Geithner explains why he saved Versailles
There is a very long and very informative profile of Treasury Secretary Tim Geithner on The Atlantic’s website: Inside Man, by Joshua Green.
It is worth reading - in its entirety, and carefully - because it provides much insight into Geithner, what he thinks and believes, and the financial rescue he has saddled us with. But it seemed like every few minutes I wanted to scream. Green completely and utterly fails to adopt, as the measure by which to judge Geithner and his policies, the public good. The closest Green comes is when he discusses the political repercussions of Geithner’s “successful” financial rescue.
The fundamental issue we face today – which Green is apparently in complete ignorance of – is whether or not the banking and financial system shall be operated for the benefit of the nation as a whole, or for only a relatively small clique generally called “Wall Street.” Geithner’s admissions in this regard are breathtaking:
“The basic strategy,” Geithner says, “was to dispel the cloud of uncertainty.” Initially, that didn’t happen. Many people assumed the tests were a pretext for allowing the government to seize weak banks. Others complained that the tests were too mild, and suspected that the whole thing was an excuse to let banks try to grow their way out of trouble—to reprise what Japan did.
To just about everybody’s surprise, though, the plan has appeared to work. The Dow bottomed out last March. But this brought further challenges. The reason that many White House officials viewed the Geithner Plan with asperity was not only because it might fail but also because seeing it through to success could be poisonous. Any strategy that depends on the private sector’s willingness to invest amid chaos must tread cautiously in the market or risk scaring off the very people it seeks to attract. The charge that the White House has coddled Wall Street isn’t just true—it was key to the whole endeavor! The major struggle within the White House last year is often mistakenly assumed to have been over whether (and how) to nationalize ailing banks. But no plan besides Geithner’s was seriously put forward—and the difficulty of seeing that plan through was the basis of the struggle that played out across Obama’s first year.
Yes, you read that correctly: The charge that the White House has coddled Wall Street isn’t just true—it was key to the whole endeavor!
Geithner’s plan was wildly out of sync with the public desire for swift, retributive justice against the banks. Geithner strenuously opposed this way of thinking, which often put him at odds with others in the administration, including Summers. . . .
Geithner became phobic about intervening in the markets in any way that investors could perceive negatively, fighting off White House efforts to impose stringent pay caps on banks receiving federal aid. When Britain’s prime minister, Gordon Brown, advocated a tax on financial transactions to reduce the appeal of purely speculative trading (an idea Summers once favored), Geithner publicly dismissed the notion out of hand. He has exasperated the bailout program’s chief watchdog, Neil Barofsky, by refusing to make all of the banks explain how they use their bailout money. “It’s hard to be on the wrong side of this issue,” Barofsky marveled when I asked him about it. “This is just basic accountability.” Barofsky has become Geithner’s chief tormentor.
It’s all about keeping the markets “feeling good.” And in the absence of democratizing the Federal Reserve system and the financial system, yes, markets are, and will remain, the political master race.
Incredibly, Green allows Geithner to set the terms of reference for the nation’s political debate over Geithner and his policies:
. . . a year into his presidency, the overwhelming criticism of Obama is that he is taking too much control of the economy and spending too much money—which must really sting, because by avoiding nationalization and its colossal costs, he has probably saved an incredible sum. “We’re getting killed from the right and from the left on the basic strategy,” Geithner told me. “The right argues that we unnecessarily socialized the entire financial system. The left says we wasted money on things they’d have rather used to help real people directly. As you might understand, I have no sympathy with either. Neither critique is right. To the right, I would say: ‘No, the strategy we adopted was overwhelmingly designed to try to make sure that private markets came and took us out of this as quickly as possible. That was a conscious choice, a shift in strategy, and a more pro-market approach that will help us deal with our fiscal challenges.’ And to the left, I would say: ‘And that saved the taxpayer hundreds of billions of dollars that you can use to meet the main challenges we face as a country—health care, education, infrastructure, and our long-term deficit.’”
The real argument of the left is not, as Geithner claims, that the bailout “wasted money on things they’d have rather used to help real people,” but that the financial system has become predatory, turning the economy into a zero-sum game in which the rest of society loses while the financial system gains. The reason why we do not have enough money to pay for health care, education, and infrastructure, is exactly because the financial system is looting the nation’s economy.
Moreover, this predatory nature of the financial system has created a massive crime spree: the looting of pension funds and industrial assets by corporate raiders beginning in the 1970s; the fraud that destroyed the entire savings and loan sector in the 1980s; Enron’s fraud and deliberate sabotage of California’s electric power grid in the 1990s; and the securitization of sub-prime mortgages in the 2000s. Geithner does not even deign to discuss this more important critique – that the financial system is fundamentally corrupt (William Black), and predatory (Kevin Phillips, Michael Hudson, William Grieder, James Galbraith). Geithner conveniently ignores this entire fundamental issue – and that Green allows him is shameful. Because it is the enriching of Wall Street that is directly impoverishing all the rest of us. The credit allocation mechanism of society has terribly malfunctioned: instead of our best and brightest physicians and mathematicians helping move society away from its dependence on fossil fuels, they have been helping Wall Street devise ever more complex schemes for grabbing a larger share of society’s wealth. The financial system needs to be radically altered, and this crisis was the best opportunity to do so, but what we got instead was Tim Geithner’s careful consideration of market sensitivities. This is the type of moral failure that dooms entire civilizations to collapse. Geithner is the perfect example of what Jared Diamond writes about when describing elites being unable and unwilling to change and adapt when their society is confronted with economic and ecological obliteration.
Geithner also ignores the derangement of the political system caused by a financial oligarchy able to literally buy the legislation it wants. This is the true importance of Simon Johnson’s criticism of the new financial oligarchy, and Joshua Green has utterly failed to understand this crucial critique - and use it to bludgeon Geithner. How can this cost ever be reckoned – the cost of asphyxiating the spirit of republican democracy?