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2009
2008

In The Blogs

Dishing on Geithner

— By Kevin Drum | Tue November 25, 2008 8:35 AM PST

DISHING ON GEITHNER....Andrew Ross Sorkin punctures the Tim Geithner bubble today, asking if he's really the financial star he's been portrayed as:

Perhaps what has most people on Wall Street stirring is Mr. Geithner's role in the fall of Lehman. At the time of its bankruptcy, he, along with Mr. Paulson, appeared to be the most vocal in supporting the government's refusal to bail out the firm, according to people involved in various meetings. With hindsight, many in the financial industry blame a deepening of the global financial crisis on the government's decision to let Lehman crumble.

Bloomberg tries to restore some of his luster:

Timothy Geithner was among the first policy makers to shine a light on the unregulated $47 trillion credit-default swap market back in 2005. The New York Federal Reserve president has struggled since then to get dealers to carry out reforms.

...."In classic Tim and New York Fed style, the work has been done behind the scenes, among technocrats, largely by consensus," said Adam Posen, a former Fed official who is now at the Peterson Institute for International Economics in Washington. "The downside is that it takes awhile to get consensus."

Of course, the problem here is that virtually everyone who's qualified to deal with the financial meltdown had at least some role in it while it was happening. And given the speed and ferocity of the meltdown, there probably isn't a person in the country who got every call right during the past year, including Geithner. (And that rather pointedly goes for the kibitzers, too, none of whom got every call right either.)

Anyway, Geithner seems like a pretty good pick, but it never hurts to remember that these guys are human. I don't think Obama could have done much better, but that doesn't mean the guy is a superman.

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Submitted by Bruce Wilder (not verified) on November 25, 2008 - 8:48am.

One might also question the conventional wisdom that says that letting Lehman go into bankruptcy was such a key factor.

It is true that market seems to have received a signal at the time of Lehman's bankruptcy. But, given the actual and proximate consequences of Lehman's bankruptcy, which were very mild, one probably ought to consider the possibility that AIG's insolvency might have had something to do with what happened.

The problem that has frozen market trust is the uncertainty surrounding credit default swaps, and the huge cash and collateral demands that they can entail -- demands on vivid display in the case of AIG, which was ruined, seemingly overnight.

AIG was rescued, but it doesn't matter. What frightened the horses was just how much cash AIG has needed.

Lehman's bankruptcy caused barely a ripple. Geithner and Paulson may have been right. Lehman's failure was so long anticipated that the market was well-prepared. No one was prepared for AIG.

I have no idea how the writers of narrative journalism decide between Lehman and AIG, when both events occurred simultaneously, but it does not have face validity. And, to turn around on the basis of a seemingly arbitrary narrative choice, and criticize the NY Fed Res President . . . well, it makes little sense.

Submitted by jerry (not verified) on November 25, 2008 - 8:54am.

Offtopic: Liquid Nitrogen overclocking of your MSI Wind:

http://hardware.slashdot.org/article.pl?sid=08/11/25/1349243&from=rss

Submitted by jerry (not verified) on November 25, 2008 - 8:59am.

Back to the post at hand....

Given the alternative between *incompetent bail outs* of companies TOO BIG TO FAIL and then *not breaking them up*, or letting them fail,

I choose let them fail.

At the worse, given how badly this bailout has been run, letting Lehman fail was a wonderful signal to the market: you f*rs could be next. I bet they all stood up a bit more crisply the next morning.

One reason I was against the Iraq War was PK's noting that in their short time in office, Bush had screwed every pooch he could get his hands on and rewarded all his cronies. And this bailout has been run exactly the same way.

Has the bailout done anything? How would we know how it compares to alternatives?

Submitted by Ranger Jay (not verified) on November 25, 2008 - 9:34am.

Is it just me, or wouldn't the figure $47,000,000,000,000.00 send up a red flag?

Somebody made a killing on that crap, and I got nothing. Or less...

Submitted by Econobuzz (not verified) on November 25, 2008 - 9:35am.

Anyway, Geithner seems like a pretty good pick, but it never hurts to remember that these guys are human.

The fact that these guys are human is not the problem. It's that they usually only talk to one another, or folks who agree with them.

Together, high SAT scores notwithstanding, they can fall prey to erroneous common assumptions and make huge errors in judgment.

All the mathematical models these guys use have numerous arbitrary assumptions underlying them -- which, if incorrect, can make the OPPOSITE of what they predict come true.

Submitted by kahner (not verified) on November 25, 2008 - 9:50am.

I have little regard for those in the financial industry who "in hindsight" blame the financial crisis on Geithner because he advocated letting Lehman go under. Whether or not it was a good idea (I tend to think it was not, but that's based mainly on the opinions of those more knowledgable than I), anyone who thinks Lehman's collapse was the cause of the "deepening global financial" crisis has hindsight as shitty as their foresight. Its these same financial insiders who are in fact responsible, and of course they'd like to scapegoat the whole thing on a single, late in the game factor. So if that's the best thing Geithner critics can come up with, he's probably as good a pick as most people say.

Submitted by Petey (not verified) on November 25, 2008 - 10:01am.

I've got no real opinion on Geithner, but Andrew Ross Sorkin is a douchebag.

If Ross Sorkin is slamming Geithner, it likely means Geithner is a good guy.

Submitted by Matt (not verified) on November 25, 2008 - 10:11am.

There's some missing context here. The Treasury and Federal Reserve were scrambling to find a buyer for Lehman. No one bit. The Federal Reserve also thought about what would have amounted to a bailout--there were no TARP funds back then--but the Fed is only empowered to lend against good collateral, and Lehman was judged to be fundamentally insolvent. You'll remember, too, that the conventional wisdom at the time was that the authorities had to allow at least some large firms to fail, to enforce market discipline. (A bailout would have unleashed the predictable populist reaction.) All that said, everyone now agrees that a different solution would have been found were it possible to rewind the tape.

Submitted by jerry (not verified) on November 25, 2008 - 10:19am.

Yesterday on his blog, PK seemed somewhat appalled at the specifics of the CitiGroup bailout. Today on the DR Show, Stiglitz thought the whole bailout was incompetently run, and we could have done a much better job of the existing bailout and already seen results. Something to the effect that the taxpayers should be angry.

And in response to one emailer who thought didn't like the Clinton retreads who worked with Rubin to help start the mess, he gave an interesting response: if after the inauguration, Obama makes no move to redo these first bailouts, changing terms for instance on dividends, compensation, and what can be done with the money, than the emailer will be justified in her upset.

Submitted by MarkH (not verified) on November 25, 2008 - 11:46am.

Actively doing things which hurt our future, including keeping old destructive things in place, is unacceptable and criminal.

Not learning and adapting to make the future better is stupid and should not be rewarded.

Backbiting, backstabbing and backsliding are pretty much back-bench wasted effort and should be put on the back-burner.

Correctly assessing where we stand and forward-looking planning are more useful traits. Obama has some of that.

What's next?

Submitted by Luther (not verified) on November 25, 2008 - 1:57pm.

"And given the speed and ferocity of the meltdown, there probably isn't a person in the country who got every call right during the past year, including Geithner."

If they were so smart, they would have foreseen events.

Valid theories predict future events. Invalid theories cannot.