Geithner's Baptism of Fire

On Monday, when US markets were closed, Royal Bank of Scotland (RBS) announced it lost something in the region of £28 billion last year, and the FT ran a column with the headline "Shoot the bankers, nationalise the banks". On Tuesday, when US markets opened, there was carnage in the financials, with RBS down a whopping 70% in dollar terms and State Street (STT) finally going the Way of All Banks (rapidly towards zero).

This isn't all bad. The markets are waking up to the fact that most of the banking system is both insolvent and losing money: a lethal combination. With future write-offs larger than the present value of any (distant) future profits, it's really hard to see how there's much if any equity value in the banks at all. And given the massive and unexpected fourth-quarter losses from the likes of RBS, Merrill, and Citigroup (C), it stands to reason that the XLF financial-sector index ETF should trade lower than its previous low in November. Plus, markets abhor a power vacuum.

Today, Tim Geithner's confirmation hearings begin -- and if the Senate Finance Committee improbably starts giving him a hard time, expect another brutal day in the markets. This is no time for a Bush administration hold-over like Stuart Levey to be running Treasury: We need someone in there who is able to speak for the Obama administration and take some tough decisions.

Much more likely is that Geithner will get through the Senate with a slap on the wrist for his tax problems; I hope that as soon as he's confirmed he lays out with great clarity both the principles underlying his future treatment of the financial sector and the way in which he intends to put those principles into practice. For Geithner, there will be no honeymoon period: he's getting thrown straight into a shark-infested deep end. And the decisions he makes in his first days in office will set the tone for his whole tenure at Treasury. I hope he's worked out already what they're going to be.

Comments

[market ace:]

It is pretty obvious what this Paulson clone will do. Piss away more tax payer dollars trying to save failed giant banks. This is one area where there will be no change from the Bush era just more of the same failed bailout policies.

Jan 21 10:20 AM

[maelstrom:]

Einsteins definition of insanity..our asshole polititians are so far out of their realm, lacking any experience other than "public service", whatever the hell that means,..throw a vacuum in a vacuum thats what the market needs

Jan 21 10:28 AM

[jrs87sch:]

Geithner paid his back-taxes and stated that his tax issues were unintentional. The only problem is that his position heads up the IRS. Maybe our tax code is too damn complicated, you think?

Do you think this problem should keep him from getting the position?

Jan 21 10:56 AM

[Tony Petroski:]

I still await the Obama/Geithner bounce. Could we not at least get a half of a good day?

Jan 21 11:00 AM

[halconnoche:]

So if I simply state that me not paying my taxes was unintentional, that should get me off the hook. Then if I say that I shouldn't be held accountable for the past (US Automakers) I should be able to get a bailout. Make Geithner a Republican and he would already be out of the running. The media would have already crucified him. Just seems a little ironic that this guy will be in charge of the IRS.

Jan 21 11:08 AM

[Kevin Walmsley:]

If the Secretary of the Treasury can't be expected to understand the tax code, hard to imagine why anyone else should.

Halcon is right. Were he a Republican, his confirmation would be DOA. But why let something as silly and petty as refusing to pay taxes for years derail someone's ambition to run Treasury? Is it possible that this might not be a sign, that he isn't the guy for the job?

Keep selling short.

Jan 21 11:13 AM

[3 degrees o...:]

There is no way Geithner's failure to pay his taxes while an independent contractor was unintentional. The only rational reason he didn't pay the taxes was because he didn't want to pay them and maybe thought he could get away with it.

I worked as an independent contractor for seveal years, did my own taxes and managed to pay the proper taxes inspite of my haveing the brain power of your average NASCAR fan. If I could do it, so could Geithner!

This should disquaulify him for the job of Treasury Secretary.

Jan 21 02:16 PM

[sr9web:]

The lesson here is - if you want to get off the hook for not paying your taxes, get appointed as the Treasury Secretary...

Jan 21 08:35 PM