Why Summers Goes and Geithner Stays

If Barack Obama needed any help in guiding the Democratic Party over the cliff he certainly got it from Treasury Secretary Timothy Geithner.  Voters have told pollsters that the state of the economy, their own in particular, was their principle concern.  Though impelled by the specter of unemployment and homelessness, the image of Geithner, toady to the bankers, can only have encouraged them in their fury.  A sensible president would therefore already be running out the plank prior to giving this disastrous financial overseer an encouraging shove between the shoulders.  But in this case, we may not be that lucky.  CounterPunch can reveal the crucial role played in these matters by a group close to the President but unknown to the outside world.

Throughout the administration, Lawrence Summers – now departing the White House — loomed over the president’s other shoulder as Director of the National Economic Council, a figure as well  known and even more widely disliked than Geithner.  However, one former official who knows both men well suggests that there is something to be said for Summers, at least in comparison.  “Larry has some idea that there is more to the economy than just the welfare of large banks,” this official suggests.  “He did push for a larger stimulus and more jobs programs, for example.  Tim just cares about banks.”

Nevertheless, despite Geithner’s recent campaign to sell the public on the notion that we were in a “Recovery Summer” that failed to materialize, it was Summers who has been sent packing.  CounterPunch can reveal that a decisive factor in his departure was the enmity of a little known group of wealthy African-American entrepreneurs who have the President’s ear.

“These are the people Obama likes to hang out with.  He plays poker with them, and takes their advice on financial matters” a former White House official told me.  “They hate Summers for one simple reason: they think he’s a racist.  They have never forgiven him for Cornel West [the eminent black scholar contemptuously ejected from Harvard by Summers when the latter was President of the university.]”

However commendable these men’s grounds for disliking Summers may be, the president’s reliance on their advice may be unfortunate.  One of their number, for example, the wealthy investor and former hedge fund director George W. Haywood, has led Obama financially astray in the past.  When Obama first began making money from his books he turned to Haywood, one of his wealthy contributors, for investment advice.  As  the financial commentator Henry Blodgett succinctly summarized ensuing events in Slate back in 2007, “This was a bad decision. Haywood recommended that Obama talk to an unnamed broker at UBS (bad advice), who immediately plunked some of Obama’s money into two speculative stocks (terrible advice). One of the stocks was AVI BioPharma, which was seeking to develop a new flu-related drug around the same time that Obama was pushing for more federal money to fight avian flu. The combination of the lousy investment advice and the perceived conflict of interest cost Obama not only money but credibility.”

While Haywood and his pals were dissing Summers, Obama had come to actually like Geithner.  Who knows why?  Perhaps the life-long financial bureaucrat is good at explaining financial arcana to the innumerate chief executive, or maybe he is just adept at flattery.  In any event, the relationship goes back some way.  “Obama decided on Geithner for his Treasury Secretary in August 2008,” one former Treasury official told me, “probably at the urging of Mike Froman, acting on behalf of Rubin, Weill and Prince.”

Froman, currently deputy national security adviser for international economic affairs, was at the time a senior managing director at Citigroup, where Robert Rubin was chairman and Charles Prince was CEO, while Sanford Weill hovered in the wings as the architect and former CEO of the tottering colossus.  They knew full well that the ship was heading for the rocks, and needed to ensure that Treasury would be in a safe pair of hands.  Geithner, President of the New York Fed at the time, was a perfect choice.

Within a month of this unannounced selection came the epic crash of Lehman Brothers, a collapse that certainly required the New York Fed’s cooperation by refusing a bailout, which Geithner subsequently justified on the grounds that he lacked the power.  (A lie.)  Though the abrupt downfall of the insolvent bank brought the global financial system to its knees, it did shove Obama into a commanding lead in the polls, which can only have commended  Geithner further in the candidate’s eyes.

Whatever he did to Lehman, Geithner certainly did right by Citigroup, a development that appears even less surprising given his conflict of interest on matters concerning that bank.  The conflict is revealed in a telling passage on page 61 of Too Big to Fail, Andrew Ross Sorkin’s account of the Lehman crisis.  By this account, Geithner had been quietly approached in November 2007 by Weill  and asked if he would be interested in becoming boss of Citi, a move that could garner him untold millions.  Geithner was certainly interested, pondering the matter while on long walks round Larchmont with his dog, Adobe, but a firm offer never materialized.   At that time the credit crisis was really starting to bite, and the giant bank had just reported a record loss.  “Weill had no executive function at Citi.  He wouldn’t be the one making that call if they were seriously interested in giving Geithner the job” points out one banking analyst in commenting on the story.  “How else can we interpret this but as a nice juicy carrot being dangled in front of the President of the New York Fed by a bank that was going to need Fed help in a big way.”

Once installed in the Treasury Secretary’s commodious office, Geithner’s first public address panicked the market into a 700 drop within ten minutes of his opening his mouth – even though he was announcing another bank bailout.  Though Rahm Emanuel reportedly insisted thereafter that all of the Treasury Secretary’s announcements be cleared with him, the bond with Obama was unaffected.  Perhaps, at this late date, the hapless president may be realizing that this was a mistake.

ANDREW COCKBURN is the co-producer of the feature documentary on the financial catastrophe American Casino.  He can be reached at amcockburn@gmail.com


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Andrew Cockburn is the Washington editor of Harper’s Magazine.  An Irishman, he has covered national security topics in this country for many years.  In addition to publishing numerous books, he co-produced the 1997 feature film The Peacemaker and the 2009 documentary on the financial crisis American Casino.  His latest book is Kill Chain: The Rise of the High-Tech Assassins (Henry Holt).

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