James Pethokoukis

Politics and policy from inside Washington

Is Geithner Wall Street’s man in Washington?

October 8, 2009

Yes, the treasury secretary talks to bankers, says the Associated Press:

The calendars, obtained by the AP under the Freedom of Information Act, offer a behind-the-scenes glimpse at the continued influence of three companies — Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. — whose executives can reach the nation’s most powerful economic official on the phone, sometimes several times a day.

But as my pal John Carney of Clusterstock points out, he’s isn’t talking to everybody:

But these generalized claims miss something important: not all banks are equal in the eyes of Treasury Secretary Tim Geithner. Today the AP revealed that Geithner doesn’t give equal access to all of the banks, or even all of the largest banks. Likewise, being one of the biggest, most well-connected investment banks doesn’t get you close to Geithner. Instead, it’s a small select group of financial firms that have Geithner’s ear, at least judging by a review of his phone records.

Who is Geithner chatting with on the phone.?

  • Goldman Sachs
  • JP Morgan Chase
  • Citigroup

Most obviously left off the list are Bank of America, Wells Fargo and Morgan Stanley.

Me: To me, the interesting question is to what extent Geithner shares Wall Street’s world view, and how that has influenced policy. He certainly is sensitive to the systemic nature of these institutions and their role in the financial system, which is why he was a voice against nationalization or debt-for-equity ideas. As Megan McArdle put it earlier this year:

It’s easy to blithely say “Why don’t they just make the bondholders take a haircut?”  Harder when you think about who those bondholders are:  insurers.  pension funds.  the bond component of your 401(k).  Financial debt makes up something like a third of the bond market, and the largest holders are pensions and insurers.

The insurers are the biggest problem, because they’re just so heavily regulated.  They’re not allowed to hold risky assets.  Convert their bonds to equity and they will be forced to dump that equity at prices that will trend towards zero.  Many insurers will see their capital impaired below the regulatory limits, requiring a government bailout.

Pension funds are the next biggest problem.  They’re already in big trouble because of stock market declines.  The bonds are the “safe” portion of their portfolio, the stuff that’s supposed ot be akin to ready cash.  Convert their bonds to equity–or worse, default–and suddenly they’re illiquid and even further underwater.

Nor is the 401(k) problem small.  Bond funds are typically held most heavily by the people closest to retirement; they’re for income, not capital gains.  What is your mother going to do when a third of her mutual fund income gets converted to equity that produces no cash and can’t be sold because the insurers have all had to dump their shares on the market at once?  Or simply disappears into the land of bankruptcy lawsuits?

I think what Geithner et. al. fear is that nationalizing or reorganization will put the government on the hook for massive and immediate losses in both the banking system, and the “safe” entities that lent it money

:

Comments

“Is Geithner Wall Street’s man…?”

Is the Pope Catholic?

Megan McArdle’s commentary points out how the 2B2F institutions are able to extort cash & concessions from the U.S. Gov’t(taxpayers).

Posted by shinola | Report as abusive
 

Is Geithner Wall Street’s Man? What a question – how naive are you? BTW you smug republicans it was Paulson previously. How many of you have ever read Atlas Shrugged? Do you NOT know how this all works? The “aristocracy of pull” is not a democratic or republican theme – it is a strong, centralized government theme. Both political parties believe in it and subscribe to it fully.

Posted by Brad Hobbs | Report as abusive
 

Concerning the Restructuring of the Global Financial/Economic System and Recent Discussion of Nationalizing “Banking” Interests

With regards to “nationalizing” Banks and other “investor owned” Institutions, we must be realistic concerning the inter-national composition of the investing institutions, corporations, and individuals.

Writing from a libertarian socialist point of view, I think it is necessary to clarify the objectives of any comprehensive program to re-dedicate private resources to a quasi-public mission and to consolidate equity and assets for the purposes of sharing the former and writing off the economically paralytic inflationary cost aspects of the latter.

In lieu of an economic system based on credit and equity trading, whose motivation is the underwriting of speculative ventures, we need to transform our fundamentally inflationary financial/economic system to one that is based on equity sharing and meeting the needs of people in the form of community betterment.

Such a financial system would be the right hand, the resource allocation facilitating function and services of an ambidextrous ecological, democratic, economic “plan and implement” economy that would respect and favor the sovereignty of villages/neighborhoods, educate-foster-facilitate-inculcate inter-community and inter-regional equality, unity and cooperation based on the basic principles of inclusion, equity, humanity, mutualism, altruism, quality of life (in lieu of standard of living), environmental/public health and wellness, sustainability, and peace.

Such a system would seek to establish a more just balance between competitive advantage and comparative advantage with the concerns of those indigenous to a community being paramount.

Such an economic system would recognize the necessity to embrace and implement conservation ethics for shorter term programs and projects of ecological economic redevelopment dedicated to survival pursuits and skills and its concomitant ubiquitous environmental improvement activities, and to the longer term programs and policies related to the legacy of the human race and its dominion (i.e. the recognition and respect of the resource limits imposed by a finite planet).

I call such a proposal an equity union and believe it to be a prudent and practical alternative to the extant economic/financial system. I believe such an economic rearrangement based on the fundamental mission of world unity and cooperation is the best hope for the purpose of entering an unprecedented era of peace and human progress and success.

Mike Morin
Eugene, OR, USA
wiserunion@earthlink.net
(541) 343-3808

 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •