Timothy Geithner's Task: Tackling 'Deep Mess'

April 29, 2009— -- Treasury Secretary Tim Geithner has said the economy was "a deep mess" when he took over the embattled department 100 days ago in January.

Such a description could be an understatement when your new job responsibility is solving the nation's worst economic crisis since the Great Depression, especially when condidering what Geithner has endured in his first few months in office.

The most high-profile of President Obama's Cabinet members, the Treasury chief has wrestled with a roller coaster stock market, a massive corporate bonus scandal and intense criticism, including calls for his resignation.

All this comes along with a staggering array of government programs to fix the financial crisis, including an enormous stimulus package, an ambitious plan to rid banks of their bad assets, a sweeping regulatory reform proposal, a major lending initiative and crucial programs to help millions of struggling homeowners and small businesses.

Geithner's Rocky Road: Tax Problems, Botched Announcement

But perhaps it was an indication of the rocky road that lay ahead for Geithner when he was embroiled in a row about unpaid taxes before he could even take over at Treasury.

His failure to pay $40,000 in taxes earlier this decade almost derailed his Senate confirmation. But Geithner said he had eventually paid the money. He apologized for the mishap and was ultimately approved by lawmakers.

It would not be his last run-in with leaders on Capitol Hill.

Weeks later, the new Treasury boss once again found himself in the spotlight -- and the glare of TV cameras -- as he began to lay out the administration's financial stability plan in a much-anticipated, roll-out that flopped.

Details were scarce. Investors bailed. Stocks plummeted.

"Last night, the president said you would be very clear and there would be specific plans," Sen. Bob Corker, R-Tenn., told Geithner at a Senate hearing that day. "And today we lost probably a trillion dollars in the market as people looked for those very clear and specific plans and instead heard guidelines and some platitudes."

Geithner was hardly helped by a bare bones staff at his disposal, which Paul Volcker, an economic adviser to President Obama, denounced as "shameful."

The Devil Is in the Details: Stocks Soar on News of New Programs

Despite the roadblocks, clear and specific plans would soon follow: On Feb.18, the administration unveiled its housing plan; on Feb. 25, its plan to subject the nation's 19 biggest banks to "stress tests" to ensure that they have enough capital; on March 3, its plan to unlock frozen credit markets and increase consumer and business lending.

And, as more details emerged, more investors jumped back into the markets.

The six-week period starting March 9 was the best for Wall Street since back in 1938.

"You've seen this administration work at a pace I don't think ever before seen in history, moving very quickly," Geithner said last month. "What I want people to know is that we're going to do what's necessary to get through it."

More Problems: The AIG Bonuses

But even as the Treasury Department trotted out its new programs, another scandal threatened to trip up the Geithner era.

In mid-March, news broke that insurance giant AIG, the recipient of more than $180 billion in government aid, had dished out $165 million in retention payments for executives, provoking outrage nationwide.

Geithner said he found out about the bonuses days before they were to be paid out, but critics argued the former head of the New York Federal Reserve either knew about the payments sooner and didn't do enough, or didn't know about the payments but should have.

Two Republican lawmakers, including Rep. Connie Mack, D-Fla., called for Geithner to step down from his post.

"The Timothy Geithner experience has been a disaster," Mack said.

Writing off the criticism as something that "just comes with the job," the Treasury boss remained undeterred, plowing ahead with more financial rescue programs.

Administration Starts Seeing 'Glimmers of Hope'

Geithner -- behind closed doors this time -- outlined Treasury's plan March 23 to create a market for private investors to partner with the government to buy toxic assets from banks.

This rollout was met with a far better reception on Wall Street, where the Dow soared nearly 500 points.

Days later, Geithner was trotting out another new proposal, unveiling "new rules of the game" for the financial sector as the government sought to prevent future financial crises.

'Better, Smarter, Tougher Regulation'

"What we need is better, smarter, tougher regulation because we've seen that the cost of these weaknesses and gaps are catastrophic to the system as a whole," he told a congressional hearing March 26.

When Obama and Geithner jetted off to London for the G-20 summit in early April looking to boost global stimulus efforts, the administration had even started pointing to positive signs in the economy.

Larry Summers, the president's top economic adviser, said April 9 that the "sense of free-fall" was waning.

Federal Reserve Chairman Ben Bernanke cited "tentative signs" that the decline was slowing.

And Obama highlighted "glimmers of hope" that the economy was improving.

But problem areas -- and critics -- still abound.

Roadblocks Remain: Financial Turmoil, Rising Deficits and Vocal Critics

Federal Deposit Insurance Corp. has already closed 29 commercial banks this year, four more than in all of last year.

The Fed, which has taken on more responsibility than ever before in the midst of the recession, cannot slash a key interest rate any further.

The Treasury Department has also come in for criticism from a variety of sources.

A prominent oversight group, the Government Accountability Office, recently called on Treasury to improve its communications strategy.

Nobel Prize-winning economist Paul Krugman has blasted Geithner's plan to rid banks of bad assets as "financial hocus-pocus" that won't work.

Republicans such as House Minority Leader John Boehner trashed the administration's budget as irresponsible, citing that it would rise to a record $1.75 trillion for fiscal year 2009.

Some critics want the administration to take a tougher stance with the financial sector. Other critics say the government has already become too involved.

But no one can deny that the administration has wasted little time in taking action.

On top of the array of financial rescue programs, the government has also shown a willingness to intervene when they deem it necessary.

Far from satisfied with the restructuring efforts of General Motors, a recipient of billions of dollars in government aid, the administration asked the automaker's CEO Rick Wagoner to step down.

Executive Pay, Ponzi Schemes, Ballooning Bailout

And when the chief executives from some of the nation's biggest banks came to the White House for a meeting and expressed concern about executive compensation restrictions, Obama warned them, "My administration is the only thing between you and the pitchforks."

The embattled Securities and Exchange Commission, under fire for failing to protect investors from Bernie Madoff's $50 billion ponzi scheme, has ratcheted up its efforts "to ensure swift and vigorous enforcement."

And there can be no doubt that Geithner, as promised, has shown a willingness to do "what's necessary" to end the financial crisis, directing record sums of money to reverse the recession.

One government watchdog, the Special Inspector General for the Troubled Assets Relief Program, has stated that the original $700 billion bank bailout has now grown to a dozen rescue programs totaling $3 trillion to a dozen rescue programs.

Geithner testified in late April on the success of the programs that "the evidence is mixed."

"We have to look at two things," Geithner said. "One is, do the institutions themselves have enough capital to be able to lend? And does the system as a whole, is it working for the American people for recovery? And that's the standard we're going to look at."

The Treasury chief still has his share of critics, but in a turbulent first few months, he has withstood a torrent of criticisms and unveiled a flurry of programs.

"Do I feel like I'm the right person for the job?" Geithner said recently. "I believe that this is a great privilege for me. And the president asked me to do it, and this is something you have to do. And I'm going to do it to the best of my ability."