Timothy Geithner
Timothy Franz Geithner is an American former central banker who served as the 75th United States secretary of the treasury under President Barack Obama from 2009 to 2013. He was the President of the Federal Reserve Bank of New York from 2003 to 2009, following service in the Clinton administration. Since March 2014, he has served as president and chairman of Warburg Pincus, a private equity firm headquartered in New York City.
As President of the New York Fed and Secretary of the Treasury, Geithner had a key role in government efforts to recover from the 2008 financial crisis and the Great Recession. At the New York Fed, Geithner helped manage crises involving Bear Stearns, Lehman Brothers, and the American International Group; as Treasury Secretary, he oversaw allocation of $350 billion under the Troubled Asset Relief Program, enacted during the previous administration in response to the subprime mortgage crisis. Geithner also managed the administration's efforts to restructure regulation of the nation's financial system, attempts to spur recovery of the mortgage market and the automobile industry, demands for protectionism, tax reform, and negotiations with foreign governments on global finance issues.
Early life
Geithner was born in Manhattan, New York, to Peter Franz Geithner and Deborah Moore. His father, a German American, was the director of the Ford Foundation's Asia program in New York during the 1990s, after working for the United States Agency for International Development in Zambia and Zimbabwe. During the early 1980s, Geithner's father oversaw the Ford Foundation's microfinance programs in Indonesia being developed by Ann Dunham Soetoro, Barack Obama's mother, and they met at least once in Jakarta. Geithner's paternal grandfather, Paul Herman Geithner, immigrated with his parents to the United States in 1908 from Zeulenroda, Germany.Geithner's mother, a Mayflower descendant, belongs to a New England family. Her father, Charles Frederick Moore, Jr., served as vice-president of public relations for the Ford Motor Company from 1952 to 1964, and advised President Dwight D. Eisenhower, as well as Nelson Rockefeller and George W. Romney, on their respective presidential campaigns. His uncle, Jonathan Moore, served in the departments of Defense, Justice and State, as well as in the United Nations.
Geithner spent most of his childhood living abroad, including in Zimbabwe; Zambia; India; and Thailand, where he completed high school at the International School Bangkok. He studied Mandarin at Peking University in 1981, and at Beijing Normal University in 1982. Like his father, paternal grandfather and uncle; Geithner attended Dartmouth College, graduating in 1983, with an A.B. in Government and Asian studies, then earned a M.A. in international economics and East Asian studies from Johns Hopkins University's School of Advanced International Studies, in 1985. He has also studied Japanese.
Early career
Geithner worked for Kissinger Associates in Washington, D.C., from 1985 to 1988, when he joined the International Affairs division of the U.S. Treasury Department. He served as an attaché at the Embassy of the United States in Tokyo, then as deputy assistant secretary for international monetary and financial policy, senior deputy assistant secretary for international affairs, and assistant secretary for international affairs. He was Under Secretary of the Treasury for International Affairs under Secretaries Robert Rubin and Lawrence Summers, who are widely considered to have been his mentors. While at the Treasury Department, he helped manage financial crises in Brazil, Mexico, Indonesia, South Korea, and Thailand.In 2001, Geithner left the Treasury to join the Council on Foreign Relations as a Senior Fellow in the International Economics department. He was director of the Policy Development and Review Department at the International Monetary Fund from 2001 to 2003.
Federal Reserve Bank of New York
In October 2003, Geithner was named president of the Federal Reserve Bank of New York. As president of the New York Fed, he served as Vice Chairman of the Federal Open Market Committee. In 2006, he became a member of the Washington-based financial advisory body, the Group of Thirty.In 2005, Geithner expressed concern over Wall Street trading in financial derivatives, which ultimately contributed to the spread of the 2008 financial crisis, though he did not pursue major reforms. In 2004, Geithner called on banks to "build a sufficient cushion against adversity", though in May 2007, he expressed support for the Basel II accord, which critics, including Federal Deposit Insurance Corporation chairperson Sheila Bair, argued would reduce the amount of capital banks would be required to hold to guard against losses. That month, in a speech at the Federal Reserve Bank of Atlanta, Geithner stated, "Financial innovation has improved the capacity to measure and manage risk," but also cautioned that "financial innovation and global financial integration do not offer the prospect of eliminating the risk of asset price and credit cycles, of manias and panics, or of shocks that could have systemic consequences."
As president of the New York Fed, Geithner was a central figure in the U.S. government's response to the 2008 financial crisis.
In mid-March 2008, together with then-Treasury Secretary Henry Paulson, Geithner arranged the rescue and fire sale of Bear Stearns, which was at risk of bankruptcy, to JPMorgan Chase for $2 per share. The Fed agreed to provide financing for the deal and support up to $30 billion of Bear Stearns's "less-liquid assets", despite some internal protests. In doing so, the New York Fed allowed Bear Stearns itself to calculate the value of assets acquired by the government and exposed itself to losses should those assets have declined in value, though JPMorgan agreed to absorb the first $1 billion in losses. The New York Fed stored these assets in the Maiden Lane limited liability company and awarded no-bid contracts to the Wall Street asset manager BlackRock for management of the assets, with the intent of ridding itself of the assets within 10 years. In testimony before the Senate Banking Committee, countering concerns that the rescue would invite moral hazard problems, Geithner argued that "a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy." Under questioning from Senator Chris Dodd, Geithner denied involvement in setting the share price of JPMorgan's purchase of Bear Stearns. Bear Stearns and JPMorgan chief executives Alan Schwartz and Jamie Dimon testified that Geithner and Federal Reserve Chairman Ben Bernanke were aware of the amount being discussed and encouraged negotiators to keep the price low to avoid rewarding investors.
In the late summer of 2008, troubles at the financial services firm Lehman Brothers were accelerating. In late August, the company announced that 1,500 employees would be laid off, following 6,000 layoffs since June 2007. On September 9, Lehman's share price plunged 45% on fears that the company was facing billions of dollars in losses, and on news that a potential investment in the company by Korea Development Bank had fallen through. Three days later, Geithner convened a meeting of Wall Street executives, Secretary Paulson, and Securities and Exchange Commission Chairman Christopher Cox to review exposure to Lehman's fortunes and discuss a possible liquidation of Lehman. Geithner indicated that the government would not save Lehman and urged the executives to cooperate on an industry solution, warning that the crisis could spread to their own firms should a deal not be reached. Government officials believed Lehman's collapse would be less dangerous than that of Bear Stearns, though Geithner sought to avoid that contingency nonetheless, citing the increase in market fragility by the time of Lehman's crisis. Nevertheless, no industry rescue materialized. Bank of America, which had been in talks to purchase Lehman, pulled out after the government indicated it would not take on Lehman's risky real-estate assets, as it had with Bear Stearns. On September 15, Lehman announced that it would file for bankruptcy, making it the largest investment bank failure since Drexel Burnham Lambert in 1990.
Geithner, Paulson, and Bernanke later argued that Lehman's financial situation was too dire for the government to have legally rescued it. A team from Goldman Sachs and Credit Suisse had estimated prior to Lehman's bankruptcy filing that Lehman's liabilities exceeded its assets by tens of billions of dollars.
Geithner was instrumental in government dealings with the American International Group insurance company. Over the summer of 2008, as credit rating agencies downgraded mortgage-backed securities, AIG faced mounting demands to provide increased collateral to buyers of its credit default swaps. Consequently, by the time of Lehman's failure in September, AIG was facing a rapidly increasing multibillion-dollar capital shortfall. On September 13, AIG chief Robert B. Willumstad informed Geithner that the company would need to raise $40 billion and asked for government assistance in doing so. Geithner rejected the request for government funds and pressed AIG to find a private-sector solution to the company's liquidity crisis. On the morning of September, Geithner reiterated this decision at a meeting of Wall Street executives and requested that Goldman Sachs and JPMorgan organize an industry-based solution. By that evening, private-sector appetite for an AIG rescue has dissipated. Later that night, a consensus emerged at the New York Fed that AIG, with $500 billion in troubled credit-swap obligations, could not be allowed to fail. At a meeting of the Federal Reserve in Washington the next day, Geithner and Paulson proposed lending $85 billion to AIG, with all of AIG's assets held as collateral, in exchange for a 79.9% equity stake in AIG and veto rights over dividend payments. Upon delivering this offer to AIG, Geithner informed Willumstad that there would be "no negotiation".
As a result of Lehman Brothers's failure, money market funds with exposure to Lehman securities found themselves in distress on the day of Lehman's bankruptcy filing. One such fund was the Reserve Primary Fund. Due to the highly stable net asset value of money market funds, money market funds were extensively relied on by companies for regular cash demands. Following Lehman's bankruptcy filing, due to a slowdown in credit markets, the Primary Fund was unable to sell once liquid assets to meet rapidly mounting demands for the redemption of investments. Geithner's New York Fed had been informed of the worsening situation at 7:50 that morning, and the next day rebuffed a request from the Primary Fund to assist it in making payments. Unable to sell Lehman's securities held by the fund, the board of the Primary Fund announced that it would freeze redemptions for seven days and reduce its NAV to $0.97 per share, meaning a money market fund would break the buck for only the second time in the industry's history.
To stabilize the financial market, Geithner proposed that the traditional investment banks Goldman Sachs and Morgan Stanley transform themselves into bank holding companies to ensure continuing access to funding. Both banks completed the restructuring by September 21.
Geithner believed, along with Paulson, that the Treasury needed new authority to respond to the 2008 financial crisis. Paulson described Geithner as a "very unusually talented young man... understands government and understands markets".