Geithner to face tough crisis questions in Senate

By Pedro da Costa and Kristina Cooke

NEW YORK (Reuters) - Timothy Geithner's biggest selling point as nominee for U.S. Treasury Secretary may haunt him when the Senate considers him for the post: his deep involvement in combating the global financial crisis.

Thus far the 47-year old Geithner has been somewhat of a golden child for politicians, bankers and the media.

His nomination last month was welcomed with open arms, and observers generally showered him with praise. The stock market rallied off 11-year lows on the day of the announcement.

Yet with the economy flailing and credit markets far from settled, the number of voices criticizing him have increased. While he would bring experience of the steps the Federal Reserve and U.S. Treasury have taken to try to restore financial stability, he may also be partly tarnished by their failures.

As president of the New York Federal Reserve Bank, Geithner has worked hand-in-glove with Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson in putting in place a stunning array of emergency measures to prop up the financial system.

He was also heavily involved in the widely condemned decision to let investment bank Lehman Brothers fail, which sent the already fragile financial system into a steep downward spiral.

"He'll get roughed up ... for letting Lehman fail, and for the Fed not doing more to minimize (home) foreclosures," a senior Senate Democratic aide said. Still, the aide predicted the nomination would get through the Senate, which must sign off on it, with relative ease.

THE GHOST OF LEHMAN

With the economy's malaise showing no sign of letting up, no one who has battled the crisis is escaping unbloodied.

The rescue measures, which have succeeded in stabilizing the banking system and lowering interbank borrowing rates for now, have not yet been able to reverse an economic slowdown that has proven to be the most worrisome since the Great Depression.

"There were quite a few missteps," said Christopher Low, chief economist at FTN Financial.

The most widely criticized decision is the one to let Lehman Brothers fail in mid-September, even as authorities moved to bailout insurer American International Group.

David Kotok, chief investment officer at Cumberland Advisors, laid out some questions he would like Congress to drill Geithner on:

"Did you and your weekend colleagues consider the contagion that would follow if Lehman failed and triggered counterparty failure? Did you see the global collapse coming because of Lehman's failure? Did you realize that risk premiums would spike in all financial sectors if a primary dealer failed? If so, why did you permit it?"

The New York Times also dug into Geithner in an editorial this week, criticizing the New York Fed chief and his central bank colleagues for being evasive in explaining what happened.