Wall Street's Man

Jo Becker and Gretchnen Morgenson's New York Times profile of Tim Geithner is required reading for everyone trying to understand how Wall Street owns our government. Their is little in it to hint at any corrupt influence on Geithner, but it's obvious that he is and has been under the spell of Wall Street's thinking.

But in the 10 months since then, the government has in many ways embraced his blue-sky prescription. Step by step, through an array of new programs, the Federal Reserve and Treasury have assumed an unprecedented role in the banking system, using unprecedented amounts of taxpayer money, to try to save the nation’s financiers from their own mistakes.

And more often than not, Mr. Geithner has been a leading architect of those bailouts, the activist at the head of the pack. He was the federal regulator most willing to “push the envelope,” said H. Rodgin Cohen, a prominent Wall Street lawyer who spoke frequently with Mr. Geithner.

Geithner seems to sincerely believe that his prescriptions are best for the country, but there is little doubt that he has put enormous amounts of taxpayer dollars at risk with little hope that much of it will ever come back. Geithner, like Larry Summers, and presumably Obama believes that the risks of loss to the taxpayer are a lot less than the risk of not acting, but many disagree, including Nobel Prize economists Paul Krugman and Joe Stigler.

While head of the New York Fed, Geithner had a front row seat at all the financial shenanigans that led to disaster, but he was hardly a strong voice for reform:

Mr. Geithner pushed the industry to keep better records of derivative deals, a measure that experts credit with mitigating the chaos once firms began to topple. But he stopped short of pressing for comprehensive regulation and disclosure of derivatives trading and even publicly endorsed their potential to damp risk.

Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, who made early predictions of the crisis, said Mr. Geithner deserved credit for trying, especially given that the Fed chairman at the time, Alan Greenspan, was singing the praises of derivatives.

Even as Mr. Geithner was counseling banks to take precautions against adversity, some economists were arguing that easy credit was feeding a more obvious problem: a housing bubble.

Despite those warnings, a report released by the New York Fed in 2004 called predictions of gloom “flawed” and “unpersuasive.” And as lending standards evaporated and the housing boom reached full throttle, banks plunged ever deeper into risky mortgage-backed securities and derivatives.

The nitty-gritty task of monitoring such risk-taking is done by 25 examiners at each large bank. Mr. Geithner reviewed his examiners’ reports, but since they are not public, it is hard to fully assess the New York Fed’s actions during that period.

Given the environment (Bush, Greenspan, Bernanke) their might have been little he could do - but in any case he didn't do it.

I sometimes think that it might have been preferable to let AIG, Citi and all the others fall like dominoes. It would have been an interesting experiment in financial chaos - but we are getting that anyway with the added bonus that the malefactors have learned that any punishment will be temporary and most failures will be bailed out. Of course, it might really have ended Western Civilization and the global economic system, at least for a decade or two.