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Crisis May Force Geithner's Approval to Treasury

Wednesday, 21 Jan 2009 07:59 AM

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WASHINGTON -- President Barack Obama's nominee for U.S. Treasury secretary, Timothy Geithner, though tarnished by disclosures of his failure to pay taxes, is likely too uniquely qualified for Congress to reject amid hopes to contain the worst economic downturn in decades.

A red-faced Geithner will undoubtedly be grilled at his Senate confirmation hearing on Wednesday about his failure as an International Monetary Fund official to pay tens of thousands of dollars in U.S. taxes, and how that squares with taking the job that includes responsibility for U.S. tax collection.

But barring a glaring slip at the hearing, Geithner, the president of the New York Federal Reserve Bank and a key participant in government efforts to prop up financial markets, looks on track to be confirmed as Treasury secretary.

The White House said on Tuesday it expected the Senate Finance Committee to vote on Thursday on Geithner's nomination.

"As I understand it, the committee, the Finance Committee votes Thursday on Geithner," new White House press secretary Robert Gibbs told reporters shortly after Obama's inauguration.

While large crowds cheered Obama's transition to the presidency on Wednesday, financial markets provided a stark reminder of the bleak economic climate the new president and his economic team inherit. The Dow Jones industrial average tumbled 332 points, or more than 4 percent, on worries about bank losses.

In 2008, the Dow fell 33.8 percent, its weakest performance since 1931.

Geithner's confirmation at one point seemed assured. As president of the New York Fed, he was central to decisions to organize an orderly sale of failing investment bank Bear Stearns with Fed backing and to shield insurer American International Group from collapse. Geithner, a protege of former Treasury Secretaries Robert Rubin and Larry Summers, had earned trouble-shooting credentials dealing with international debt crises in 1990s.

He might have expected that his main confirmation challenge would be to explain thinking behind the decision to let Lehman fail, a choice that some critics say aggravated market turmoil toward the end of the year.

He is seen by many as an effective intermediary between the U.S. central bank and Wall Street. His nomination reassured markets that there would be continuity in efforts to revive the economy and protect the banking system from collapsing under shaky credits.

But revelation that he had to pay $42,702 in back taxes and interest to settle omissions put his nomination in doubt and drew criticism and ridicule. Members of the Senate Finance Committee, which has control over his confirmation, have persistently urged Treasury and the Internal Revenue Service to be more aggressive in collecting unpaid taxes.

"The new Treasury secretary nominee, Timothy Geithner, has come up with a plan to lower taxes. Don't pay them!" joked comic Jay Leno on NBC television's popular "The Tonight Show."

Obama has stood by his nominee, and several senators have expressed their support.

But Geithner's nomination is not a done deal and his support is no longer universal.

"The Geithner affair has become an embarrassment to the Federal Reserve," wrote David Kotok, chairman of Cumberland Advisors, in a note to clients.

© Thomson Reuters 2009 All rights reserved

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