Florida Republican House Rep Connie Mack was the first in the door to demand that Treasury Secretary Timothy Geithner resign or get the boot. Mack bluntly said what more than a few Democrats and a lot of Republicans have grumbled privately in recent days. President Obama says that Geithner will stay. But things in Beltway politics change, and change fast. There's already the fresh revelation that Geithner and Obama economic advisor Lawrence Summers pressured Connecticut Senator Christopher Dodd and Senate lawmakers to scrap the provision that banned fat cat bonuses to failed bank incompetents before February 11 from the bank bailout legislation. And then they clumsily tried to blame Dodd for scratching out the provision. Shelving the ban gave AIG the crack it needed to ladle out the scam executive bonuses. There may be more of what did Geithner and company know and when did they know it embarrassing revelations still to come.
That's not the only reason President Obama may have to rethink how Geithner and Summers with their free market, minimal regulations philosophy, and too cozy ties with Wall Street fueled the crisis. Flags flew high on both long before the AIG bonus hustle. There were the questions about whether Geithner helped or hurt the Asian markets and their economies with his IMF authored rescue plan in 1997-1998. That, however, didn't stop some analysts from proclaiming Geithner a financial miracle worker.
Then there is Geithner's deep tie to Wall Street. His circle of advisors reads like a who's who of Wall Street's power brokers.--Goldman Sachs, Merrill Lynch, J.P. Morgan Chase, and a bevy of corporate executives, and banking and commerce officials. The $29 billion loan that Geithner brokered to help grease the wheels for Chase's takeover of Bears Stearns raised an eyebrow or two. It was revealed that a close associate of Geithner who also sat on the New York Fed that Geithner headed ran J.P. Morgan Chase. It got the Bears Stearns liquidation loan.
Volumes have been written about how Bush and the Republicans eagerly cut sweetheart deals with financial industry lobbyists to gut lending and stock trading regulations, winked and nodded at the banks and brokerage houses as they engaged in an orgy of dubious stock swapping, buys, and trading, conned millions of homeowners into taking out catastrophic sub prime loans and watered down the oversight powers of government regulatory agencies.
Their financial free bootery couldn't have happened without a huge policy change that Summers and another Obama advisor Robert Rubin engineered during the Clinton years. As Clinton's Treasury secretaries Summers and Rubin lobbied Clinton and Congress in the late 1990s to scrap most of the provisions of the decades old Glass-Steagall Act. The Act was the 1930s Great Depression era measure that kept federally insured banks out of the go-go world of stock trading, exotic lending and financial speculation. It also set rigid standards for mortgage lending and strict oversight over banking practices.
This was only part of the financial deal cutting between the banks and Clinton and Congress. A year later Summers in tandem with then Texas GOP senator and Chair of the Senate Banking Committee Phil Gramm rammed through another "financial modernization" measure. This one took the wraps off government regulations that checked banks, insurance companies and brokerage houses from dumping billions into financial swaps (speculation) on commodities such as oil and food staples. The rationale was the same as that given for getting rid of Glass-Steagall and that was to keep the financial institutions as full profit centers with minimal to no government oversight accountability or investor, depositor and shareholder accountability.
The predictable quickly happened with the regulatory gloves off commercial banks, brokerage firms, hedge funds, institutional investors, pension funds and insurance companies could do whatever they wanted when it came to investing in each others businesses and marching in lock step with each other's financial operations.
The implosion of Wall Street directly resulted from the questionable policies that Summers and Rubin rammed through, and Geithner backed. Even in the face of the financial crisis, the troika gives no sign of backing away from their belief that failing financial institutions must be propped up with massive amounts of taxpayer dollars, that the industry can police itself, and that Wall Street still hold the key to economic recovery.
The mounting doubts about Geithner and company's prescription for recovery haven't shaken President Obama's resolve to stay their course. Before departing on his California jaunt he again struck his mantra themes of Wall Street greed and mismanagement. It ended with his mea culpa that the buck stops with him. It may not be that simple as long as red flags fly high about Geithner and company.
Earl Ofari Hutchinson is an author and political analyst. His new book is How Obama Won (Middle Passage Press January 2009)