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What Should Geithner Answer For?

Like Jason, I think Geithner's track record as a bank regulator should be the central theme of his confirmation hearings. (In my profile of him last November, I argued that while Bear Stearns and Lehman were mostly red herrings, you have to ask how much responsibility Geithner deserves for banks' seeming inability to absorb losses.) The Jeff Gerth piece Jason cites raises some specific questions along these lines, which I'd like to see the Senate Finance Committee pursue.

Now, if I had to guess, I'd say Geithner would come out of this questioning okay. One reason for the pattern Gerth highlights in his piece--of Geithner laying out an aggressive regulatory agenda in speeches, then not always regulating as aggressively--has to do with the mission of the New York Fed. In effect, the bank has two mandates: to regulate banks, and to maintain very close relationships with them. The latter is so that it can, among other things, pick up financial-world intelligence and send it back to Washington, and work collaboratively with banks on industry-wide problems. So if you're the New York Fed president and you want to get tough, what you often do is lay out a bold reform agenda, which you hope will influence the people who pass laws, while trying not to poison your relationship with the banks themselves.

I'm not defending this arrangement (in fact, I think it should be changed). I'm just saying that's how the New York Fed is designed. For example, the bank's board of directors--the people who hire and fire its president--tends to be dominated by senior executives from the financial services industry. So when evaluating Geithner, you have to evaluate him in light of the serious constraints on his behavior. And I think his performance is pretty strong in light of that. But I'd certainly like to know more. I'd even like to hear Geithner's thoughts on how the New York Fed can be reformed to solve this problem.

Unfortunately, it looks like what we're mostly going to hear about is the largely dubious tax issue. ABC is reporting that several Senate Republicans are seizing on it, with Jeff Sessions calling it a "very serious issue" and senators Vitter, DeMint, and Inhofe echoing that line. I don't think any of it is enough to derail Geithner's nomination--probably not even close as long as Obama's still supports him. But it will help ensure that we don't talk about anything useful when he testifies next week.

--Noam Scheiber