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Obama Is From Mars, Wall Street Is From Venus

From left, JPMorgan Chase's Jamie Dimon, Bank of New York Mellon's Robert Kelly, Bank of America's Ken Lewis, and State Street's Ronald Logue on Capitol Hill.   

Obama barely knew Geithner, having met him secretly at a W hotel in Manhattan in the waning days of the campaign and then for a 65-minute job interview. But they formed a quick and instinctive bond. Born two weeks apart in 1961, both had grown up overseas and possessed the same cool detachment, love of sports, and relentless discipline. That Geithner had worked side by side with Paulson during the crisis was seen by Obama as an enormous asset. Here was a guy who understood the financial system inside out, who knew the Wall Street kingpins, grokked their psyches, had their confidence. And here was an appointment the markets would applaud, no small thing at that still-precarious moment.

Obama was right about the last point. When word of the selection hit the airwaves, the Dow jumped 6.5 percent. But it would be the last smattering of applause he’d hear for Geithner—from Wall Street or anywhere else—for a long, long time.

Even after a year and a half in one of the highest-profile jobs in America, Geithner remains as misunderstood a major figure as Washington has ever seen. The confusions are many, but none has been more pervasive or unshakable—and also symptomatic of the problems that have bedeviled him—than the conviction that he’s a banker.

It was Geithner who called this to my attention when I visited him recently at the Treasury. At 48, he is small and slender, a wispy presence in his cavernous, ornate office. We were talking about how the left views the White House, and Geithner noted, “There’s a myth about the president being in this vise grip, being pulled to the right by me and Larry, that I’ve worked at Goldman Sachs all my life.”

The idea that Geithner is a Goldman alumnus has been repeated by everyone from congressmen to people asking him questions in online forums. Geithner has tried to dispel the misapprehension, but the effort may be futile. One night over dinner with White House chief of staff Rahm Emanuel, Emanuel’s wife, Amy Rule, remarked that Geithner “must be looking forward to going back to that nice spot you have waiting for you at Goldman.”

The only people more chagrined by the idea that Geithner was a Wall Street insider than Geithner himself are actual Wall Street insiders. “No one here would ever hire Tim to run a business, because he doesn’t understand how to run a business,” says one hedge-fund operator. “He’s a good guy, a smart guy, with a good heart. But he’s, you know, a regulator.”

The shallowness of Wall Street’s regard for Geithner became clear in the wake of his disastrously maladroit public debut in February 2009, when he outlined his (far from fully baked) plan to halt the banking crisis. The first reaction was the market’s: It plummeted 382 points. The second was that of the market’s movers and shakers: They started baying for his head.

The irony here was rich, of course, since Geithner’s stabilization scheme would turn out be strikingly favorable to Wall Street. From the outset, his aim was never to punish the banks. Quite the contrary, it was to save them—by pouring money into them, restoring confidence in them, treating them with kid gloves. Nor was his goal to restructure the financial system. It was to prevent the existing system from collapsing and then strengthen the rules governing its operation. In all this, Geithner was betraying the extent to which he shared Wall Street’s mind-set, even if he wasn’t a creature of it. “His office was there and he was deeply enmeshed in that culture and he had those relationships,” says one of his best friends. “That part of the critique is fair.”

In the administration’s early months, Geithner’s orientation often put him at odds with White House political mavens, including David Axelrod, who were acutely attuned to the electorate’s retributive impulses. And it occasionally stoked conflict with Summers, who had become the director of Obama’s National Economic Council and was slightly more hawkish than Geithner on the banks. In a recent piece in The Atlantic, for example, Joshua Green reports that Summers pushed to have Ken Lewis fired as Bank of America’s CEO. But Geithner disagreed, arguing that doing so would roil the markets and make it harder for BofA and other banks to raise private capital. Obama sided with Geithner.

A bigger debate was over the question of whether to nationalize the weakest banks, which were thought by many to be insolvent. A number of the members of Obama’s economic team began leaning in the direction of taking over at least a couple of the most troubled institutions. Geithner suspected that some of his colleagues were channeling ideas fed to them by pals of theirs at hedge funds, many of which were licking their chops over the prospect of buying a boatload of distressed assets in the event of nationalization or some similar scheme. More to the point, Geithner also believed that if the government started taking over banks, it would turn into a costly quagmire.