Geithner, Taxed

The blogosphere is rumbling about Tim Geithner and his back taxes: Henry Blodget has even put up a post with the headline "Geithner Tax Scandal Threatens To Derail Confirmation".

Er, no, it doesn't. As Blodget himself admits, it's (a) not much of a scandal, and (b) even if it were much of a scandal, Congressional Republicans would have to "raise a stink" in order for the nomination to even come close to being derailed; so far, there's no sign of any of them doing so, and indeed key Republicans such as Orrin Hatch and Judd Gregg have already thrown their weight behind Geithner.

The WSJ is seeing more sense: After getting a little bit ahead of itself with the headline "Geithner's Past Tax Problems Throw Wrench in Confirmation", it soon switched to the less inflammatory "Geithner's Tax History Muddles Confirmation".

There's no realistic chance that Geithner will fail to become Treasury secretary as a result of this scandalette, if only because there's zero chance that Republicans would be any happier with Obama's second choice. Geithner is clearly qualified, and has worked very well with Republicans in the past: not only Bernanke and Paulson, in his present job, but also Anne Krueger, at the IMF. Had Mitt Romney, say, been elected president, Geithner would probably have been on his shortlist for Treasury secretary too.

Instead, the tax affair will act as a baptism of fire for Geithner, toughening him up for the nastiness which lies ahead. Just as Obama ultimately benefitted from the drag-out fight with Hillary Clinton in the Democratic primaries, getting through a little bit of adversity before he gets the job might well do good things for Geithner too.

The three most systemically important banks in America -- Citigroup (C), Bank of America (BAC), and JP Morgan Chase (JPM) -- are trading on price-to-book ratios of 0.31, 0.38, and 0.67 respectively, and the $10 billion loss that Citigroup is expected to post in the fourth quarter is 31% of its entire market capitalization. The chances are that as Treasury secretary, Geithner will have to choose between bailing out and nationalizing at least one of them, and quite possibly all three. And whichever choice he makes, the screams of protest will be orders of magnitude louder than the mutterings surrounding him today. He'd better get used to it.

Comments

[Socialism c...:]

Are you kidding me?? You think the guy is qualified, when he doesn't pay his taxes? Either: a) he didn't know he had to pay the SS & Medicare, or b) he knew and tried to get away with not paying them. I find it an unreal proposition that someone with his financial knowledge would not know about the requirement to pay those as self-employment taxes when they aren't withheld. I'm no accountant, but when I did a bit of consulting on the side a couple years ago, the form 1040 is clear about the need to file the self-employment form and when you need to pay those!! If you can read, you cannot help but know what you need to do. He's a crook. And I don't want anyone who has worked for the IMF involved in my monetary affairs. Furthermore, if the Congressional Repubs haven't flambe'd him, they are not doing their job!! We've seen enough questionable activities by members of government -- the last thing we need in these times is yet another "leader" with "gray areas" in his dealings.

Jan 14 02:48 PM

[OldLimey:]

Not entirely sure about Geithner's qualifications in the wider sense, given that he was First Mate while the Titanic was heading for the iceberg. Be that as it may, I think you're right about the big three banks eventually having to be nationalised.

Jan 15 01:09 PM

[rogerk2:]

Some questions nobody is asking Geithner:

1. You were at the helm of the financial capital of the world during the decade that led to the biggest banking system failure since the Great Depression. What did you do, or fail to do, that allowed this fiasco to occur on your watch?

2. What in your experience as Chairman of the New York Fed demonstrates your qualifications to be given trillions of taxpayer dollars to distribute fairly and openly, for the benefit of the public? How has the public benefitted from your tenure in the NY Fed?

3. The chiefs of JPM and Citi are directors of the NY Fed. Their banks got bailed out. Bear Stearns and Lehman were not represented on your Board. They were allowed to fail, and JPM and Citi were able to buy up their assets for a song. How do you convince the American taxpayer there was no insider collusion in these decisions?

4. Why did you only pay taxes for the two years that got audited, and not for the other two years that obviously had the same tax liability? Your financial advisor or tax preparer didn't know you were cheating on your taxes? Did you use the same tax preparer as Bernie Madoff?

Jan 16 05:19 AM

[hamptoner:]

Not only do we have someone of questionable integrity as Treasury Secretary but we now know that the President, who had a chance set the ethical bar for his administration to a high standard chose not to. So much for Change! It's going to be more of the same in Washington!

Jan 27 11:13 AM