Tim Geithner boarded the 6 a.m. US Airways shuttle to Washington last Wednesday at La Guardia, slid his rail-thin frame into seat 5C, then stared into the middle distance. Geithner is invariably described as boyish, but that morning he looked every one of his 47 years—and then some. He wore a dapper blue suit, a spread-collar shirt, and dark circles under his eyes. For days, Geithner had been consumed in the unfolding AIG fiasco. He’d been running nonstop, laboring to contain the fallout, to explain how this bonus-related abomination had occurred, what he knew, when he knew it, why he seemed so impotent. But Geithner was too smart to harbor any illusions about the efficacy of those efforts. He knew that what awaited him in Washington was going to be ugly. When the plane touched down, he gathered his things and walked silently toward the jetway. He had the look of a man about to enter a burning building in a suit soaked with gasoline.
What greeted Geithner in the capital was a full-blown firestorm. Republicans were howling and screeching, calling for his head on a pike. Some Democrats privately agreed. On Wall Street, meanwhile, where Geithner’s stock has been falling precipitously for weeks, a prominent Democratic banker (and Obama backer) told me, “It’s not that everyone here thinks he should be fired. It’s just that there’s no one who would stand up right now and publicly throw their support behind him.”
Geithner’s survival appeared to be hanging by a thread. Even before the AIG maelstrom, a certain slow-drip sense of disillusionment had been setting in about his up-to-the-jobness among certain White House officials. The tax thing. The terrible speech. The lack of confidence in the financial markets. And yet, for the time being at least, Geithner retained the support of the only White House constituency that matters—the constituency known among old executive-branch hands as the constituency of one. Which is to say, Barack Obama.
“Tim Geithner didn’t draft these contracts with AIG,” Obama said, adding that Geithner has his “complete confidence.” “Nobody’s working harder than this guy. You know, he is making all the right moves in terms of playing a bad hand.”
That Obama would defend Geithner on AIG comes as no great shock. According to the president’s chief of staff, Rahm Emanuel, Obama regards the bonus imbroglio as a “distraction” from more urgent economic priorities; his goal is to move past it and allow Geithner to get back to the business of rescuing the financial system. Yet AIG will not be so easily brushed aside, for it has brought to a boil the simmering doubts about not just Geithner but also his partner Larry Summers, director of Obama’s National Economic Council, and the economic approach they are fashioning and advancing for the administration.
When Obama appointed Geithner and Summers back in November, the reaction in Washington and on Wall Street was the same: first relief and then elation. (The day the news of Geithner’s selection leaked, the Dow rose 6.5 percent.) They were brilliant, experienced, crisis-tested, market-minded but progressive, a kind of economic-policy dream team. Since then, they have worked side by side along with Fed chair Ben Bernanke to quell an economic crisis as monstrous as any since the Great Depression—while formulating an economic agenda as ambitious as any since FDR’s. They’ve unveiled big plans, talked big talk, and crafted and shepherded into law the biggest fiscal-stimulus package in American history.
But Obamanomics represents something even bigger than all that. At a moment when the fundamental precepts of market capitalism and government’s relationship to the economy are up for grabs, the Obamans are attempting nothing less than a redefinition of progressivism, which could alter the terms of political engagement and the ideological balance of power for decades to come. With their budget, they have laid out a vision that, as former Labor secretary Robert Reich puts it, “reverses and repudiates the economic philosophy that has dominated America since 1981.” Obamanomics isn’t merely the end of Reaganomics, in other words. It’s the end of Rubinomics, too.
An agenda this transformative is bound to stir up criticism, and so it has—from the left and the right, Wall Street and Main Street, arch-Establishmentarians and hot-eyed populists in roughly equal measure. The complaints of these factions vary wildly, but they share a point of agreement: that the administration so far has badly mishandled the banking crisis; that it’s dithered, dawdled, and dinked around instead of delivering bold, decisive action. For Obama, confronting this issue poses a vexing dilemma. Saving the banks is the sine qua non for the country’s emergence from its ever-deepening miasma, but in doing so, Obama risks incurring a tsunami of bailout rage. If, on the other hand, he appeals too much to populism, he risks driving elites away. Either outcome could deny him the support he needs for the rest of his agenda. Getting the economics right may be devilishly difficult—but the politics are even trickier, and just as crucial.