Tag Archives: Tim Geithner

Contradicting Secretary Geithner

By Simon Johnson

Speaking Thursday morning on the Today show, Treasury Secretary Tim Geithner insisted on two points:

1. If the bank rescue of 2008-09 had been handled in any other way – for example, being tougher on bankers – the costs to the real economy would have been substantially higher. 

“again, what was the choice the president had to make? He had to decide whether he was gonna act to fix [the banking system] or stand back because it might be more popular not to have to do that kind of stuff, and that would have been calamitous for the American economy, much, much worse than what we went through already.”

2. The reform legislation currently before Congress would end all concerns regarding Too Big To Fail in the future. 

“The president’s not gonna sign a bill that doesn’t have strong enough teeth.”

In 13 Bankers, we disagree strongly with point #1 (see this excerpt) and find point #2 so at odds with reality that it is scary.  Friday morning, also on the Today Show, I have a brief opportunity to suggest a different narrative. Continue reading

Tom Hoenig For Treasury

The White House is floating, ever so gently, the notion that they are open to nominations for the position of “Tim Geithner’s Successor.”

It’s not clear if they mean this job is likely to be advertised formally sometime in 2012 or 20 minutes after the November midterms.  Nor is it obvious if this is a real request for proposals – it could be just an effort to make critics “put up or shut up.”

Fortunately, there is an entirely plausible successor already in waiting, ready now or whenever the president finally realizes the need to fundamentally change banking policy. Continue reading

Secretary Geithner Needs To Get With The Program

The details of the new White House banking policy are somewhat vague and in places borderline incoherent – e.g., what exactly does “The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms…” mean (from point 2 in yesterday’s short and poorly edited statement)?

And the size restrictions currently in pencil on the back on an envelope near the president’s desk are almost certainly too lenient; the goal should not be a return to the status quo of 2007 or thereabouts – the clock must be rolled back much further and “too big to fail” completely removed from the financial map.

But the general principle behind our “Volcker Rule” is clear.  Here’s what President Obama said, “Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.”

Whatever you think of that notion or the exact wording, this clearly implies that banks will get smaller.  Secretary Geithner apparently does not get this (transcript). Continue reading

Lessons Learned From The 1990s

In the 1990s, the Clinton Administration amassed a great deal of experience fighting financial crises around the world.

Some of the U.S. Treasury’s specific advice was controversial – e.g., pressing Korea to open its capital markets to foreign investors at the height of the crisis – but the broad approach made sense: Fix failing financial systems up-front, because this is the best opportunity to address the underlying problems that helped produce the crisis (e.g., banks taking excessive risks).  If you delay attempts to reform until economic recovery is underway, the banks and other key players are powerful again, real change is harder, and future difficulties await.

In a major retrospective speech to the American Economic Association in 2000, Larry Summers – the primary crisis-fighting strategist – put it this way: Continue reading

What’s Wrong with a Phone Call?

Yesterday Simon pointed out the AP story highlighting Tim Geithner’s many contacts with a few key Wall Street executives — primarily Jamie Dimon, Lloyd Blankfein, Vikram Pandit, and Richard Parsons — while leading the government’s rescue efforts as Treasury secretary. It’s certainly useful for the nation’s top economic official to talk to people in the banking industry, and it’s also useful for him to talk to banks that are being bailed out by the government. But the AP story did come up with a few important distinctions. Geithner talked to these Wall Street executives more than the key people in Congress — Barney Frank and Christopher Dodd — that he needs to pass his regulatory reform plan. And he talked to them much more than to, say, Bank of America, which is equally big and equally in debt to the government. So to be clear, Geithner is talking to these people more than dictated by the requirements of his job (or he’s not talking to Ken Lewis enough).

Still, you could say, what’s wrong with that? Can’t Tim Geithner talk to whomever he wants to talk to?

Continue reading

Larry Summers, Economic Recovery, And Ben Bernanke

In a memo to Congress on Tuesday, Larry Summers – the head of the White House National Economic Council – laid out his view of where we are and what is likely to happen next in our economic recovery.

His tone was more upbeat than we’ve heard in recent utterances, although he has been heading in this direction for a while – contrast this April speech with this appearance in July.

What is beginning to turn the economy around?  Summers claims great effects from the fiscal stimulus Recovery Act, but much of that money has not yet been spent. 

He also puts weight on “an aggressive effort to tackle the foreclosure crisis.”  There have been sensible steps in that direction, but so far the effects have been decidedly modest.

The main explanation has to be that the administration prevented the financial system from collapsing.  In an economy as large and diverse as that of the United States – with much more government spending than at the time of the Great Depression – as long as the entire provision of credit does not disintegrate, we will recover.

Summers refers to “A Financial Stabilization Plan”, but this is ex post grandiosity.  In fact, the government simply demonstrated unflinching support for all big financial firms as currently constituted.  We the taxpayer effectively guaranteed all these firms debts, unconditionally.  Once the market figured out that the Treasury, Federal Reserve and other officials could pull this off, the panic was over.

But this victory brings also real danger. Continue reading