Enter Geithner, pursued by a bear

Initially, Paulson rejected the idea of using some of the bailout money to recapitalize banks, planning instead to buy toxic assets and get them off bank balance sheets. Then he announced that he would recapitalize banks and, a month later, that there would be no toxic-asset purchases after all. And last week he unveiled a plan to backstop consumer debt. On their own, each of these moves may have made sense. But the zigzags left the markets discombobulated and uncertain.

There’s no doubt that, in dealing with the crisis, Paulson has done a yeoman’s job. But in some respects he’s just been in the wrong place at the wrong time.

When he became treasury secretary, in 2006, he had more of a reputation as a dealmaker than as a strategic thinker. He was leery of regulation — at his nomination hearing, he warned of the perils of “creeping regulatory expansion” — and seemed skeptical of government interference with markets.

This background may have made Paulson the right man to deal with what then seemed like the Bush administration’s biggest priorities, things like tax policy and China. But it perhaps wasn’t the best preparation for orchestrating the largest government intervention in American history.

By contrast, Wall Street seems to see in Geithner someone who, with his experience fighting financial crises and regulating markets, has been effectively training for his new job for more than a decade. Furthermore, Geithner combines a sense of continuity with the prospect of decisive change. He’s an advocate of free markets, but he has also called for tighter regulation.

As a Rubin disciple, he believes in fiscal responsibility, but he also supports a major stimulus package. And while he was part of the team that watched Lehman Bros., he seems more comfortable with government action than Paulson, and therefore more likely to act in a consistent fashion.

In times of crisis, after all, it isn’t just what the government does that matters — it’s also the way the government does it. Geithner projects a conviction that acting to arrest financial meltdown is not just necessary but right. In these times, that’s something the market is surprisingly happy to hold on to.

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