Defining Moment for Obama’s Treasury Secretary

All three of President Obama’s top economic advisers were on message when they appeared Sunday on separate television talk shows. Treasury Secretary Timothy F. Geithner, they said, had concluded, based on lawyers’ advice, that he could not stop the $165 million in bonuses that the American International Group was even then doling out to hundreds of employees.

By Jackie Calmes
The New York Times

But when Mr. Geithner and other officials met at the White House that night, the president’s political advisers — who had agreed to the day’s message — decided the growing outcry left Mr. Obama no choice but to publicly second-guess his Treasury secretary.

The next morning on camera, the president said he had directed Mr. Geithner to find a legal way “to block these bonuses and make the American taxpayers whole.”

Thus began perhaps the worst week in a string of bad weeks for the Treasury secretary. The mixed messages on A.I.G. gave further ammunition to critics who had begun questioning Mr. Geithner’s credibility as the administration’s point man on the economy, an essential commodity if he is to help restore consumer confidence.

Fair or not, questions about why Mr. Geithner did not know sooner about the A.I.G. bonuses and act to stop them threaten to overwhelm his achievements and undermine Mr. Obama’s overall economic agenda. Edward M. Liddy, chief executive of A.I.G., told Congress on Wednesday that he generally deals with Fed officials, figuring they would keep Treasury informed.

The controversy comes as Mr. Geithner is about to announce details of the restructured bank rescue program, and it clouds prospects for more rescue funds that the administration is all but certain to need.

Mr. Geithner’s once-heralded credentials with Wall Street were already marred by false starts in revamping the Bush administration’s bank rescue program, even as his perceived closeness to financiers — he is the former president of the Federal Reserve Bank of New York — and unease with populist politics left Main Street skeptical.

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