From The WSJ
By DEBORAH SOLOMON
WASHINGTON— Timothy Geithner's role in calming the financial crisis landed him the coveted job of Treasury secretary last year. That same résumé is now dogging him.
In his next test, Mr. Geithner will find out this week how lawmakers are treating one of his main goals—revamping the nation's financial regulations—when Senate Banking Committee Chairman Chris Dodd unveils his new bill. In Washington, where perception can take on the status of fact, the political woes facing Mr. Geithner are diminishing his authority.
His dilemma: The bank rescues he helped engineer averted economic collapse. Yet to some lawmakers, Mr. Geithner looks weak. His association with unpopular financial bailouts has become an albatross. His neutral rhetoric on bankers' bonuses—the fat payouts are "very hard for people to understand," he recently told CNBC—spurs talk that he coddles Wall Street.
Lawmakers have been bickering for months over Mr. Geithner's regulatory revamp. Despite renewed confidence in the banks and a growing economy, Mr. Geithner gets little credit. His unwillingness to play the populist makes him an ineffective pitchman for an administration eager to defuse public anger over unemployment and the housing crisis.
To boost his image, Mr. Geithner is waging a charm offensive. On Friday, he toured a supermarket in Philadelphia with first lady Michelle Obama to showcase efforts to reduce childhood obesity, an unusual event for a Treasury secretary. He demonstrated how a Treasury program offering tax credits in low-income communities can bring in businesses selling more nutritious food.
Mr. Geithner says even his wife has urged him to show more emotion in confronting the banks. His response to her: Doing so risks politicizing the Treasury.
Interviews with dozens of government officials show that Mr. Geithner has acted as a brake on administration officials seeking punitive action against big financial firms.
Last year, in a previously unreported move, he resisted efforts to oust Citigroup Chief Executive Vikram Pandit as a condition for more government aid, according to administration officials. He successfully argued against ripping up contracts that controversially allowed millions of dollars in bonuses to be paid to American International Group employees, stating: "This is not Bolivia," according to two people who heard him say it.
Mr. Geithner also has pushed for banks to repay government funds (making them raise private capital instead) in defiance of some lawmakers and government watchdogs who said the firms should remain under Treasury's thumb until they resume lending to help the economy.
"What we achieved in the financial sector was way above expectations," Mr. Geithner said in an interview, pointing out "how quickly we restored confidence" in the financial system. "As long as I believe that we are making good judgments...and fixing stuff that was broken in ways that are going to make a difference, then I can live with the consequences."
Midterm elections could produce losses for Democrats for a variety of reasons, including high unemployment, and some worry Mr. Geithner isn't helping. "I told him, as a party, we are going to be doomed if our image is that we are the antipopulist handmaidens of Wall Street," said Rep. Brad Sherman, a California Democrat and a bailout opponent.
Democrats seeking office will lose a critical talking point if Congress doesn't pass a financial-rule makeover by November.
Mr. Geithner has room to maneuver: He may be caught in Washington's cross hairs, but that appears to have had little impact on public opinion. A January Wall Street Journal/NBC poll found 54% saying they either didn't know Mr. Geithner's name or were unsure of their opinion, up from 51% a year earlier, despite rising public discontent over bailouts and bonuses.
Mr. Geithner routinely characterizes the government's actions to stabilize banks as necessary but "offensive." In an interview, he said the anger aimed at him is natural but is magnified by a lack of public trust in government.
"I think the most damaging thing, and the thing that's been the hardest, is to help people understand what we're trying to do," he said, "and why it was necessary—what we could do, what we could not do."
Mr. Geithner's approach to stabilizing the financial system, particularly the "stress tests" to measure bank health, helped put a floor underneath the crisis, something even critics concede. "It's true that we've avoided Armageddon," says Anil Kashyap, an economist at the University of Chicago Booth School of Business and initial critic of Mr. Geithner's plan.
"People sometimes forget, we were on the precipice," says David Cote, CEO of Honeywell. "You get little credit for the problem you avoided."
In interviews, top White House officials—including Rahm Emanuel, the president's chief of staff, and senior political adviser David Axelrod—said Mr. Geithner's job is secure. "The president's view is that Tim is one of the stars," Mr. Emanuel said. "Tim was an essential and a key player in developing a strategy that helped restore confidence and turn the whole country around."
Before taking the podium in January for his first State of the Union address, President Barack Obama gave a public vote of confidence by grasping Mr. Geithner on both shoulders and complimenting him on his testimony that day at a congressional hearing on the AIG bailout.
Treasury officials say Mr. Geithner's standing among lawmakers is strong. Earlier this year, they say, he helped assuage fears among Democrats and Republicans wary of confirming Ben Bernanke to a second term as chairman of the Federal Reserve with phone calls and in-person meetings. Mr. Bernanke won Senate confirmation, 70-30.
The government is winding down its bailout programs, and the biggest banks have repaid their government funds, often at a profit to the Treasury. The rescue is estimated to cost at most $120 billion, less than the $700 billion once envisioned. Still, the bailout strategy is hurting Mr. Geithner's standing.
"The public is saying, 'You've got to hold those bastards accountable,' and the political winds are now blowing clearly to the latter," says Robert Reich, a former labor secretary under President Bill Clinton.
Mr. Geithner, 47 years old, sees himself as a behind-the-scenes diplomat rather than a politician. He spent almost his entire career in public service at the New York Fed, the International Monetary Fund and the Treasury Department. His office, which has a view of the White House and a portrait of Alexander Hamilton hanging above a fireplace, appears largely devoid of personal memorabilia, although aides say Mr. Geithner keeps photos on his desk where only he can see them.
According to people familiar with Mr. Geithner's views, he argues that crafting policy in response to the public anger toward Wall Street might feel good, but invites charges of partisanship and is harmful in the long run. In a crisis, "there is usually not a huge overlap between what's popular at the moment, and what's right for the economy," says Gene Sperling, a top Geithner aide.
Mr. Geithner has opposed actions he saw as crossing that line. In February 2009, the government considered increasing its then-7.8% stake in troubled Citigroup to more than 30%. Some in the White House said the U.S. should oust the chief executive, Mr. Pandit, as a condition to satisfy the public's desire for punitive action, according to administration officials.
Mr. Geithner resisted, saying it didn't fit the principles the administration agreed upon for replacing management. The U.S. wasn't putting new taxpayer dollars at stake in the deal, and Mr. Pandit hadn't been at Citi when many of its bad decisions were made. He argued that replacing the CEO could destabilize a firm with no clear successor.
Mr. Pandit kept his job. Instead, Citigroup was required to add more independent directors to its board.
A month later, amid public outcry over $168 million in bonuses for employees of AIG—the giant insurer now 80%-owned by the U.S. government—White House officials raised the idea of not honoring the employees' contracts. Mr. Geithner disliked the bonus payments but rejected the idea, saying the U.S. doesn't abrogate contracts.
Even when Mr. Geithner began moving early to take action against financial firms, his efforts to avoid political entanglements made him look late.
In August, Mr. Geithner asked Treasury staff members to look into whether it would make sense to tax banks' financial transactions to recoup Troubled Asset Relief Program losses. He told staff to not broach the topic with the White House until he gave the go-ahead, because he didn't want to "give oxygen" to the tax idea before it could be thought out.
Meanwhile, however, others began calling for a transaction tax, including U.K. Prime Minister Gordon Brown and House Speaker Nancy Pelosi. The result: By the time Mr. Obama rolled out his own bank-fee plan in January, it appeared to many a defensive move. The announcement came just after Republican Scott Brown stunned Washington by winning the late Ted Kennedy's Massachusetts Senate seat. Mr. Reich, for instance, said in an interview the plan seemed "to be in response to...the perceived populist upsurge."
Mr. Geithner so far has been unable to achieve a key White House objective—revamping the U.S. rule book for banking and finance. Last June the administration proposed sweeping changes to market regulation. The plan includes limits on risk-taking by financial firms and added consumer protection for mortgages and credit cards.
The proposal ignited a fractious debate in Congress over whether it went far enough. Hurting the effort: Critics framed Mr. Geithner as taking the banks' side.
As the U.S. House debated the proposal last fall, Mr. Geithner rejected an idea to charge large financial firms an upfront fee to pay for government cleanups if they later fail. Mr. Geithner felt that would send the wrong message to investors—namely, that the government would step in, coddling them if their investments soured. He argued for recouping losses with a fee after a failure.
Lawmakers saw the opposite. "We read all about how good the Wall Street giants are doing.... Well, they should set aside some of that money," Rep. Luis Gutierrez (D., Ill.) said at a hearing with Mr. Geithner. The Senate is now split over the issue.
In November, Mr. Geithner was unable to stop a proposal that the Treasury believes will make it tougher for banks to raise capital. The proposal, by North Carolina Democratic Rep. Brad Miller, makes it tougher for secured lenders to get their money back if a bank fails.
Mr. Miller says Mr. Geithner didn't talk to him about the provision or ask him to back down. He defends the provision, saying that creditors need to bear more of the pain when firms fail.
For now, Mr. Geithner appears comfortable playing the beleaguered warrior. At a tongue-in-cheek political dinner in late January, Mr. Geithner served as a stand-in for Mr. Obama, reading aloud a letter from the president.
"Of course, I've had some political setbacks this year," Mr. Geithner read. "But look on the bright side—at least I'm not Tim Geithner."
Write to Deborah Solomon at deborah.solomon@wsj.com