After Monday’s sharp stock market downturn, purportedly on fears about whether the (mostly bogus) first quarter profits reported by big banks would be sustainable, Tuesday saw a reversal of fortune, “stoked,” reported the Wall Street Journal, by Treasury Secretary Timothy Geithner’s statement to a congressional panel that the “vast majority” of banks had more than enough capital to keep operating.
Funny thing — Geithner didn’t utter those words before the panel. They were included in his written testimony, but during the hearing, the panel’s chairwoman, Elizabeth Warren, was impatient to get to the question-and-answer segment and rushed him through his opening statement. (And for understandable reasons, as he was repeating the same boilerplate he starts almost every appearance before Congress with.)
Which means, if traders really were encouraged by Geithner’s assurances, then they were relying on press reports rather than the actual testimony. My sense is that their reaction might have been a bit more muted if they had actually watched the hearing. Because Geithner didn’t do much to inspire confidence.
The pattern is now sufficiently well established to be definitive. The treasury secretary appears before a congressional committee, and is asked tough, detailed questions by members of both parties. He invariably compliments and thanks the questioner for a “thoughtful” and “important” question, and then proceeds to answer in vague generalities, rarely committing himself to specifics.
I’ve watched or pored over the transcripts of almost all of Geithner’s testimony before Congress, and it’s getting harder and harder to make a case in defense of his brief tenure. Tuesday’s hearing, before the Congressional Oversight Panel empowered by Congress to watch over the TARP program, ranks as one of his least satisfying performances so far. Results of the stress tests are due soon, his Public-Private Investment Program is getting assailed from all sides, the banks are releasing profit numbers that are clearly the result of dodgy accounting techniques, and still, Geithner refuses to defend his actions with any argument more compelling than that, in the administration’s judgment, their chosen strategy is the least costly way to ensure the stability and health of the overall financial system. It’s a shtick that is wearing thin.
The only interesting moment came when, in response to a question from Warren on whether “liquidation of failing financial institutions” or “reorganization” of failing banks were “on the table” for the Obama administration, Geithner said that “we will look at all actions we think are necessary” to balance the two main priorities of protecting the taxpayer and ensuring a “better functioning financial system.”
“You had me at ‘all actions,’” interrupted Warren, and then after a little back and forth, repeated her initial question: “I think the question … started with the focus on all the tools on the table, liquidation, reorganization and subsidization. Am I hearing you say yes?
To which Geithner could only reply: “Well, we will take all sensible actions that are consistent with those obligations we have to the American people. And, again, the obligation about what is least cost and most effective will require a careful balance in these areas.”
There’s nothing to hang your hat on there, I’m afraid. I don’t think Geithner impressed the oversight panel with his answers, and I’m certain he didn’t say anything that will have the financial industry worrying that Obama administration is about to get tough.