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A review on Henry Paulson, Ben S. Bernanke and Timothy F. Geithner Plan

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 19, 2008

Is the US government biting off more than it can chew? Seriously, how can they insure EVERYTHING? Where are the moral hazards when everything is insured?

President Bush has authorized up to $50 billion in protection, Treasury Department said it’s going to insure any publicly offered money market fund, both retail and institutional, that pays a fee. U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke met with lawmakers to push a plan that would move troubled assets from the balance sheets of American financial companies into a new institution.

The answer to the thorny financial crisis in generations has been engineered to a significant level by a committee of three. Treasury Secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke, Timothy F. Geithner, the president of the Federal Reserve Bank of New York. Rescue of Bear Stearns to the takeovers of Fannie Mae, Freddie Mac and American International Group, all the key decisions have been made by Treasury Secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke and Timothy F. Geithner, the president of the Federal Reserve Bank of New York.

Wall Street, desperate for a way out of a deepening financial crisis that has wiped out $3 trillion in stock value this year, appears to be betting that the government will ride to the rescue with a major new bailout plan.

Who is Henry M. Paulson, Jr.?

United States Treasury Secretary and member of the International Monetary Fund Board of Governors.

He previously served as the Chairman and Chief Executive Officer of Goldman Sachs, one of the world’s largest and most successful investment banks.

Henry M. Paulson, Jr. President George W. Bush nominated Henry M. Paulson, Jr. to be the 74th Secretary of the Treasury on June 19, 2006. The United States Senate unanimously confirmed Paulson to the position on June 28, 2006 and he was sworn into office on July 10, 2006 by Supreme Court Chief Justice John Roberts. As Treasury Secretary, Paulson is the President’s leading policy advisor on a broad range of domestic and international economic issues.

Before coming to Treasury, Paulson was Chairman and Chief Executive Officer of Goldman Sachs. He joined Goldman Sachs in 1974 in the Chicago Office and became a partner in 1982. From 1983 until 1988, Paulson headed up Investment Banking Services for the Midwest Region and became Managing Partner of the Chicago Office in 1988. In 1990, he was named Co-head of the firm’s investment Banking Division, and in 1994 he rose to the position of President and Chief Operating Officer. In 1998, he was named Co-Senior partner, and with the firm’s public offering in 1999, became Chairman and CEO.

Prior to joining Goldman Sachs, Paulson was a member of the White House Domestic Council, serving as Staff Assistant to the President from 1972 to 1973, and as Staff Assistant to the Assistant Secretary of Defense at the Pentagon from 1970 to 1972.

Paulson graduated from Dartmouth in 1968, where he was a member of Phi Beta Kappa and All Ivy, All East, and honorable mention All American for football. He received an M.B.A. from Harvard in 1970. He and his wife, Wendy, have two children, Amanda and Merritt.

Who is Ben S. Bernanke?

Ben S. Bernanke was sworn in on February 1, 2006, as Chairman and a member of the Board of Governors of the Federal Reserve System. Dr. Bernanke also serves as Chairman of the Federal Open Market Committee, the System’s principal monetary policymaking body. He was appointed as a member of the Board to a full 14-year term, which expires January 31, 2020, and to a four-year term as Chairman, which expires January 31, 2010.

Before his appointment as Chairman, Dr. Bernanke was Chairman of the President’s Council of Economic Advisers, from June 2005 to January 2006.

Dr. Bernanke has already served the Federal Reserve System in several roles. He was a member of the Board of Governors of the Federal Reserve System from 2002 to 2005; a visiting scholar at the Federal Reserve Banks of Philadelphia (1987-89), Boston (1989-90), and New York (1990-91, 1994-96); and a member of the Academic Advisory Panel at the Federal Reserve Bank of New York (1990-2002).

From 1994 to 1996, Dr. Bernanke was the Class of 1926 Professor of Economics and Public Affairs at Princeton University. He was the Howard Harrison and Gabrielle Snyder Beck Professor of Economics and Public Affairs and Chair of the Economics Department at the university from 1996 to 2002. Dr. Bernanke had been a Professor of Economics and Public Affairs at Princeton since 1985.

Before arriving at Princeton, Dr. Bernanke was an Associate Professor of Economics (1983-85) and an Assistant Professor of Economics (1979-83) at the Graduate School of Business at Stanford University. His teaching career also included serving as a Visiting Professor of Economics at New York University (1993) and at the Massachusetts Institute of Technology (1989-90).

Dr. Bernanke has published many articles on a wide variety of economic issues, including monetary policy and macroeconomics, and he is the author of several scholarly books and two textbooks. He has held a Guggenheim Fellowship and a Sloan Fellowship, and he is a Fellow of the Econometric Society and of the American Academy of Arts and Sciences. Dr. Bernanke served as the Director of the Monetary Economics Program of the National Bureau of Economic Research (NBER) and as a member of the NBER’s Business Cycle Dating Committee. In July 2001, he was appointed Editor of the American Economic Review. Dr. Bernanke’s work with civic and professional groups includes having served two terms as a member of the Montgomery Township (N.J.) Board of Education.

Dr. Bernanke was born in December 1953 in Augusta, Georgia, and grew up in Dillon, South Carolina. He received a B.A. in economics in 1975 from Harvard University (summa cum laude) and a Ph.D. in economics in 1979 from the Massachusetts Institute of Technology.

Who is Timothy F. Geithner?

Timothy F. Geithner became the ninth president and chief executive officer of the Federal Reserve Bank of New York on November 17, 2003. In that capacity, he serves as the vice chairman and a permanent member of the Federal Open Market Committee, the group responsible for formulating the nation’s monetary policy.

Mr. Geithner joined the Department of Treasury in 1988 and worked in three administrations for five Secretaries of the Treasury in a variety of positions. He served as Under Secretary of the Treasury for International Affairs from 1999 to 2001 under Secretaries Robert Rubin and Lawrence Summers.

He was director of the Policy Development and Review Department at the International Monetary Fund from 2001 until 2003. Before joining the Treasury, Mr. Geithner worked for Kissinger Associates, Inc.

Mr. Geithner graduated from Dartmouth College with a bachelor’s degree in government and Asian studies in 1983 and from the Johns Hopkins School of Advanced International Studies with a master’s in International Economics and East Asian Studies in 1985. He has studied Japanese and Chinese and has lived in East Africa, India, Thailand, China and Japan.

Mr. Geithner serves as chairman of the G-10’s Committee on Payment and Settlement Systems of the Bank for International Settlements. He is a member of the Council on Foreign Relations and the Group of Thirty, a member of the board of directors of the Center for Global Development in Washington, D.C., a member of the board of trustees of the RAND Corporation and a trustee of the Economic Club of New York.

Earlier in the day, the mere rumor of such major government intervention fueled a massive stock rally. The Dow Jones industrials – which had plunged more than 800 points in the previous three sessions – shot up more than 400 points. The worst financial crisis since the Great Depression has knocked the Dow down 17 percent this year.

Wall Street is hoping that the government will create an entity similar to the Resolution Trust Corp., created in 1989 to dispose of assets of hundreds of failed savings-and-loan institutions. Such an entity could take the bad assets off the books of troubled banks.

Senator Obama released the following 550-word statement this morning outlining the “four basic principles” that will guide his thinking as he continues to wait and see what sort of plan the Feds come up with in dealing with the market meltdown:

“The events of the last few days have made it clear that we must take further bold and decisive action to shore up confidence in our financial markets and avoid a deepening economic crisis that could jeopardize the life savings and well-being of millions of Americans. I support the effort of Secretary Paulson and Federal Reserve Chairman Bernanke to work in a bipartisan spirit with the Congressional leadership to find a systemic solution to our deepening crisis, and I will closely examine the specifics of their effort and the opportunities for swift action. As I review the emerging details of Fed-Treasury proposal with my top economic advisors this morning I will be guided by four basic principles:

“First, we cannot lose sight that we are in the midst of a broad economic crisis that also requires immediate action to create jobs and help support distressed homeowners and communities. For too long, this Administration has been willing to hit the fast forward button in helping distressed Wall Street firms while pressing pause when it comes to saving jobs or keeping families in their homes. Swift and unprecedented action to shore up Wall Street must come alongside equally swift and serious efforts to help struggling families on Main Street, create new jobs, and grow our middle-class once more.

“Second, any taxpayer-funded support must have as its focus protecting our nation’s long-term interest in a stable financial market and a growing economy rather than rewarding particular companies or the imprudent decisions of borrowers or lenders. These extraordinary steps must be designed with only the public good in mind, not to enhance the personal gain of CEOs and management at taxpayers’ expense.

Third, this plan must be temporary and coupled with tough new oversight and regulations of our financial institutions. There must be a clear process to wind down this plan and restore private sector assets into private sector hands after restoring stability to the system. Taxpayers must share in any upside benefit that such stability brings.

Finally, this plan should be part of a globally coordinated effort with our partners in the G-20. We are facing a global financial crisis and the United States can take a leadership role in coordinating a global response to the present crisis, as well as greater regulatory cooperation and alignment to prevent future crises.

As we move beyond immediate actions to stabilize financial markets, it is important that we build upon the ideas I have laid out over the last several years about how to modernize our financial regulation. Eliminating consumer protections and lax oversight contributed to the crisis we are in today, and establishing commonsense rules of the road for our financial system can help restore confidence in our financial system.

Given the gravity of this situation, and based on conversations I have had with both Secretary Paulson and Chairman Bernanke, I have asked my economic team to refrain from presenting a more detailed blue-print of how an immediate plan might be structured until the Treasury and the Federal Reserve have had an opportunity to present their proposal. It is critical at this point that the markets and the public have confidence that their work will be unimpeded by partisan wrangling, and that leaders in both parties work in concert to solve the problem at hand.”

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