The education of Timothy Geithner
Why he's a popular choice: At a time of great uncertainty, he asks the right questions.
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| Unlike many of his predecessors, Geithner has foreign-policy experience, with stints at the IMF and the Council on Foreign Relations. |
NEW YORK (Fortune) -- When the Dow rocketed 494 points last Friday, it was easy to point to the man responsible. It was the brainy New York Federal Reserve chief, Timothy Geithner.
Why would Wall Street react so positively to the news that the president-elect had nominated for Treasury Secretary a boyish 47-year-old who has neither commercial banking experience nor a Ph.D. in economics? At least in part because of the unconventional way he has prepared himself. Geithner is a self-taught expert in the arcana of global finance who shows a great aptitude for learning and experimenting on the job. At a time when there are no obvious answers, he asks the right questions.
The government has been criticized by some as erratic in its approach to the bailouts. Indeed, Geithner been infinitely flexible in responding to individual situations, allowing Lehman Brothers to fail after playing an instrumental role in bailing out Bear Stearns - a risk that could easily be construed as inconsistency.
After all, the advantages of a one-size-fits-all policy are obvious: It sets expectations for the Street and reduces uncertainty about probable solutions in lookalike meltdowns. But as Geithner knows, one-size-fits-all policies fail to address the intricacies of each situation, especially when each institution's risk profile varies and available resources differ from bank to bank. What's good for taxpayers in the case of Bear may not be what's good for taxpayers in regard to Lehman. (Or Merrill Lynch (MER, Fortune 500). Or Morgan Stanley (MS, Fortune 500). Or Goldman Sachs (GS, Fortune 500). Or AIG (AIG, Fortune 500).)
And Geithner isn't one to ignore these nuances. He's thoughtful and naturally diplomatic, though sometimes has trouble hiding his impatience when his audience, notably Congress, doesn't understand or willfully ignores the specifics. He tends to provide people with details he thinks they need regardless of whether they ask for them. His intensity, somewhat leavened by a deadpan wit, is readily apparent as he explains his analysis of what's happening - sometimes over and over again - until he's absolutely sure that it's sinking in.
He's confident, and it's a confidence that comes from hands-on experience and a history of having to assimilate new things in tough situations that are unprecedented. The Asian financial crisis was perhaps a test run for Geithner - an unwitting opportunity to learn for a natural autodidact who couldn't have possibly missed the potential implications for U.S. markets.
Part of Geithner's ability to deal with policy issues for which his background doesn't necessarily prepare him is a function of his willingness to reach out to the right people for help. During his tenure as the head of the New York Fed, he met frequently with top-level Wall Street executives, routinely taking the temperature of an industry that was slowly reaching the boiling point. There was some criticism at the time that Geithner's perpetual listening tour might have lead him to be unduly influenced by the people he was regulating, but proximity is important. You can't tell what's happening on the Street without talking to people on the street.
Geithner rightly understood that smart regulation is often the product of smart monitoring, a function that has historically been the more formal domain of other regulatory bodies and not the Fed's strong suit. Under Geithner, this usually meant small, entrepreneurial steps toward creating information conduits that would provide the Fed with a better picture of what was happening in real time and create more transparency via better-tailored reporting requirements.
Geithner has precisely what we need in an age where total globalization is no longer an impending threat (or opportunity), but an everyday reality: hard policy experience. He has a previous tour at Treasury under Robert Rubin, who was his mentor, and unlike many of his predecessors he also has foreign-policy experience, with stints at the IMF and the Council on Foreign Relations. He has lived abroad, studied Chinese and Japanese. (Coincidentally, he and Hank Paulson are both Dartmouth graduates.) And if Paulson's well-publicized pre-crisis trips to China are indicative of anything, it's that the Treasury's role extends well beyond Wall Street and the department fully anticipates that many future key developments will happen abroad.
And finally, Geithner has been hands-on through every step of the financial crisis. After all, it happened in his backyard and he was one of the first to respond when it was clear that CDOs were wreaking havoc on bulge-bracket balance sheets. He was aggressive, making the New York Fed more powerful and influential than it's been in years, and not afraid to try new things.
But Geithner wasn't a traditional choice for Fed, and sometimes it's easier to take smart risks when you're a bit of an outsider. Just ask Geithner's new boss. 
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