Do calls for Geithner’s resignation put Treasury in play?

Is Treasury in play or will Timothy Geithner weather another storm and survive in office?

After two congressmen on opposite ends of the political spectrum called upon Geithner to step down within a 24-hour period last week, Washington has been abuzz about the new crisis in his tenure as Treasury secretary.

Rep. Peter DeFazio said in a television interview that both Geithner and White House advisor Larry Summers should go. “We need to sacrifice two more jobs to get millions more back for Americans,” the Oregon Democrat said on MSNBC last week.

At a hearing of the Joint Economic Committee the next day, Rep. Kevin Brady, a Texas Republican, said liberals were now coming around to the opinion many conservatives have held for some time – that Geithner should step down. Brady asked Geithner point blank whether he would be willing to resign for the good of the country.

The New York Post stoked the fires further this week with a report that Jamie Dimon, CEO of JP Morgan Chase, might be under consideration for the Treasury post.

It’s hard to imagine, though, that Democrats upset at Geithner’s close ties to Wall Street would consider Dimon an acceptable alternative, or that such a nomination could even be considered in the current political climate. The Post story almost looks like a Dimon plant, similar to some trial balloons last fall prior to Geithner’s nomination.

In fact, Geithner’s best protection may be that it would be hard to find any successor that would both satisfy Democrats and maintain the confidence of market participants.

Geithner created controversy at the time of his nomination with his confession of unpaid taxes, and again soon after taking office for his inept performance in announcing reform measures.

The latest storm began with the report last week by the special inspector general for the bank bailout that the New York Federal Reserve under Geithner had failed to protect taxpayer interests during the AIG rescue. But it has grown now to include everything from the failure of the economic stimulus to halt the rise in unemployment to the failure to get China to revalue its currency.

In the meantime, Sen. Chris Dodd (D-Conn.), chairman of the banking committee, suggested that confirmation hearings for the reappointment of Fed chairman Ben Bernanke might not be a rubber stamp. Dodd faces a tough reelection fight next year. His Republican challenger, Rob Simmons, became one of the first politicians to call for Geithner’s resignation last week after the report on AIG’s payments in full to its swap counterparties.

It is not a good time to be the target of public anger over the economy – as Geithner, Summers and Bernanke now are. In all likelihood, all three will continue in their current jobs for a while still, but their credibility and their effectiveness in executing regulatory reform or any other policy has been impaired.

Driving the entire political spectacle in Washington is the inexorable rise in unemployment. The headline rate cracked 10 percent already in October, against original expectations that this might not happen until next year.

President Barack Obama has called a jobs summit for next week, but seems already to have ruled out another stimulus by identifying deficit reduction as a top priority in a recent interview with Fox News.

Talk has revived of a double dip, or W-shaped, recession, with a new economic downturn to follow the recovery in the third quarter (a recovery that was less strong than originally reported after key components were adjusted downwards this week).

A new slide into recession could be disastrous for Democratic lawmakers seeking reelection next year. Even a continued recovery that fails to produce enough jobs to stop the rise in unemployment will endanger a number of Democratic incumbents, who will be blamed for the government’s failure to improve the job situation.

Unemployment is exacerbating everything from foreclosures to actual, real hunger, according to a disturbing report recently. If, on top of that, Chase, Goldman Sachs and the others proceed with their plans to pay out billions of dollars in bonuses at the end of the year, there could be a fierce public reaction that will push lawmakers, in De Fazio’s words, to start paying more attention to Main Street than to Wall Street.