Geithner's Intentional Flub

Tim Geithner, welcome to the spot light - as if you hadn’t already been aware.

Geithner’s criticism on Wednesday has been vast, especially in the financial press. The basis of the scrutiny mostly stems from the market’s reaction to his speech. A 388 point drop in the DJIA screamed that his half-baked comments, most of which had already been leaked to the public, were not good enough. However, I am not sure he deserves the beating he has received.

Financial professionals, by nature, are meticulous analyzers. To get to the position of Secretary of the United States Treasury, I think it is a safe assumption that Geithner is a very smart and calculating individual (I am intentionally omitting the tax issue because that is also something we will never be able to prove). Every public appearance prior to Tuesday’s has confirmed this line of thinking, regardless of whether you agree or disagree with his literal comments. Why then, would Tuesday have been any different? I do not think it was; I think those that are critical of Geithner are missing the intention of his actions.

On a day when the Treasury was to issue $36 billion 4 week bills and $23 billion one year bills at 11:30 A.M., and an additional $32 billion 3 year notes at 1:00 P.M., Geithner’s press conference at 11 A.M. would drive the success or failure of the issuance. Said another way, Geithner had the ability to cost taxpayers billions of dollars or save taxpayers billions of dollars based on the movements in the equity and Treasury markets as a result of the street’s interpretation of his words.

I believe he was aware of the huge expectations investors were placing on his speech and what would happen if he disappointed – a massive equity selloff and a “flight to safety”. If this was the case (which I know is speculation we will probably never be able to prove), I don’t know that he made the wrong decision because he saved taxpayers billions of dollars. He has come out and defended the lack of detail in his speech by saying they are going to conduct their actions carefully. If that is the truth, why was there such a need to even have this press conference? He could have included more; he intentionally chose to give his speech without the detail that was promised the night before by President Obama.

I can’t say that at the time and date the speech was announced Geithner (and transitively, Obama) planned to tank, but in conjunction with the timing of the Stimulus Bill going through Congress and the massive issuance of Treasuries, I certainly believe that what occurred on Tuesday at 11 A.M. in Washington (and the resulting market movements) was a strategic decision, not just a poor performance.

For the sake of discussion, let’s imagine this is true; does it change your opinion of yesterday’s market movements? Do you think I am completely off base? Am I giving Geithner too much credit? I encourage readers to include points that I have not considered and/or missed in my speculation.

Stock position: None.

Comments

[malach hamo...:]

He was acting like any good CEO; talk down the stock before executing a buyback or a repurchase of debt at a discount.

Feb 12 09:52 AM

[malach hamo...:]

He was acting like any good CEO; talk down the stock before executing a buyback or a repurchase of debt at a discount.

Feb 12 09:52 AM

[Tom Armistead:]

You have correctly pointed out the disconnect between Geithner's abilities as a meticulous analyst and the lack of detailed answers in presenting his plan.

But I would attribute his motivations to the need to build consensus among a large group of players. Paulson's mistake was to declare he had the answers and then attempt to impose them on the market.

Geithner is quietly and speedily working to get a consensus on the details which will implement the broad outline and principals he presented.

Feb 12 09:53 AM

[zapzappa123:]

You think this was good?

With trillions more supply of these coming online at a ruinous rate what does he do for an encore at the next auction wear a clown suit to scare the bumbling herd into treasuries?

The jig is up on the Fed and they are going to have to start monetizing these things soon and the dollars going in the tank.

Get thee some hard assets Y'all

GL

Feb 12 10:59 PM

[jksisco:]

If indeed Geithner purposely withheld pertinent data to influence a downturn in the market for the sole purpose of manipulating purchases of treasuries, then he is no friend to investors nor the American public who he has taken an oath to serve. If Geithner acted on his own then he should be fired and tried for fraud, if he acted as ordered by Obama to achieve some nefarious end then we have just elected an a liar and a cheat. Either way, they have lost all credibility and trust that would have been necessary to effectively navigate this economic challenge. The stimulus is a fiasco, the new financial stability plan surely looks to be a clusterf#ck as well, is it all just a means to an end, the most effective way to manipulate a clueless public to accept a new doctrine of socialism, I wonder. At this point I think it would have been better to have just let the sh!t hit the fan. We will never know.

Feb 13 11:27 AM

[henarl:]

I think you give Geithner credit for more machiavellian talent than he possesses. He is just simply not a good public communicator and he didn't have a real appealing subject to communicate.

Feb 13 03:40 PM