Scheiber is right on the merits, I think, but the politics matter. Whether Geithner did his best against a bad hand, he created a public relations disaster by bailing out Wall Street and returning it to wild profitability without doing something, anything, to satiate the public’s desire for retribution against the guys who almost ruined the economy. The downside of not denying the public a piece of Wall Street’s scalp is that vulnerable members of Congress now have little chance but to demand Geithner’s.
And this isn’t just Geithner’s problem, incidentally. It’s true for the whole administration. The bailouts were necessary, but they were also understandably unpopular, and there’s been virtually nothing done to balance the scales. No windfall profits tax, or transaction tax. No breaking up big banks, or capping salaries across the board. Financial regulation has been sold as a constructive discussion with the banks rather than a punitive measure to prevent future wrongdoing. The absurd result is that Republicans are playing the populist card (while quietly blocking financial regulation) and frustrated congresspeople are turning on the administration, because the administration has kept them from turning on the banks.
I recall that early in the administration, Geithner seemed in many ways to be being set up for the fall. The Obama administration’s plan for revamping TARP was “Geithner’s plan” so as to try to distance the popular new president from the unpopular policy he was about to get behind.
It would be cruel, but looking ahead to a congressional fight on financial regulation you can see the case for dumping a guy who doesn’t particularly deserve to be dumped purely for the sake of having a clean start. Then some new guy, who’s basically similar but who’s face wasn’t all over the bailout, can lead the charge for regulatory reform with the administration taking the populist, anti-banker stance and the opposition taking the pro-banker stance and the waters unmuddied by fights about TARP or things done by the NY Fed back in 2008.