The Treasury Secretary Thumbs His Nose At Congress

Tim Geithner, the Secretary of the Treasury, spent some of the early parts of his career being attacked by Congress. Legislators were not happy that he could not come up with details about the Administration’s stimulus program and plans to buy bad assets from banks by recruiting shrewd investors from Wall St. and giving them access to taxpayer cash.

Geithner has found a way around his critics, or better, has found a way to dupe them. Instead of cowering, be goes to Congressional committee meetings wearing his Brooks Brother’s suit like chain maille. He has learned his lesson, and he has learned the secrets of dissembling and being reticent on important issues.

Congress will push the issue of public discussion of sensitive government information, but usually only so far. Geither’s brilliance has led him to change the perception of banks from being “too big to fail” into being “too big to be discussed in public.”  His most impressive statement at yesterday’s Oversight Panel cross examination was that the “vast majority” of American banks are well-capitalized. He neglected to mention which financial firms are in trouble. It could be that two of the four largest banks in the US have too much trash on their balance sheets to make it through the year without large cash infusions. If anything like that is true, how well all the medium-sized banks are doing is hardly material. Since Geithner did say that only about $110 billion of the TARP was left in reserve, the water is inching toward the top of the levy. He did not refer to the new IMF data which came out just before his testimony. It said that worldwide banks were facing more severe write-offs. That fact was conveniently left outside the door.

The conversation between Geithner and the members of the committee became more confounding when the issue turned to the frozen credit markets. The Secretary said that his efforts to get banks to improve lending were getting “mixed” results.  Banks have made themselves ready targets for blame. They have curtailed lending since the government began sending them rescue checks.

What the Secretary avoided in his comments regarding why the banks are not increasing lending is that he has information about bank “stress tests” that Congress does not. Geithner knows that some of the financial firms are not robust. But, it is too dangerous for him to name them into an open microphone. It could cause a panic, and drive the stocks of major banks down and cause depositors unnecessary worry. What he would say is that if some of the banks did not pass their tests, the federal government stands ready to help them if private investors are not. At this point in the history of American financial markets that means that the government will be stuck with the check. No one else is going to touch a bank that the Treasury says is faltering. But, Geithner says that he has the money left in the TARP to cover such a contingency, going so far as to say that conservative estimates would allow him to get by saving the banks without asking for more capital from Congress. In the Secretary’s eyes, that means the TARP has worked because it has been well-run due to superior government intelligence and judicious use of the money

Hearing all of this, Representative Jeb Hensarling, a Texas Republican, said “The public and this panel have a right to know how Treasury defines success. For many it is difficult to discern.” That was the most pertinent question during the proceedings and the one Geither least wanted to answer. So, he did not. He had learned the lesson that transparency only leads to a call for more transparency and then there is no end to explaining what should be explained to Congress and taxpayers about how the billions of dollars meant to rescue the financial system are being used.

What Geithner has found out, most of all, is that he has his interrogators cornered. Each and every one of them knows that the banking system cannot be allowed to fail and that no one is certain how to fix it. Too much criticism could lead to public anxiety about the entire set of programs meant to repair the broken financial and credit markets and suddenly there may be much more to fear than fear itself.

Geithner has finished answering questions. He has gained the leverage to keep secret.

Douglas A. McIntyre