No one much remembers William Woodin, the Republican businessman and campaign donor Franklin Roosevelt named Treasury secretary amid the bank failures and soaring joblessness of 1932. Already in poor health when FDR was sworn in, Woodin resigned after less than a year in office, promptly died and left little mark on the New Deal.
Today, another man will be tapped to help a new Democratic president navigate a swift-moving financial inundation. And this time, Timothy Geithner, 47, the razor-sharp president of the Federal Reserve Bank of New York whom President-elect Barack Obama is expected to name as his Treasury secretary, seems certain to leave a lasting imprint on the nation's crisis response.
"He's a great choice. He has tremendous knowledge and experience. He's very capable and understands the financial situation extremely well. … We're going to see much bolder and more comprehensive action," says Harvard University's Kenneth Rogoff, who worked with Geithner at the International Monetary Fund in 2001 to 2003.
In Geithner, Obama has chosen a Clinton administration veteran of financial crises who has been deeply involved alongside Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke in the government's response to the current financial turmoil. The even-tempered, youthful-looking official has spent the past five years helming the New York Fed, enjoying daily contact with Wall Street titans. He'll need every contact and insight accumulated: The U.S. and global economies are deteriorating more rapidly than was true even a few weeks ago.
Friday, Goldman Sachs lowered its fourth-quarter forecast, saying it now expects the economy to shrink at an annual rate of 5%. Unemployment is rising, production is plunging and economic weakness has gone global.
The gathering gloom explains Obama's sudden announcement Saturday of a massive new economic stimulus designed to save or create 2.5 million jobs over two years.
The president-elect offered few specifics, but senior Democrats indicated Sunday that the proposal would match the scale of the economy's ballooning ills. Appearing on ABC's This Week, Sen. Charles Schumer, D-N.Y., put the price tag at $500 billion to $700 billion, or 3.5% to 5% of gross domestic product.
"I don't know what the number's going to be, but it's going to be a big number," Austan Goolsbee, another Obama economic adviser, said on Face The Nation on CBS. "It has to be."
Geithner, who began his Washington career working for Henry Kissinger and numbers Alan Greenspan among his tennis partners, will be part of an Obama economic team that seems solidly anchored in mainstream Democratic thinking.
Other key officials include former Treasury secretary Larry Summers, 53, expected to head the White House National Economic Council; Jason Furman, 38, in another White House economics slot; and Peter Orszag, as director of the Office of Management and Budget. All are tied to the Wall Street-friendly economic policies personified by Robert Rubin, Treasury secretary under President Clinton and now a director at Citigroup.
Geithner "is really a centrist. … He understands markets very well," says Rogoff, a Harvard economics professor who advised Sen. John McCain, R-Ariz., during the recent presidential campaign.
Though unassuming, Geithner is sufficiently forceful to stand up to Summers, a brilliant economist whose people skills are sometimes found wanting.
"It's hard to push back on Larry. It can be a little intimidating," says Steven Radelet of the Center for Global Development, who worked with both men at Treasury. "Tim can push back on Larry. Larry respects him a lot."
Geithner also will bring a globalist's outlook to Treasury. As a child, he spent several years in countries such as Thailand and India, where his father was a Ford Foundation executive. He studied Chinese and Japanese and graduated from Dartmouth College, also Paulson's alma mater, with a degree in government and Asian studies. He holds a master's degree from Johns Hopkins School of Advanced International Studies in international economics and East Asian studies.
On Wall Street Friday, news of Geithner's selection triggered a nearly 500-point rally in the Dow Jones industrial average. Amid yo-yoing financial markets and increasingly gloomy economic reports, investors saw reassurance in Obama's action more than the fact that he picked Geithner. "It's not about philosophy. … If the country starts to see the leaders of the Obama administration have confidence, calm and mindful and slow and deliberate confidence, this gets 90% better," says Jim Paulsen of Wells Capital Management.
From the moment Geithner moves into the 19th-century building adjacent to the White House, he will face a blizzard of policy decisions.
The immediate challenges will include how to allocate the remaining half of the $700 billion emergency rescue package; whether to aid the flailing auto companies; and how quickly to implement Obama's promise to raise taxes on those making more than $250,000 annually.
Obama's new stimulus package is far more ambitious than the $175 billion initiative he campaigned on and last year's $168 billion plan, enacted when the economic disaster seemed less dramatic.
While Bernanke and congressional Democrats back additional pump-priming, a major spending increase could still be a hard sell.
"The problems are so complicated that what you need in addition to being smart is a flexible mind. And I think he has that," says Donald Marron, CEO of private-equity firm Lightyear Capital.
Geithner also will be drawn into areas where his views are less obvious, such as tax and housing policy. He'll face calls to address falling housing prices by providing new incentives to spur home sales and bolster mortgage giants Fannie Mae and Freddie Mac.
"He will have to quickly make a number of momentous decisions," says Mark Zandi, chief economist at Moody's Economy.com. "Key among them is the size and composition of a fiscal stimulus plan. This plan could include a number of temporary tax incentives to help stimulate home sales. He will also have to decide whether to implement a large comprehensive foreclosure-mitigation plan."
During the past year, Geithner was part of a core group including Bernanke, Fed Vice Chairman Donald Kohn and Fed Governor Kevin Warsh that mapped out strategies — often on the fly — to deal with the financial markets.
Geithner, for example, helped talk reluctant bankers into queuing up for low-cost loans at the Fed's discount window, which had long held a stigma. He played a major role in the Fed's decision to provide a $30 billion loan to grease the sale of failing investment bank Bear Stearns to JPMorgan Chase.
In April, Geithner was grilled by the Senate Banking Committee about the Bear Stearns rescue. Geithner defended the decision as necessary to protect the stability of the financial system, while admitting it was a "very damaging blow" to the credibility of the financial system.
A colleague's advice
As the brickbats flew, Dallas Fed President Richard Fisher sent Geithner an e-mail reading: "Illigitimum non carborundum," Latin for "Don't let the bastards get you down."
Geithner and Paulson were the main negotiators during a frenetic mid-September weekend of talks at the New York Fed, when the government failed to find a buyer for Lehmann Bros. and Merrill Lynch agreed to sell itself to Bank of America.
Even as his name leaked as Obama's choice for Treasury secretary, Geithner was involved in talks about the precarious financial condition of Citigroup, which last week saw the value of its stock sink below $5 a share.
Geithner has called for more transparency in lightly regulated markets such as those involving insurance-like products called credit default swaps. But in a January 2007 speech, even while warning of potential dangers, he opined that the financial system was likely "more stable and more resilient" than in the past.
He also has called for a more global, integrated approach to financial market management, saying the current system — designed when most financial transactions were carried out through banks — can't keep pace with today's more complex markets, greater degree of leverage and less-creditworthy borrowers.
"Many observers believed that this framework, although messy and complex, worked reasonably well," Geithner told Congress this summer. "It is harder to make that case today."
Contributing: Matt Krantz and Stephanie Armour