Eye on Obama’s Cabinet

President-elect Obama’s cabinet is very quickly taking shape and has a decidedly Clinton flavor. While none of his appointees are official, or have gone through their Senate confirmation hearings, it is likely that the names that are being widely discussed and acknowledged by the Obama campaign are valid and will form the core of his cabinet.

Obviously the Clinton tone begins with Senator Hilary Clinton and her likely appointment as Secretary of State, but actually resonates in almost every purported appointment, including Bill Richards as Secretary of Commerce (Energy Secretary and Ambassador to the UN under President Clinton), Timothy Geithner as Secretary of Treasury (Assistant Secretary of the Treasury for International Affairs under President Clinton), Rahm Emanuel as Chief of Staff (Senior Advisor to President Clinton for Policy and Strategy), Larry Summers as Special Economic Advisor to the White House (Secretary of the Treasury under President Clinton), and Eric Holder as Attorney General (Deputy Attorney General under President Clinton).

While on one hand these nominations are hardly inspiring as representatives of change, they do, admittedly, represent competent and broadly respected appointees. The economic appointees are most interesting in the context of the country’s current economic ills and while on the margin any semblance of change is probably good, it is hard not to accept some of these appointees with an air of caution, in particular the most relevant position of Secretary of the Treasury, Timothy Geithner. In particular, when we see headlines such as “Timothy Geithner: Obama's Pick for Treasury a 'Great Man for the Job”, we get concerned that expectations are becoming elevated for his performance.

Following Senator Obama’s victory, we had posted on the potential choices for Secretary of the Treasury and we had suggested that Geithner was one of the top three choices, although we preferred Larry Summers as a more experienced and economically rational choice. We are not willing to say that Geithner is a bad choice, as he is not even on the job yet, but as we wrote on November 5th, 2008 in a piece we titled “Obama Treasury Secretary: The Top Contenders”, we wondered “whether he has the experience to manage the current crisis.”

Current Secretary of the Treasury Paulson, at least on paper, appeared to have strong experience, but clearly he has been a disappointing Secretary to say the least and has mismanaged this crisis due to very ineffective communication and a lack of a cohesive plan. While we were early in criticizing Paulson, and actually calling for his resignation, it is now a consensus view, so we won’t dwell on it. Our three most noteworthy red flags on Geithner are based on experience, association with Bob Rubin, and his involvement in trying to “solve” the current crisis.

Until recently, former Treasury Secretary Robert Rubin had an incredibly austere reputation. He was a very successful Secretary of the Treasury and considered an elder statesman and consigliore of sorts in the finance industry. Both Geithner and Summers are reputed to be followers of Rubinomics, which as the New York Times noted today is a combination of “balanced budgets, free trade and financial deregulation”. Obviously, the deregulation pursued under Rubin / Clinton is coming under criticism, due to the current economic crisis, which has as a root cause financial deregulation. Additionally, Rubin’s role as a Directory and Senior Counselor to Citigroup, the most recent of the nation’s banks to be ostensibly taken over by the government, is rightfully being closely scrutinized. So what was once a positive attribute, that is a long association with Robert Rubin, must now be viewed with caution.

At 47, Geithner is youngish for a Treasury Secretary, but age is hardly a fair arbiter of potential success especially given that the President Elect is the same age. Our primary issue with Geithner’s experience relates to the fact that he has had literally no real world business experience or deep academic economic experience. He is a career civil servant, with a Masters in International Economics, and while has been adept at handling his role as President of the New York Federal Reserve, his real notable accomplishment is his leadership role in this current crisis, a solution whose resolution is far from clear.

Geithner’s elevation to Secretary of the Treasury is largely a function of this role in helping to manage and implement a plan in the current economic crisis. As Secretary Paulson stated in a news release following word of Geithner’s nomination:

“I have the highest regard for Tim – his judgment and creativity have been critical to designing and implementing the necessary actions we’ve taken to protect and strengthen our financial system.”

Geithner obviously did not solicit the comments from Secretary Paulson, but to the extent that he did play a critical role in the half baked, ad hoc plan that has been implemented by Paulson, we remain wary.

Daryl Jones
Managing Director

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