Geithner of Oz

August 13, 2009

Earlier today I wrote that Sheila Bair is one of the few financial regulators who gets it. And by getting it, I mean not sucking up to the banks and the big money interests on Wall Street. You know, the guys (and most of them are guys), who got us into this financial mess. Tim Geithner, on the other hand, is a regulator who just doesn’t get it.

It’s not that the Treasury secretary isn’t smart–he is. And it’s not that he’s not up to job–he is. It’s that Geithner is too much of a politician and his views have been molded by people who work on Wall Street.

So, that’s why we have Geithner telling The Wall Street Journal today that Wall Street isn’t reverting back to its old ways–even though everything indicates that’s exactly what is going on. In Geithner’s world, things are getting better and the banks are becoming better citizens:

I don’t think the financial system is reverting to past practice, and we won’t let that happen. The big banks are running with much less leverage now, much more conservative liquidity cushions. There has been a significant shrinking of their balance sheets, getting rid of bad assets and cleaning up. And the weakest parts of the system don’t exist anymore.

But Geithner lives in the land of Oz. A land where we should ignore the man behind the screen and all the toxic assets that still line the balance sheets of the nation’s banks.

The trouble is the rest of us live in the real world where the roads aren’t paved with gold bricks.

8 comments

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I can’t imagine Geithner being in a position to please everyone, what with the big difference of views on the crisis, the bailouts, between Wall Street investment bankers and ordinary American citizens. The other day I read an article in “New York Magazine”, I think it was, where the writer went around New York City talking to bankers who thought for example that press coverage was unfair to them. Perhaps it’s really true that Wall Street is a world unto itself.

Posted by David Bernier | Report as abusive

Mr. Geithner can’t please everyone. He is walking a thin line and trying to reform a system that really doesn’t want to be reformed. His cautious words may bother some of us but it demonstrates his diplomatic approach. This in the end will work becasue even if we do not like to admit it there needs to be buy in on the reforms from those that are being regulated or the reforms will fail.

I do not think he lives in the Land of Oz. I have heard nothing but well balanced diplomatic comments and an honest desire to make the needed changes. However, smashing the bankers as it seems many of us and those in the administration would like to do might give us solace and even comfort for a while, however, after a while there will be other problems that will be worse.

I beleive that Mr. Geithner’s balanced approach is what is needed i an administration that has many that want to be much too tough. The velvet golve eventually works better than the sledge hammer.

Posted by Judith | Report as abusive

Game Over ?

They have until October.

Politics always trumps Free Markets and it’s all calculated!

If this fiasco hasn’t turned-around by then, the O-Team will send in “The Cleaner” and the Election Cycle will rein.

Result:
- misallocated Capital encouraged overcapacity and the Social Contract with Labor is null & void
- End of ’09, Bargaining & Hope is lost and Anger causes heads to roll (i.e., B.B., L.S. and T.G. are out as the nation moves closer to socialism)
- 2010 will bring Depression and will end with Acceptance
- 2011 re-election campaign kicks in with promises to Labor of a “Road to Recovery”
- 2012 Capital gets the backseat, Labor is in the driver’s seat. O-Team is re-elected with a majority in the House

The fate of capitalism as we know it, will forever have changed!

Election Cycles:
…note election year Novembers, the February following election year Novembers has been an excellent indicator as to whether the election year November would mark[s] an important top. In every case since at least 1968, when February following election year November moves to a higher high than the January following election year November, the market has proceeded to do very well.

Conversely, when the post-election year February is unable to move higher than the post-election year January, a significant market decline has always followed. This may be coincidence but it has proved prescient for at least the past 40 years.

Posted by Peter | Report as abusive

Tim Geithner was head of the NY Fed in the years when the regulators massively failed to regulate, so he has plenty to answer for. In a bit more than one year there will be an election for the House of Representatives and one-third of the Senate. The voters will then speak again, including the furious poor and middle class voters who have been and will continue to pay for this mess.

Posted by Steve Numero Uno | Report as abusive

Geithner’s performance has been shall we say less than stellar. I see the far greater problem, however, as being the fact that Obama has chosen to follow the advice of Summers rather than wiser council. Summers track record is, of course, objectively terrible. Nonetheless, he is impressed with his own ‘intelligence’ and seems to have the same effect on others. No need for a man behind the curtain in his case.

Paulson took the lead on this fiasco, and Summers has extended the same perspective. The problem is the obvious irony that they have been too ‘successful’ and thus the financial interests have instantly reverted to previous modes of operation.

As very very little has been accomplished other than to throw piles of debt in the financiers direction it is highly probable that the bill will yet come due, that it will be very large, and that it will be devastating. Whether it will emerge in acute or chronic form is another question.

Either way, the US is in dysfunctional navel-gazing fractious decline, and China in the clear ascendancy.

Such is the way of the world.

‘Say “Good night”, Gracie.’

Posted by Atomik The Weasel | Report as abusive

The Lion thought it might be as well to frighten the Wizard, so he gave a large, loud roar, which was so fierce and dreadful that Toto jumped away from him in alarm and tipped over the screen that stood in a corner.

As it fell with a crash they looked that way, and the next moment all of them were filled with wonder. For they saw, standing in just the spot the screen had hidden, a little man, with a bald head and a wrinkled face, who seemed to be as much surprised as they.

Posted by Haha | Report as abusive

There can never be any real reform in America for exactly this reason: reform takes time and Americans are totally impatient. The guy has been in office six months and the economy has gone from staring down depression to moderately upbeat, though still scaled back from inflated bubble-highs. And I think that that’s the biggest thing that people don’t get – Americans think recovery will come when they re-attain bubble-inflated highs. But how does one get to those levels without another bubble? Is that what you really want? Stop listening to Neo-Con talking points and sound bites and realize – I mean really know! – that it can’t go back to the way it was. Period. Full stop. Then take a deep breath, wait another six months, and re-evalute.

Posted by the Shah | Report as abusive

Very well put “Shah”. I think it was Fran Liebowitz who said that Americans now equate “thinking” with “wishing” as in: “I wish Timothy Geithner would do the following things; he is not doing them; therefore my rational conclusion is that he is incompetent”.

This is not even syllogism – it is utter fantasy and it is what passes for thought and critique (cf. the Health Care Plan “debate” – heaven help us). Perhaps it’s the idea of roaming gangs with tea bags pinned on their sleeves and “lists” of evil doing bankers that gets the media pundits a little bit overwrought and misguided about how bad things are and whose fault it is.
Does the population and the pundits of one of the most advanced countries in the world think “bank regulatory reform” in the current globally interconnected, computer-enhanced era of massive liquidity pools is something done in a spirit of revenge?

And revenge for what exactly? There’s not many innocent parties in this story including the “poor” and “middle class” who maxed out their HELOCs on hugely inflated real estate assets while saving less that zero for a rainy day. Kudos to Obama for sticking thoughtful people of good character and large brains into the breach.

Posted by Fidel | Report as abusive