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.