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Timothy Geithner is a seasoned crisis manager with a temperament to match that of Barack Obama

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STOCKMARKETS soared on Friday November 21st when investors learned that Barack Obama would nominate Timothy Geithner as his Treasury Secretary. That might seem odd. The president of the Federal Reserve Bank of New York was already a favourite for the post. And he brings no magical solution to the financial crisis: he has been battling it for over a year, with no end in sight.

The 494-point (6.5%) jump in the Dow Jones Industrial Average is more a statement about investors’ anxiety over the unsettled state of economic policymaking. News of the Treasury nominee holds out the prospect of a more coherent and forceful approach to the crisis. The current treasury secretary, Hank Paulson, is reworking the $700 billion bail-out plan on the fly, policymakers are struggling over a new approach to foreclosures, the status of the mortgage agencies, Fannie Mae and Freddie Mac, is in limbo, and Congress has just sent the carmakers, teetering close to insolvency, home empty handed. The two months before Mr Obama is sworn in seem like an eternity.

Investors were also relieved that their darkest fears of a Sarah Palin-like shock announcement did not come to pass and that Mr Obama, as in his other important appointments, has chosen ability over connections. Mr Geithner does not know Mr Obama well and has no notable ties to the Democratic Party. But for this cabinet post more than any other, an overtly political appointment would have been corrosive to investor confidence.

Assuming he is nominated Mr Geithner brings two crucial qualities. First, he represents continuity. From the first days of the crisis last year, he has worked hand in glove with Ben Bernanke, the Fed chairman, and Mr Paulson. He can continue to do so while awaiting confirmation. If Citigroup, for example, needs federal help, Mr Geithner will be involved. An unknown when he joined the New York Fed in 2003, he is now a familiar face to the most senior executives on Wall Street and to central bankers and finance ministers overseas.

Second, he represents competence. He has spent more time on financial crises, from Mexico and Thailand to Brazil and Argentina, than probably any other policymaker in office today. Mr Geithner understands better than almost anyone that in crises you throw out the forecast and focus on avoiding low probability events with catastrophic consequences. Such judgments are excruciating: do too little, and you undermine confidence and generate a bigger crisis that needs even bigger policy action. Do too much, and you look panicked and invite blowback from Wall Street, Congress and the press. At times during the crisis Mr Geithner would counsel Mr Bernanke on the importance of the right “ratio of drama to effectiveness”.

Mr Geithner looks a lot younger than his 47 years. He skateboards and snowboards and exudes a sort of hipster-wonkiness, using “way” as a synonym for “very” as in “way consequential” and occasionally underlining his point with the word “fuck”. 

In temperament he seems similar to Mr Obama: he is suspicious of ideology, questions received wisdom

 

In normal times, risk aversion damps economic cycles; in a crisis, it accentuates them, leading to withdrawn credit, evaporating liquidity, margin calls, falling asset prices, and more risk aversion. “The brake becomes the accelerator,” as he puts it. Indeed, although he worked alongside Mr Paulson on the crisis, he has at times advocated a more aggressive approach. For example, news reports say that he was not comfortable with Mr Paulson’s decision to take public money off the table in the ultimately unsuccessful effort to save Lehman Brothers. He has not always got it right: he was the most important architect of the original bail-out of American International Group, an insurer, which in time has proved flawed, requiring significant amendment.

Mr Geithner looks a lot younger than his 47 years (though not as young as he did before the crisis began). He skateboards and snowboards and exudes a sort of hipster-wonkiness, using “way” as a synonym for “very” as in “way consequential” and occasionally underlining his point with the word “fuck”. In temperament he seems similar to Mr Obama: he is suspicious of ideology, questions received wisdom, likes a competition of ideas and is keenly aware of how uncertain the world is.

Mr Geithner learned about crisis management as an aide to Lawrence Summers who rose to Treasury Secretary under Bill Clinton. Mr Summers was the other candidate for the job under Mr Obama, and his appointment would probably also have been greeted enthusiastically. He will reportedly join the administration in a White House advisory role.

Mr Geithner leaves a big hole; the New York Fed president is by tradition the financial system’s go-to crisis manager, and that job has never been more important in the modern era than it is now. A probable candidate to succeed him is a Fed governor, Kevin Warsh. Though young (he is just 38) he has been a central player in the crisis thanks to his extensive contacts in the financial world and closeness to Mr Bernanke, who puts great store in Mr Warsh’s feel for politics and markets (see our recent blog post). That appointment will be made by the board of the New York Fed.

Mr Geithner faces a huge job. He will have critical decisions to make on whether to enlarge or alter the $700 billion Troubled Asset Relief Programme, what sort of firms will qualify for its money, whether and how to bail out the carmakers, what to do with the flailing mortgage agencies, Fannie Mae and Freddie Mac, and how to deal with countless other chapters in the continuing crisis. Unlike Mr Summers he is not an economist and brings no expertise to many of the big economic-policy questions that the Obama administration will confront such as health care, fiscal policy and taxes, even though he will be the primary spokesman on the administration’s economic policies.

He is a quick learner: within a year of joining the New York Fed he could debate the intricacies of monetary policy with academic experts. But he will join an administration rapidly filling up with heavyweights on economic policy, not least of them Mr Summers. Indeed, one of the big questions of the new team that Mr Obama is expected to unveil on Monday is just how Mr Summers, a brilliant but intimidating and sometimes abrasive figure, will fit in.

Mr Obama is assembling a formidable economic team. With the economy perhaps on the precipice of its worst recession since the Depression, he will need it.

Source: Economist

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New Mexico Gov. Bill Richardson was once seen as a good bet for secretary of state. Now, some are concerned that neither he nor any other Latino has yet been named to a high-ranking position in the Obama administration. AP

New Mexico Gov. Bill Richardson was once seen as a good bet for secretary of state. Now, some are concerned that neither he nor any other Latino has yet been named to a high-ranking position in the Obama administration. AP

As Hillary Rodham Clinton inches toward becoming secretary of state, Latino advocates are asking: Whither Bill Richardson?

The New Mexico governor has been the best hope for a Latino to land a high-ranking post in the new administration. But Richardson, a former U.N. ambassador and energy secretary, appears to have lost out to Clinton — although he could land another Cabinet post, perhaps at Interior.

Still, anxiety is running high among Latino leaders because Obama has yet to name a Latino to a top White House or Cabinet position. This is on the minds of senior transition officials — including Obama’s designated chief of staff, Rahm Emanuel — who are said to be considering Latino candidates for several Cabinet posts.

“The Obama transition team and the chief of staff, Rahm Emanuel, understand the role that the Latino vote played in this election, and I think we will see representation in the Obama Cabinet and at the White House,” said Janet Murguia, president of the National Council of La Raza.

Rep. Xavier Becerra (Calif.), a member of the House Democratic leadership, said he has been forwarding the names of Latino candidates “for every type of position you can think of in the federal government, from Cabinet on down.”

“We can remember the days when people said we had no applications, or there’s no one qualified,” Becerra said. “Everyone understands that the days of excuses are over.”

Becerra, who’s been mentioned as a candidate for labor secretary, said he is “not looking” for an administration job.

At least four Latino candidates are said to be under consideration to head the Department of Housing and Urban Development: Miami Mayor Manny Diaz; Adolfo Carrion Jr., a longtime New York pol, and Bronx borough president; Saul Ramirez Jr., a former deputy HUD secretary; and Nelson A. Diaz, who has been a judge and a HUD general counsel.

As for Richardson, Murguia suggested he could serve as secretary of commerce or the interior. “Perhaps there’s an ambassador role to China,” she added.

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The Vatican has fired a warning shot over the bows of Barack Obama in response to the President-elect’s intention to lift the US ban on embryonic stem cell research.

Cardinal Javier Lozano Barragan of Mexico, who acts as the Vatican health minister, said that stem cells taken from human embryos and involving the destruction of the embryos “serve no purpose”.

Asked whether the Vatican was concerned about reports that Mr Obama might reverse the Bush Administration’s ban, the cardinal said that embryonic stem cell research had not resulted in any significant health cure so far and was “good for nothing”.

Research on adult stem cells and umbliical cords had been shown to have “positive value”, by contrast, although even that was not “a panacea for everything.”

He said the Vatican would seek clarification of the new administration’s position on stem cells, and he himself was not “fully aware” what it was.

Aides to Mr Obama indicated this week that he will reverse Mr Bush’s stand on stem cell research. The US Senate voted in July to remove restrictions on embryonic stem cell research, but the President vetoed the legislation the following day.

Mr Obama has supported stem cell research to find cures for diseases such as Alzheimer’s. His views are supported by Joe Biden, the Vice-President-elect, who is a Roman Catholic.

John Podesta, who is handling the President-elect’s preparations to take over in the White House on January 20, said Mr Obama wanted “all the Bush executive orders reviewed”.

He added: “I think across the board, on stem cell research, on a number of areas, you see the Bush administration even today moving aggressively to do things that I think are probably not in the interest of the country.”

Writing in the National Catholic Reporter, John Allen, a leading American Vatican watcher, said the Vatican would have “deep differences” with the Obama administration over abortion and embryonic stem cell research.

These, however, must not be allowed to impede US-Vatican co-operation in promoting “religious freedom and human dignity worldwide” or on issues such as immigration, economic justice, peace, and environmental protection, he said.

Carinal Barragan, President of the Pontifical Council for the Pastoral Care of Health Care Workers, made the remarks at a press conference on childhood disease and illness and infant mortality.

He called for an intensive effort to improve “both medical and pastoral” aid to children, saying that four million babies in the world died each year in their first 26 days of life.

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