Last June, with a financial hurricane gathering force, Treasury Secretary Henry M.
Paulson, Jr., convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis he asked. Timothy F. Geithner, who as president of the New York Federal Resrve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary. The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars. “People thought, ‘Wow, that’s kind of out there,’ †said John C. Dugan, the comptroller of the currency, who heard about the idea afterward. Geithner says, “I don’t remember a serious discussion on that proposal then.†In the 10 months since then, the government has in many ways embraced his blue-sky prescription. Step by step, through an array of new programs, the Federal Reserve and Treasury have assumed an unprecedented role in the banking system, using unprecedented amounts of taxpayer money, to try to save the nation’s financiers from their own mistakes. More often than not, Geithner has been a leading architect of those bailouts, the activist at the head of the pack. He was the federal regulator most willing to “push the envelope,†said H. Rodgin Cohen, a prominent Wall Street lawyer who spoke frequently with Geithner. Today, Geithner is Treasury secretary, and as he seeks to rebuild the nation’s fractured financial system with more taxpayer assistance and a regulatory overhaul, he finds himself a locus of discontent.
Even as banks complain that the government has attached too many intrusive strings to its financial assistance, a range of critics – lawmakers, economists and even former Federal Reserve colleagues – say that the bailout Geithner has played such a central role in fashioning is overly generous to the financial industry at taxpayer expense.