Geithner deserves a raise!

I say that not because I’ve been a fan of the Treasury Secretary’s job performance so far (far from it), but because positions like Treasury Secretary, Securities and Exchange Commission Chair, and President of the United States should be well compensated.

In the case of finance-related positions, anyone who was previously working high up in the industry or even in a Fed bank must take a huge pay cut to take on a job that brings power and prestige but also frustration and blame.   Cases in point:  Geithner and new SEC Chair Mary Schapiro.   Now, neither is going to have any trouble paying the bills:  Geithner made more than $400,000 last year at the New York Fed and received a similarly sized severance package; Schapiro made almost $3 million as head of the Financial Industry Regulatory Agency (the securities dealers’ self-regulatory board) and got a severance package of over $7 million; but still.

Geithner’s salary at Treasury:  $196,700.

Schapiro’s salary at the SEC: $162,900.

After adjusting for the much higher cost of living in Washington, DC than in Oswego, NY, the head of the SEC barely makes more than I do.  (Not that I think I’m overpaid. . . )

Nationalize it, mon

The sticking point in the lingering credit crunch seems to be the remaining toxic assets (or dodgy assets, as the Brits call them) on the balance sheets of so many banks, especially the big problem banks that are getting government bailouts or are in line for them.

The sticking point in the policy question of how to remove those toxic assets as an obstacle to normal financial intermediation seems to be valuation, i.e., as Winston Churchill is said to have put it, a matter of haggling over the price.   No small haggle, this.   It’s often said that there is no market for these assets, and that appears to be true in the sense that there seems to be an unbridgeable gulf between what banks say those assets are worth (97 cents on the dollar?) and what they’ll fetch on the open market (38 cents on the dollar?  The numbers are from a New York Times article, 2 Feb. 2009, and refer to a particular mortgage-backed bond.  A division of Standard & Poor’s estimated the bond’s value at 87 cents or 53 cents under a less optimistic scenario. )  Treasury Secretary Tim Geithner’s plan for the remaining $350 billion of last fall’s bank bailout is due to be unveiled Tuesday, and advance word is that it calls for the Treasury to buy up a lot of those toxic assets and quarantine them in a “bad bank.”

Geithner’s tax problem, Goolsbee’s solution?

I’d been expecting Treasury Secretary-designate Tim Geithner to come up for some grilling in his confirmation hearing, over his role in the TARP bailout and in the orgy of deregulation of the late 1990s.  (Neither of those things is necessarily disqualifying in my eyes, as long as he can show that he’s learned from his and other people’s mistakes.)  But as with past nominees, from John Tower to Zoe Baird and Kimba Wood, it’s the small stuff of dubious relevance that tends to blow up — and distract Congress, the media, and the public from issues of actual substance.   The main distraction this time: Geithner failed to pay $43,000 in federal taxes.

On the surface, this looks pretty bad:  the guy who would be the head of the agency that oversees the IRS, failing to pay his Social Security and Medicare taxes for four years in a row (2001-2004).  But not so fast.   Most of us have those taxes withheld directly from our paychecks and don’t think about them otherwise.   Geithner, by contrast, was working for the International Monetary Fund (IMF), where employees don’t pay federal income tax.  Several of my grad school friends went to work for the IMF, and I distinctly remember them saying, it’s great, we don’t pay taxes.  The incoming administration’s talking points on the matter (take them with a grain of salt if you want) note that this confusion is very common among IMF employees.

I yield to my distinguished colleague, Senator Ricky Ricardo

“Timothy Geithner, President-elect Barack Obama’s choice for Treasury secretary, has some explaining to do.” — editorial, New York Times, 15 Dec. 2008

“President-elect Barack Obama’s economic team is drawing mostly rave reviews, but some see too much of the old regime that helped get us into this mess.  In particular, Lawrence Summers and Timothy Geithner, nominated for the respective positions of National Economic Council Chairman and Secretary of the Treasury, have some explaining to do.” — the old version of this blog, circa 26 Nov. 2008

(No no no, I’m not accusing the Times of copying me.  If only.)

The Times‘ main beef with Geithner is that the Fed has been less than forthcoming, maybe less than truthful, in explaining why they let Lehman Brothers go bust and then bailed out AIG two days later.  The apparent inconsistency in saving one and not the other is one thing, maybe forgivable in view of what unchartered waters these were, but making up bogus excuses about a lack of legal authority to help Lehman is worrisome.

My beef had been about (1) Geithner’s drafting of the AIG bailout itself, which seemed to give no-strings-attached bailouts a bad name, and (2) his history as a protege of the deregulation-happy Robert Rubin in the Clinton Administration.   Chris Whalen, via Naked Capitalism, has the rundown on (1).

Overall, I’m confident that Geithner, as reported, is a bright guy who learns from his mistakes and, as president of the New York Fed, knows the tools of the trade as well as anybody.   And I doubt there’s anyone of similar experience whose record is spotless.  But the Senate will have to grill him on these matters.