Confidential sources have passed on to me a January to-do list apparently penned by Timothy Geithner, the New York Fed chief tapped to serve as President-elect Barack Obama's Treasury secretary:
1. Find new house in D.C.
2. Fix unholy mess that is Wall Street.
3. Ditto for Securities and Exchange Commission.
4. Restore faith in global finance system.
For the past 30-odd years, Treasury secretaries have generally focused on G7 conferences and international crises like emerging-market meltdowns. But in the past several months, the scope of the Treasury secretary's job has been redefined in historic ways. Geithner will be responsible not just for putting out fires, but for rebuilding from the ashes of the world financial system.
Geithner is neither a household name nor a typical pick for a Treasury secretary. He's a career technocrat, with stints at Treasury, the International Monetary Fund and the New York Fed. And for what is usually an AARP job—the average age of the last eight incoming Treasury secretaries has been 59—the 47-year-old is a mere whippersnapper.
He'll also have substantially more institutional authority than any of his predecessors. In the past year, the United States has effectively nationalized the financial sector. Thanks to Henry Paulson's and Ben Bernanke's occasionally frantic efforts to fend off systemic collapse, the government now largely owns AIG, Fannie Mae, Freddie Mac and chunks of several banks, as well as oodles of dodgy assets pledged as collateral for loans. "Geithner's predecessor at Treasury and his former boss at the Fed have spent, promised, loaned, guaran-teed or assumed in liabilities amounts that are now approaching $14 trillion," says Barry Ritholtz, a New York money manager and author of the forthcoming "Bailout Nation." "That's an astronomical amount of money, even by Washington standards."
To recoup those funds, Geithner will have to function partly as a money manager. He'll have to decide what to do with the portfolio of nonvoting shares Treasury now holds in big banks like Citi. Like a private-equity magnate, he'll have to decide the appropriate capital structure and ultimate disposition of companies that have become wards of the state, like AIG. And with the remaining $350 billion of the Troubled Asset Relief Program, he'll be the investment banker in chief, deciding which industries might be deemed bailout-worthy.
But wait, there's more. In the past year, the nation's (and the world's) financial regulatory infrastructure, much of which dates to the New Deal, has crumbled. As the Bernard Madoff affair just revealed, there's something seriously rotten at the Securities and Exchange Commission. The meltdown has either destroyed or called into question longstanding arrangements on banking regulation, and raised new questions: should hedge funds, for instance, be regulated?
America, and the world, requires a new financial architecture for the 21st century. Morris Goldstein, senior fellow at the Peterson Institute for International Economics, has drafted a 10-point list of necessary changes, from boosting bank capital standards to housing-finance reform. How many will Geithner have primary responsibility for? "About half," he says. "You don't get major regulatory reform without the Treasury really pushing hard and being at the forefront."
That's on top of the usual duties of running Treasury's many units: the Alcohol and Tobacco Tax and Trade Bureau, the Internal Revenue Service and the U.S. Mint, which, judging by the pace at which the Fed is printing money, will have to hire a lot of workers. But the biggest change for Geithner may be in mind-set, rather than in his specific tasks. "It's important that Geithner concentrate not only on putting out financial fires, but also on some far-reaching thinking about effective fire prevention," says David Smick, author of "The World Is Curved." In other words, focus less on cleaning up after bubbles and more on preventing them. In the 1990s, Geithner was a junior member of the Committee to Save the World. This decade, he will be the chairman of the Committee to Stop the World From Blowing Itself Up.