especially with Paulson's jarring decision last week that the Treasury wouldn't buy troubled assets, knowing that Geithner is likely to take over the job will be reassuring to the markets, Larkin says. "We're going to get more information about the transition," he says. "That will build confidence."

Geithner was in some ways a protégé of one of his chief rivals for the Treasury Secretary's job in Obama's Cabinet: Lawrence Summers, the former Clinton Treasury Secretary and Harvard University's former president. But having stepped out from under Summers' wings and "proved able to manage on his own," says Setser, "he's no one's protégé anymore."

With a bachelor's degree in government and Asian studies from Dartmouth College and a master's in international economics from Johns Hopkins, Geithner may not be an academic economist or an ex-Wall Street banker or corporate executive, a break with the recent past. At the same time, he is no stranger to handling economic crises that are international in scope.

Former Under Secretary of the Treasury

After doing research for Kissinger, he joined the Treasury in 1988, in its international division. Later, he became a top aide to then-Treasury Secretary Summers, where he was a behind-the-scenes player in the government's response to the Asian economic crisis in 1997 and 1998. The following year he was named under secretary of the Treasury, a position usually reserved for political appointees.

In 2001, he became director of the IMF's Policy Development & Review Dept. He took his current job with the New York Fed in the fall of 2003.

Last spring, he was instrumental in the Federal Reserve's efforts to find a buyer for Bear Stearns as it neared collapse, and in arranging financing for JPMorgan Chase (JPM), the acquirer. He also played a role in the Fed's decision to open its discount window to investment banks to maintain liquidity in the financial system.

Cleaning Up Credit Default Swaps

Critics warned that the move could encourage greater risk-taking by financial firms newly confident of a government bailout should they falter. Joseph Mason, an associate finance professor at Drexel University, told American Banker in May that the deal "opened a Pandora's box" and Geithner's role suggested that he is prone to "ideas that are just not always completely articulated or thought out." Geithner, however, has been unapologetic about his actions last spring. He has said the distress sale was the "only feasible option."

Although not as active as a public speaker as Treasury Secretaries typically must be, Geithner has spoken out strongly in favor of stronger regulation in the financial sector. He has helped lead efforts to establish a central clearinghouse for credit default swaps, securities that offer a kind of insurance against corporate failure and that have been blamed for exacerbating instability in the market.

In June 2007 he called for a tighter focus on the "level and concentration of risk-taking." At the time, he particularly singled out firms writing mortgages with insufficient capital.

He has argued that regulatory policy should explicitly be designed "to improve the capacity of the financial system to withstand the effects of failure and to reduce the overall vulnerability of the system." At the IMF in April, he urged officials to "find a better balance between market discipline and regulation…efficiency and innovation and resiliency and stability."

With Ben Steverman and Jane Sasseen.
Francis is a writer in BusinessWeek's Washington bureau.