Buy Or Sell Geithner’s Ouster?

A couple of weeks ago, media outlets were abuzz over the revelation that Treasury Secretary Tim Geithner’s, ouster was publicly traded on InTrade.  For those of you unfamiliar with InTrade, it creates a market for buyers and sellers who bet on the probability of an event.  In this case, you can buy or sell shares based on whether or not you believe Secretary Geithner will leave his post by June 30, 2009.

I’m not a big InTrade follower, but since Secretary Geithner plays such a prominent role in the health of the economy, I’ve watched this trade pretty closely.  At the time this article was written, this event was trading at $14.00.  Traders believe there is a very low probability of this event taking place.  However, if you choose to buy this event, and it takes place, you’ll earn a nice return.  Let’s take a look at several reasons to both buy and sell this event.

Sell - Why we expect him to stay:

Public confidence in President Obama has been waning over the past few weeks.  According to Scott Rasmussen, his Presidential Approval Index has dropped significantly from 30% on January 22, to 4% on March 16.  Voters are worried about excessive government spending and are still fuming from the AIG (AIG) bonus debacle.  Several of his Cabinet selections, including NM Governor Bill Richardson and former Senate Majority Leader Tom Daschle, withdrew their Cabinet nominations due to tax issues.

The point is that many in media and political circles have been critical of the President and of his vetting process, and others are losing faith in the administration.  If President Obama fires Mr. Geithner, it will open the door to additional attacks on his administration, which will feed further worries from the public.  If the President doesn’t have faith in his Treasury Secretary, then does he really believe in the strength of the US stock market?

Another reason why you might consider selling this trade is the pool of viable candidates from which the President has to choose.  It’s been a one-man show at the Treasury since President Obama was elected, and the administration is finding it difficult to hire qualified staff to assist the Treasury Secretary.  Lee Sachs, Caroline Atkinson, Annette Nazareth, and now H. Rodgin Cohen have withdrawn their nominations for Deputy Treasury Secretary.  Nobody wants to be his second in command, so how could the President expect anyone to want to be at the helm?  Even if the President wanted to fire him, it would prove difficult to find someone to take his place.

Buy - Why we expect him to go:

Tim Geithner seems to be a man without a plan.  When President Obama announced Tim Geithner as his choice for Treasury Secretary, the stock market enjoyed a nice two day rally.  But Tim Geithner soon proved to be anything but bullish for the stock market.  In February, several political commentators mocked the Secretary for causing a market sell-off when announcing any of his plans.  Many political and economic pundits didn’t blame Mr. Geithner himself, but the lack of substance in his speeches.  His speeches sounded great, but gave no specifics on his plans.  Even Saturday Night Live is mocking him for his lack of ideas to fix the economy.  The stock market has suffered on his watch, and the general public now sees him as in over his head.

The current AIG fiasco is causing a backlash against Mr. Geithner.  According to Press Secretary Robert Gibbs, the President knew about the $165M AIG bonuses late last week, but Secretary Geithner knew about them well in advance.  As one of the key architects of the TARP program, many believe that he should have known about any existing contracts between TARP participants and employees, especially those that could cause an eventual backlash against the government.  After the AIG story broke, several politicians even called for Mr. Geithner’s resignation or firing, including Congressman Connie Mack of Florida.

Another possibility is that Tim Geithner could simply work himself into resignation.  Without a full staff, he is caught working well into the night in an attempt to run the department by himself.  How long will it be until he simply runs himself into the ground and resigns for “health” or “personal reasons?”

Both President Obama and Treasury Secretary Geithner will face significant hurdles in the coming months.  Will Mr. Geithner finish the race?

Disclosure: None

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