Barr: Tim Geithner's True Legacy
Treasury Secretary Timothy Geithner's last day in office is today. It would be hard to find a public servant more misunderstood. He's been vilified by the left as a creature of Wall Street and by the right as a Socialist. The truth is, a generation from now, students of economic history will read about, and understand, how Geithner helped to save this Nation, and the global economy, from another Great Depression. How Geithner helped to lay the foundations for a safer, fairer financial system. And how he helped America navigate global financial storms that threaten our economy.
When President Obama came into office four years ago, the financial crisis had just thrown the U.S. economy over a cliff. The financial stability plan that Treasury Secretary Geithner launched worked: the financial panic ended and the economy began to grow again. Federal investments by the Bush and Obama Administrations are now 90 percent repaid, and net costs of the federal intervention in the financial sector overall are expected to approximate zero. That is a remarkable achievement, and one that critics on the left and right said would never happen.
At the same time, the Administration put forward a financial reform plan, eventually enacted as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, to make the financial system more resilient, and to protect taxpayers and the broader economy in the future. The Act brings shadow banking into the daylight; regulates the largest firms regardless of their corporate form; establishes a resolution authority to wind down financial firms in a financial panic; sets new rules of the road for financial derivatives; puts in place the tools to reduce systemic risk across the market; sets out important investor protections; and establishes a new Consumer Financial Protection Bureau to look out for the interests of households. Secretary Geithner repeatedly and successfully fought back against attempts by the big banks and their allies in congress to weaken these reforms.
Globally, the Treasury Secretary led efforts to increase the capital that banks are now required to hold—making future crises less likely and less severe. He worked with European leaders to get their arms around the twined Euro and banking crises, keeping their crises from crushing the U.S. economy, and to coordinate on European financial reform of the shadow banking system, derivatives, resolution and capital. And quietly, behind the scenes, he got the Chinese to begin to deal with currency valuation and other reforms critical to a fair and competitive global trading system.
More subtly, he left the institution of the Treasury Department a better place. Career staff have been strengthened. Political appointees have to meet the Geithner test—"no jerks, no peacocks, no whiners." And his now famous admonition, "plan beats no plan" has lent a steady hand to Treasury's economic stewardship.
So today, let's pause for a moment to put aside the rancor and the partisanship, and thank Secretary Geithner for his service.
(For another assessment of Geithner's legacy, click here.)
Michael S. Barr, a CNBC Contributor, is Professor of Law at the University of Michigan Law School and a nonresident Senior Fellow at the Center for American Progress. He served under Secretary Geithner as Assistant Secretary of the Treasury for Financial Institutions.