Tuesday, March 10, 2009

Treasury's Troubles

The continued absence of a fully formed, credible plan to deal with the banking crisis is troubling. Alan Greenspan, Paul Krugman, and Simon Johnson all think that some form of temporary nationalization of some major banks is necessary. The banks would be cleaned up, and sold back to the public without their “toxic assets.” The Obama Administration has so far dismissed this idea as impractical. Alan Blinder, writing in Sunday’s New York Times, also criticizes “nationalization,” but his “good bank/bad bank” proposal seems similar. No one is very clear about the details of how their preferred solution would work.

Criticism of Treasury is increasing. For example, Secretary Geithner’s was interviewed for NPR/Planet Money. A post by James Kwak on The Baseline Scenario website takes Geithner to task on his statements concerning valuing bank assets and nationalization in that interview. Simon Johnson, writing for the same website, finishes a comment on the interview by asking: “How long can you say, ‘we are being bold’ when in fact you are not?” Paul Krugman has been equally critical, while some Republicans on the Sunday talk shows are saying that some banks should be left to die.

Meanwhile, the absence of senior political appointees at the Treasury has received significant attention. According to the press, two people who were being considered for top Treasury posts – Annette Nazareth for Deputy Secretary and Caroline Atkinson for Assistant Secretary for International Affairs – have withdrawn from consideration. The Washington Post this morning is reporting that Lee Sachs, who reportedly was being considered for Under Secretary for Domestic Finance, is also contemplating withdrawing his name. It is unclear what is going on.

The press is painting a picture of Secretary Geithner being all alone at Treasury. Of course, this is not quite accurate. Treasury career staff is on the job, as well as political types, such as Lee Sachs, who have been helping in capacities that do not require Senate confirmation. Stuart Levey, Under Secretary (Terrorism and Financial Intelligence), a holdover from the previous Administration, has been asked to remain and is still on the job. Ted Truman, an Assistant Secretary for International Affairs in the Clinton Adminstration and a long-time senior Fed staffer, has agreed to work at the Treasury providing advice on international issues for six weeks.

Still, Treasury needs to fill the Deputy Secretary and the Under Secretaries for Domestic Finance and International Affairs positions and the Assistant Secretary slots reporting to these Under Secretaries soon. Senior career staff cannot speak with the authority of Senate-confirmed appointees, and many may be leery of formulating and advocating bold policy initiatives.

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