Opinion: An Open Letter to Geithner

New York Federal Reserve President Tim Geithner is the likely candidate for Treasury Secretary.

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NEW YORK (Fortune) -- Dear Tim Geithner,

If you do, in fact, become our new Treasury Secretary, could we make a request? Can you show a little empathy please? A little E.Q.? Could you please step out of that boy's club of the masters of the universe who are orchestrating the bailouts and put yourself in the shoes of we the people, the consumers? With all due respect, that may be asking a lot from a monetary wonk who's the president of the New York Fed, but you'd better believe that we'll be parsing your every word and analyzing your every action.

It's too bad nobody took the trouble to explain this to your predecessor, Hank Paulson. If they had, maybe he wouldn't be looking so clueless. The tone of his speech at the Ronald Reagan Presidential Library last week would've made the Great Communicator wince. Here Paulson had a bully pulpit to make a confidence-boosting address to the American people, a chance to give them a reason to take the money out of the mattress. Instead, the speech was mostly a defense of his actions, as in: "There was no playbook for responding to a once or twice in a hundred-year event." The headlines made it sound like he had only just now noticed that this was the hundred-year flood.

Come on, is that the best you guys can give us? Personal bankruptcies are skyrocketing at such a rate that Jay Westbrook, bankruptcy expert and law professor at University of Texas, Austin, predicts they'll double next year to 2 million. Unemployment has surged to 6.5%, with 1.2 million jobs lost so far this year. It's clear to anybody selling in real estate in Atlanta, to everybody living in Detroit, and nearly all retailers but Wal-Mart that this is way worse than anybody remembers. No wonder Sheila Bair is acting more like a Democrat than a Republican right now. She was on CNBC last week not just to explain the logic of her plan -- reducing foreclosures by just a little bit saves half a trillion dollars in homeowners' equity, which translates into $40 or $50 billion in consumer spending -- but also to calm and advise the public. Homeowners who can't pay their mortgages should seek restructuring advice from homeowner counseling groups, she urged, and everybody else should keep mowing the lawn, keep making the payments and "we'll all get through this together." She has written finance books for children and has two kids herself. Now there's a government bureaucrat who's GROUNDED. She may be confounding her Republican friends, but she seems to understand the critical importance of consumer psychology, that confidence is the magic ingredient that will determine our economy's fate.

After the banks were stabilized by Treasury's plan to inject $250 billion of capital into the system last month, everybody got fixated on LIBOR to see whether the crisis in bank lending had eased. Policy makers forgot to stay equally alert to the consumer confidence index. It was falling off a cliff, to an all-time low of 38 in October, down from September's 61.4, according to the Conference Board. Right up until sometime during the third quarter, consumer spending was keeping the economy in positive territory. Yes, in recent years many Americans have spent imprudently and unwisely and on too much credit. Sooner or later, consumer spending needed to be reined in along with everything else. The party had to end. But winding it down without a crash should have been just as delicate an operation as stabilizing the banks -- and Paulson blew it.

When consumers panic, as they are now doing in the face of surging layoffs and evaporating credit and the lack of sufficient help from Washington -- then they'll hunker down. As the New York Times has reported, they'll start eating Spam a lot more often. It was the 3.1% falloff in consumer spending that was the main reason for the .3% decline in third quarter GDP. The fear has become a vicious cycle. "The overnight nature of this has been stunning," says Diane Swonk, chief economist at Mesirow Financial. It usually takes a year or two for a recession to bring down the weaker retailers, like Circuit City (CC, Fortune 500). In this crisis, she expects only the stellar retailers to survive. This season, they're slashing prices early and deep, even at the high end of the business "I literally got an email from Saks [Fifth Avenue] today saying they're having a 40% off sale. I couldn't believe it," she says.

Hank Paulson, unfortunately, responded like the investment banker he is, thinking first about a deal rather than his biggest constituency, the people. First he wanted a $700 billion bailout but since he hadn't really worked out the details, he wanted no strings attached. Then, oops, he said, buying up the toxic assets isn't going to work after all. When he put TARP on hold for the additional nine weeks he'd be Treasury Secretary, well, it wasn't all that comforting that he was so specific about the nine weeks. It betrayed a short-timer attitude, like he's counting the days. Can't wait to be outta here? Great. Thanks. Consumers everywhere know that he'll be landing on his feet. Even if he can't wait, don't tell us. And then last week, he told the Reagan Library crowd that on the one hand it's dire, and on the other, don't pass regulations that are too tough. Even if he thinks it, he shouldn't say it, not that way. His audience -- and yours Mr. Geithner--isn't Wall Street anymore, it's Everybody.

So Mr. Future Secretary, I know the budget is tight and all. But maybe you could take a little of that bailout money and hire a good public relations person -- a speechwriter -- to coach you on all this before you take over. Preferably find one who understands the power of words and gestures and how they can mobilize (or demoralize) the people. I think the multiplier effect of such an expenditure could be considerable.