Sunday, April 5, 2009

Geithner on Face the Nation

Today, Treasury Secretary Timothy Geithner appeared on CBS' Face the Nation in an interview with Bob Schieffer. Schieffer had plenty of questions for Geithner, including whether the government was trying to force General Motors into a managed bankruptcy. Interestingly, Geithner did not deny it, but focused on the place that a strong General Motors will hold when it is stronger. When asked about whether the government was giving the banking executives a pass, while being harder on the auto industry execs (as we've suggested here, see Wagoner Steps Down) Geithner responded that the government has changed leadership in some companies such as AIG. Geithner said that banks needing "exceptional" assistance might also find themselves with changes in leadership as well.

Geithner was pretty coy about what "exceptional" assistance might be, perhaps for good reason. Certainly, removal of GM's Wagoner is unprecedented, but these are unusual times. Yet, removal of company management is a drastic step with ramifications in the markets. Geithner was wise to not suggest that the government will in fact affect management, even if that ultimately happens. It certainly seems advisable to leave the door open on this issue as the stress testing of banks is just beginning. In the event that banks (perhaps CitiGroup and Bank of America) still require exceptional assistance, management changes might follow. Traditional lenders and creditors do affect management and management decisions. The government, in this case, is operating less like the government as regulator and more as the government as lender and stabilizer. Will we see more management changes?

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