Geithner heads to private equity firm

Geithner played a central role in devising the response to the financial crisis of 2008-2009. | AP Photo

Former Treasury Secretary Timothy Geithner, a trusted lieutenant to President Barack Obama who played a leading role in the government’s response to the financial crisis, will join private-equity firm Warburg Pincus LLC in March.

On Saturday, the firm, which is headquartered in New York, announced Geithner will hold the titles of president and managing director.

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“Warburg Pincus has an excellent record of performance, a very compelling global strategy and an ethical reputation of the highest regard,” Geithner said in a statement. “I look forward to working with my new colleagues and to contributing to the firm’s continued growth and success.”

Private-equity firms’ role in the financial sector played a leading role in the 2012 presidential campaign, with Democrats criticizing Republican candidate Mitt Romney over deals involving his firm, Bain Capital, that led to layoffs at different companies.

For instance, in May 2012 the Obama campaign ran an ad concerning Bain’s role in the struggles of American Pad and Paper that featured former employees of the company criticizing Romney.

Defenders of the industry argue it can help turn around struggling companies, but its critics, as the 2012 campaign showed, point to instances where these leveraged buyouts and the efforts to nurse a company back to financial health can often lead to large layoffs.

Following his departure from the Obama administration in January, Geithner has been giving paid speeches and working on a book but whether he would join a Wall Street firm remained a topic of interest in political and financial circles.

As both president of the New York Federal Reserve Bank between 2003 and 2009 and as Treasury secretary, Geithner was an architect of the response to the 2008 financial crisis, which led to taxpayer bailouts for big banks and insurer American International Group.

Geithner’s supporters credited him for pushing a practical approach that prevented a complete meltdown of the financial system, but he faced criticism from some liberals and conservatives for being too quick to buy into the banking industry’s concerns both during the crisis and later as the 2010 Dodd-Frank law was being drafted.

Private equity firms also find themselves involved in the ongoing debate over whether to overhaul the tax code.

Private equity executives, hedge-fund managers and others working on Wall Street pay a special tax rate on profits-based compensation known as carried interest. Instead of paying ordinary income taxes — which top out at almost 40 percent — carried interest is taxed as a capital gain, generally at a rate of 20 percent. Top earners started paying an additional 3.8 percent tax on their investment income, such as capital gains, this year.

Democrats have long argued for increasing the tax on carried interest.

“If you look at any tax reform proposal out there that has any patina of bipartisan support, they believe we have to rethink how we treat investment income and carried interest,” Geithner said in July 2012 at a conference hosted by CNBC, according to Bloomberg.

“Obviously, carried interest doesn’t raise that much revenue,” Geithner said. “If you’re not going to do that, whose taxes are you going to raise?”

In an interview with the Wall Street Journal published Saturday, Geithner declined to discuss public policy issues.

“I made a judgment when I left Washington I was going to leave these questions to my successors, and I’m going to stay true to that,” he told the Journal.

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Geithner heads to private equity firm

Former U.S. Treasury Secretary Geithner to join private equity firm

Outgoing U.S. Treasury Secretary Timothy Geithner arrives for the presidential inauguration on the West Front of the U.S. Capitol in Washington January 21, 2013.

Credit: Reuters/Win McNamee/Pool

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Former U.S. Treasury Secretary Geithner to join private equity firm

Geithner to the Rescue?

When it comes to Fed policy, one of the hottest topics on Wall Street is the next Fed chair. Who will replace Ben Bernanke? And believe it or not, Timothy Geithner’s name may be resurfacing. Is it possible that the former treasury secretary will come to the rescue of a leaderless and hopelessly divided central bank that has no real clue where it’s going or how fast it should get there?

Wait a second … Geithner? Did someone say Geithner? We thought he retired from government to go home to New York.

Well yes, but not exactly.

A key insider source tells me that Geithner has been leading the search for Ben Bernanke’s replacement. My source, by the way, predicted a Larry Summers boomlet well before Summers’ name became public. And now my source tells me that the only way to end the bloodletting between Fed-chair hopefuls Janet Yellen and Larry Summers is to find a third option. And that third option includes Geithner, as well as former Fed veteran Donald Kohn.

Kohn, however, is a 70-something old-timer. But Geithner is a huge favorite of President Obama. A recent article in The Hill talks about Geithner as Obama’s right-hand man, and as someone who will be missed if he’s left out of the crucial fiscal and economic battles ahead. And many people on Wall Street say Geithner knows more about financial markets than Summers and Yellen combined.

Geithner, of course, was president of the Federal Reserve Bank of New York during the 2008 financial crisis. And he was an international advisor under Robert Rubin during the world currency crisis of the late 1990s. So Geithner has credentials.

Meanwhile, the whole Yellen-Summers story has become a circuslike fiasco. It’s the most political battle for the supposedly independent Federal Reserve chairmanship that anyone can remember in the 100-year history of the central bank. Some analysts even believe the big jump in long-term interest rates is partly a function of the Fed losing control of rates in the midst of the Yellen-Summers swing-out. (Incidentally, I believe markets, not the Fed, control most interest rates.)

But surely, the Yellen-Summers battle has made Ben Bernanke a lame duck well before his time. His term doesn’t expire until January. But Bernanke didn’t even show up at the big Fed confab in Jackson Hole, Wyo., this month. It’s the first time that meeting has been chairman-less in 25 years.

So will it be Geithner to the rescue?

Fed policymakers are completely divided over the big question of slowing down, or tapering, the program of $ 85 billion in monthly bond purchases. Despite rosy Fed staff forecasts, the real economy has grown by less than 2 percent in recent quarters, and nominal gross domestic product has advanced only 2.9 percent over the past year. These figures would normally be associated with recession.

And talk of a second-half rebound lacks credibility, with soft back-to-school consumer spending and virtually no business-capital investment. Jobs are rising, but under the threat of Obamacare these are temporary part-time job gains with fewer hours worked than the full-time jobs that would substantially increase incomes.

A few weeks ago there was a tapering consensus for September. Now it looks to be pushed back to December, and maybe even later. And international currency blowups in places like India, Brazil and Indonesia only complicate the Fed’s thinking.

So right now, the question is this: How long can we stomach a virtually leaderless and directionless Fed?
The answer is not long. And perhaps the solution — and I say perhaps – is Obama-favorite Tim Geithner.

Conservatives have never trusted Geithner because of a late-tax-payment problem that surfaced during his Treasury-confirmation period. But he has long apologized for that and has paid his liabilities. Bigger problems for Geithner include his participation in the Wall Street bank bailout and his continued advocacy of the unpopular Dodd-Frank regulatory law.

While I completely disagree with the former Treasury man on Too Big to Fail and tax hikes on the rich, he’s a very bright guy who understands financial markets and who has always been accessible to conservatives like myself who may disagree with him.

My biggest problem, however, is that I have never heard him talk about a rules-based monetary policy. Whether it’s the Taylor rule, a gold-commodity value-of-the-dollar rule, or a nominal-GDP target, the Fed desperately needs discipline and clarity as it wiggles out of its bloated $ 3.5 trillion balance sheet and charts a long-term course of stable money.

Geithner may have thoughts on these things, but so far as I know, he has never articulated them. What can be said is that today’s Fed is in a very unstable position, which is not good for markets or the economy. The sooner the president can end this Fed-choice thing, the better. 

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Geithner to the Rescue?