So much for the short-lived theory that the Obama administration would be more ethical, competent, and capable than the Bush administration. Inauguration Day hasn't even come yet, and we already find ourselves with Obama's first major presidential scandal.

As it turns out, Timothy Geithner, the man Obama tapped as the next Treasury secretary, has reportedly cheated on his taxes. Repeatedly. In addition, even after being audited, he didn't make amends for all the years he failed to pay his self-employment taxes, until being tapped to run Treasury.

A history of poor tax compliance
Messing up once? Having to file an amended return because of a data entry error or a late-arriving and changed 1099 form? That's completely understandable. But I think that what Geithner has done, repeatedly and over the span of about a decade, makes him -- at minimum -- unfit to head the agency in charge of the Internal Revenue Service.

According to a document from the U.S. Senate, Geithner:

  • Didn't pay more than $34,000 in self-employment taxes between 2001 and 2004.
  • Didn't pay up on part of those back taxes until he was tapped to be Treasury Secretary.
  • Attempted to deduct overnight-camp expenses for his kids as dependent-care costs.
  • Failed to pay the 10% penalty on an early IRA withdrawal.
  • Waited until 1996 to file Social Security and Maryland FUTA taxes for his household help between 1993 and 1995.
  • Got a notice in 1998 for incorrectly calculating Medicare taxes for his household help.

Shouldn't he have known better?
It's not like Geithner is some random guy off the street, either. He has worked:

  • As a senior official at the International Monetary Fund (IMF).
  • In the U.S. Treasury as undersecretary for international affairs.
  • As president of the New York Federal Reserve Bank.

You'd figure someone in those positions of fiduciary trust and monetary authority would have a basic understanding of tax law, or access to decent tax accountants. At minimum, maybe he could have read the paperwork the IMF handed him, which told him that he'd owe the self-employment taxes.

If you or I or any other mere mortal were to try to pull such shenanigans, we would have been socked with penalties, on top of back taxes and interest. Instead, the IRS graciously waived the penalties on Geithner. Nice of them to treat their new boss so much better than they would treat ordinary taxpayers, eh?

No wonder our financial system is failing
Temporarily taking at face value Geithner's claim of ignorance regarding his tax problems, it explains a lot of why our nation's economy and banking system are in such disarray right now. From his current perch as president of the Federal Reserve Bank of New York, Geithner has pretty much been the leadership at ground zero throughout the Wall Street bailout efforts.

In fact, current Treasury Secretary Henry Paulson has actually praised Geithner for being a key architect of the rescue plans that are in place. Perhaps that explains why it feels like things keep getting worse, in spite of all of Uncle Sam's help.

After all, can you expect a man who can't comprehend an IRS form 1040 to understand such concepts as the Law of Unintended Consequences? Or how a poorly crafted bank "rescue" that ignored bondholders' bankruptcy claims could destroy the global lending market? With help like that, is there really any wonder why we continue to hear news stories like these out of banks in spite of the trillions of dollars globally that have been thrown at them:


Signal of Continuing Weakness

Citigroup (NYSE:C)

Prepares to break itself up.

Fifth Third Bancorp (NYSE:FITB)

Slashes dividend, begs for bailout money.

KeyCorp (NYSE:KEY)

Slashes dividend.

Bank of America (NYSE:BAC)

Slashes dividend, debt rating downgraded.

Huntington Bancshares (NASDAQ:HBAN)

Admitted it may need to raise capital and cut dividend.

Wells Fargo (NYSE:WFC)

Debt rating downgraded.

Deutsche Bank (NYSE:DB)

Slashed dividend, warned on earnings.

Nothing really changes
In spite of Obama's campaign theme of "Change," the man he appointed to lead the United States Treasury is apparently the very architect behind so many of its failing policies. That's a type of change I certainly didn't -- and still don't -- want to see. It's quite a shame, because by the time Geithner finishes bankrupting America with those destructive policies, "change" is all we'll be left with in our pockets.

At the time of publication, Fool contributor Chuck Saletta owned shares of Fifth Third Bancorp and Bank of America. Bank of America is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy actually expects people to follow an ethical code, as rare as that would seem these days.