It takes a helluva crisis to get national leaders to talk straight.
In releasing the not-so-specific details of the Obama administration’s Bailout 2.0., Treasury Secretary Timothy Geithner delivered remarks that were to the point and rather clear. Geithner minced few words. For example, he noted, “Instead of catalyzing recovery, the financial system is working against recovery.” No sugarcoating there. And Geithner provided a concise overview of what led to the current catastrophe:
Governments and central banks around the world pursued policies that, with the benefit of hindsight, caused a huge global boom in credit, pushing up housing prices and financial markets to levels that defied gravity.
Investors and banks took risks they did not understand. Individuals, businesses, and governments borrowed beyond their means. The rewards that went to financial executives departed from any realistic appreciation of risk.
There were systematic failures in the checks and balances in the system, by Boards of Directors, by credit rating agencies, and by government regulators. Our financial system operated with large gaps in meaningful oversight, and without sufficient constraints to limit risk. Even institutions that were overseen by our complicated, overlapping system of multiple regulators put themselves in a position of extreme vulnerability….
The force of [subsequent] government support was not comprehensive or quick enough to withstand the deepening pressure brought on by the weakening economy. The spectacle of huge amounts of taxpayer assistance being provided to the same institutions that help caused the crisis, with limited transparency and oversight, added to public distrust. This distrust turned to anger as Boards of Directors at some institutions continued to award rich compensation packages and lavish perks to their senior executives.
That’s a pretty spot-on description–though Geithner, the former president of the New York Federal Reserve bank, (not surprisingly) did not mention that he and others ignored various warnings of cracks in the system.
Geithner showed that he can be an articulate advocate for the Obama administration’s stimulus package and financial stability plan. “The policy response has to be comprehensive and forceful,” he remarked. “There is more risk and greater cost in gradualism than aggressive action.” In other words, things are so frighteningly bad, we’re not going to worry about inflation.
And Geithner spoke passionately about the need for transparency and accountability:
Our work begins with a new framework of oversight and governance….The American people will be able to see where their tax dollars are going and the return on their government’s investment, they will be able to see whether the conditions placed on banks and institutions are being met and enforced, they will be able to see whether boards of directors are being responsible with taxpayer dollars and how they’re compensating their executives, and they will be able to see how these actions are impacting the overall flow of lending and the cost of borrowing.
These new requirements, which will be available on a new website FinancialStability.gov, will give the American people the transparency they deserve.
These steps build on what we’ve done already. We’ve acted to ensure the integrity of the process that provides access to government support, so that it is independent of influence from lobbyists and politics. We’ve committed to provide the American people with information on how their money is spent and under what conditions by posting contracts on the Internet. And, importantly, we have outlined strong conditions on executive compensation.
When it comes to the Obama-Geithner bailout–which could involve up to $2 trillion–it’s hard to know if it’s God or the devil that is in the details. (Financial analysts attributed a massive drop in the stock market to the lack of details in Geithner’s plan.) But Geithner, at least, demonstrated that he can speak plainly about these matters. And he and Obama are going to have to explain their plans and actions over and over in the weeks and months (let’s hope not years) to come.