After fulsome introductions from Sen. Charles Schumer, D-N.Y., and former Federal Reserve chairman Paul Volcker, Treasury Secretary nominee Timothy Geithner began his opening statement before the Senate Finance Committee Wednesday morning with a straightforward declaration:
"Markets alone cannot solve all problems," he said. "Well-designed financial regulation is essential."
A sign of a new era? Calling for well-designed financial regulation is not the same as delivering on such promises, but as a place-setter, it's difficult to imagine the last few Treasury secretaries opening their confirmations hearing with similar philosophical proclamations. On the other hand, no recent prospective secretary faced an economy in as great a state of disarray as is currently the case -- what Volcker called "the mother of all financial crises ... a serious recession with no end clearly in sight." So it is also difficult to conceive of appearing before a confirmation hearing and not acknowledging from the get-go that markets need to be better regulated.
The first three Democratic senators to ask questions pronounced themselves satisfied with Geithner's tax mea culpa, announced that they attended to support his nomination, and asked how he planned to deal with the crisis. In response, Geithner made broad statements about transparency and accountability that did not stray far from President Obama's promises on financial reform. Oddly, however, the first two Republicans to ask Geithner questions decided not to focus on the current economic crisis whatsoever. The ranking Republican committee member, Chuck Grassley, R-Iowa, grilled Geithner on his failure to pay self-employment taxes on his International Monetary Fund income from 2001-2004, asking a series of detailed questions that elicited such critical information as the fact that Geithner used Turbotax to file his tax return in 2001. Orrin Hatch, R-Utah, spent his time attempting to get Geithner to agree with him that American corporations are hobbled by a corporate income tax rate that disadvantages them compared to their foreign competitors.
Olympia Snowe, R-Maine, was the first to get the ball rolling with questions about Geithner's role in attempting to rein in credit derivatives, and why Lehman Brothers was allowed to fall. Geithner made a convincing case that he had called attention to the systemic threats posed by credit derivatives and made some limited progress in using his position as New York Fed president to focus Wall Street's attention on the issue. But he was only halfway through his answer on Lehman before Max Baucus, D-Mont., the committee chairman, cut him off, telling him that time was limited.
Which could make one wonder exactly what the confirmation hearing is supposed to accomplish? The decision to let Lehman fail was one of the most momentous events in the evolution of the ongoing financial crisis, and Geithner's role is still shrouded in mystery. A comprehensive discussion of that incident would seem to offer crucial context for Geithner's fitness for the job of treasury secretary.
Certainly more so than what tax software he used to prepare his returns.
UPDATE: Unless I misheard, Sen. Pat Roberts, R.-Kan., just said to Geithner, "You will be confirmed." So there you have it.
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