Geithner mess has to be resolved now
This is not the time for a nasty confirmation fight. If the Senate won't approve the Treasury secretary nominee quickly, Obama should find someone else.
NEW YORK (CNNMoney.com) -- So much for a smooth confirmation hearing for Timothy Geithner.
President-elect Obama's nominee to replace Henry Paulson as Treasury secretary is now facing questions about his initial failure to pay some personal taxes earlier this decade, as well as concerns about the immigration status of a former housekeeper.
With this in mind, Geithner's confirmation hearing before the Senate Finance Committee, which was tentatively scheduled for Thursday, has now been put off until after Inauguration Day next week.
Since this is a column about the economy and markets and not politics, I'm not going to get into a debate about whether the revelation of Geithner's tax problems make him Zoe Baird 2.0 and if that should keep him from getting the job or not.
But as one quick aside, if the guy who would be in charge of the Internal Revenue Service appeared to have difficulties filing his taxes accurately, isn't that a sure sign as any that there needs to be major tax reform to make it easier for people to know exactly what they actually owe instead of making it a guessing game every April?
Tax rant over.
The delay in getting a new Treasury secretary confirmed is not a good development for the markets. Sure, the main reasons for the big selloff Wednesday were the awful retail sales numbers and more concerns about bank earnings (or losses as the case may be).
But it's worth remembering that before the revelation of his tax problems, Geithner was considered a shoo-in to be confirmed.
What's more, Wall Street gave Geithner, currently the President of the Federal Reserve Bank of New York, a glowing endorsement back on Nov. 21, the day that reports leaked that Geithner would be tapped by Obama as the Treasury secretary.
That day, the Dow wound up soaring nearly 500 points, with the entire gain coming in the last hour of trading following the reports that Obama had chosen Geithner.
"Geithner was welcomed by the market. Stocks had a huge rally when it was announced he would be Treasury secretary. [That there could be a problem now] just adds to uncertainty in the market and economy," said Bill Stone, chief investment strategist with PNC Wealth Management in Philadelphia.
So what's next?
Senate Finance Committee Chairman Max Baucus, D-Mont., said in a statement yesterday that he "was disappointed in the errors found in Tim Geithner's tax returns" but added that he was "satisfied that Mr. Geithner has taken the steps necessary to fix these problems."
But there are growing concerns that Geithner could face a much more difficult path to winning Senate approval. A Democratic Senate Finance Committee source told CNN Wednesday that a Republican senator objected to holding the hearing on Friday.
A spokesman for Senator Jon Kyl, R-Ariz., told CNN that Kyl was the one who made the objection. So as of now, the hearing is scheduled for next Wednesday.
Although Stone said he still thinks chances are good that Geithner will be eventually confirmed, it's not out of the realm of possibility that Obama might be forced to find another nominee for the Treasury post.
The Competitive Enterprise Institute, which describes itself as a non-partisan public policy group, said in a statement Wednesday that Geithner's nomination should be withdrawn. And if it isn't, the CEI urged the Senate to vote against his nomination.
"The Obama transition team members clearly dropped the ball. In an effort to please some on Wall Street and keep the bailouts going, they glossed over their nominee's credentials and judgment," the CEI said in its statement. "Geithner's errors and/or misjudgments make him unfit to serve as secretary of the Treasury."
At the very least, a lengthy confirmation process would not be good news.
"A prolonged hearing would not work. Chances are, if this is going to be long and drawn out, it could be a sign that he may not get approved," said Quincy Krosby, chief investment strategist with The Hartford.
And considering that the fate of the remaining $350 billion in bank bailout funds depends largely on having a Treasury secretary in place to actually run the program, any further snags in Geithner's confirmation process could lead to a delayed release of the funds by Congress.
Heck, it's not out of the question that Congress could outright reject the release of the rest of the money for the Troubled Asset Relief Program, or TARP. To that end, a quartet of Republican senators were holding a press conference Wednesday afternoon to discuss their objections to TARP.
Needless to say, a possible power vacuum at the Department of Treasury is problematic at a time when the economy and markets are facing such a severe crisis.
"Certainly in regards to the TARP funds, it would be best to have leadership in place from day one. Anything that goes against that is going to be a problem for the markets," said Vincent Boberski, portfolio strategist with FTN Financial in Memphis.
A spokeswoman for the Treasury Department said that if there is no new Treasury secretary by Inauguration Day, which now appears likely, Paulson would be in charge of designating an acting Treasury secretary.
Hopefully, the incoming administration and the Senate will be able to resolve whatever issues they have and figure out quickly if Geithner can still be on a relatively fast track for approval or if Obama has to go back to the drawing board and find another nominee. This is not the time for "business-as-usual" bipartisan political rancor.
The last thing we need is an "acting" Treasury secretary who has to be in charge for a lengthy period of time. New - and permanent - leadership is needed to address the banking crisis. Now.