benjipwns
Banned
http://www.vice.com/read/tim-geithner-and-the-con-artist-wing-of-the-democratic-party
And finally, with the release of his book, Stress Test: Reflections on Financial Crises, Geithner is getting to tell his side of the bailout story.
Stress Test is an important book, because Tim Geithner is an important man. Economist Thomas Piketty may be explaining essential social dynamics of inequality, and Elizabeth Warren may be describing the need for Americans to get a break from the banks, but it is Tim Geithner who, for better or worse, actually shaped our institutional, legal, political, and economic dynamics at the moment when the system was most malleable.
That said, Geithner is not a popular man, and he knows it. I never found an effective way to explain to the public what we were doing and why, he writes. We did save the economy, but we lost the country doing it. He knows hes never going to win the argument, he knows he cant possibly convince people he did the right thing. Even his book tour is being described as an undertaking that "could have been worse." But hes going to try to convince you anyway.
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Geithner also addresses his critics, motivated by what he derisively calls Old Testament justice. It may be morally righteous to hang the bankers, he argues, but its irresponsible to do this at the cost of allowing a crisis to destroy the lives of millions. He tells an anecdote in the book, about how Bill Clinton pulled him aside and said that he could knife Goldman Sachss CEO in a back alley and the populists would be satisfied only for a day.
Its clear that Geithner doesnt like his critics, and they dont like him. Neil Barofsky, the government bailout watchdog, was "untainted" by knowledge of finance. Populists like Elizabeth Warren, former FDIC Chairman Sheila Bair, and even Larry Summers (who comes off as a major foil of Geithner in inter-office spats) could backseat-drive, but they didnt have a credible workable alternative. "I was sometimes uncharitable about the chicken hawks of the crisis, Geithner writes, who were the financial equivalent of ardent Iraq War supporters who had never fought in war and had the luxury of distance from the battlefield. He notes that Summers turned to him one day and said, You know this stuff is really hard. Geithner came as close to smirking in prose as possible, as if to wryly note to Summers that "as brilliant as your reputation might be, youre in my world now."
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Johnson became increasingly irate as he saw Geithner diverge from what Geithner himself at the US Treasury and the IMF forced on other countries: conditions. Geithner was hard on oligarchs when they were foreign, but when it was US bankers, well, then the wall of money argument triumphed. In fact, in a paper released in 2013, it was revealed that financial firms with a personal relationship with Geithner himself saw an abnormal 15% bump in share prices when Geithners name was floated for Treasury Secretary, and a corresponding though smaller, abnormal decline when his nomination was on the rocks due to his being caught not paying taxes by Senate investigators.
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he shape of the Geithner policy architecture is two-tiered: The financiers recovered; everyone else did not. And the economy, even today, sputters along at just above stall speed because of this. Geithner halfheartedly admits he should have done more here, but then in the book he argues that there was absolutely no more that could be done. Its a non-apology apology. Even in that, hes inconsistent. He said on The Daily Show recently that he supported the judicial modification of mortgage debt for bankrupt homeowners, a pivotal policy, while in his book he says he didnt think it was fair or economically effective.
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And then theres the mystery of how he managed to climb up the career ladder so quickly. He never really explains how this happens. He wasnt a good student. He notes, as a grad student, that he mostly played pool. During my orals, when one professor asked which economics journals I read, I replied that I had never read any. Seriously? Yes, seriously. But not long after we returned from our honeymoon in France, Henry Kissingers international consulting firm hired me as an Asia analyst; my dean at SAIS had recommended me to Brent Scowcroft, one of Kissingers partners.
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One day, when Geithner was a junior Treasury civil servant, Treasury Secretary Lloyd Bentsen just called him out of the blue to ask his advice on a matter about which he knew nothing. Why? He doesnt sayhes just puzzled. Later on, he advances in Treasury without any real credentials in a department where a law degree or economics PhD is essential. Even Alan Greenspan eventually expressed surprise; he had just assumed Geithner had a doctorate. Power just always seemed to flow to Geithner, and he never says why. He knows why, of coursehes an exceptional political climber. He just doesnt say who was grooming him, why he ended up where he ended up, and what he paid to get there. Its clear he had ideas about how the world should work, but he pretends otherwise.
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The roots of the crisis were excessive lending by American banks to Mexico, so the US Treasuryfunded bailout helped ensure that Mexico could pay its debts and that US banks had their money returned. Geithner participated in the rescue designed by then Treasury Secretary Bob Rubin. The bailout was deeply unpopular at the time, and Congress refused to fund it. But Rubin found the financing for the wall of money in an old account called the Exchange Stabilization Fund, and the American banks who had lent to Mexico were ultimately paid back. Geithner presents this as a triumph of wisdom over the stupidity and cravenness of a short-sighted Congress and impatient public. Yet as Dean Baker notes, Mexico had the worst per capita growth of any major country in Latin America in the two decades following the bailout. It was bad for Mexico, but great for Citigroup.
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Geithner served at the New York Fed until 2008, and this region was the center of the financial universe, the place where profits from the boom were husbanded and collected. The New York Fed regulated Citigroup, a massive systemic risk requiring multiple bailouts and obscure financial supporting arrangements. Thus, lying about his tolerance for this run-up in leverage, and about his distance from the financial industry, is critical in painting a later portrait of a cautious but savvy crisis manager.
While at the Fed, Geithner erects a self-pitying picture of an unfair public who thought he came from Goldman Sachs, noting that, for the record, he never worked for a bank on Wall Street or basked in luxury like tycoons might have. These optics set up Geithner and his whole strategy as misunderstood but ultimately correct and mature. Geithner presents himself as having a standoffish relationship with Wall Street bigwigs. I rarely socialized with Wall Street executives, he writes. As I had warned the board, Carole and I did the minimal amount of Manhattan socializing I thought necessary to do my job properly, including a few awkward birthday celebrations for our modern-day tycoons at various museums in Manhattan.
Yet as he also recounts, he was recruited to the Fed by billionaire Pete Peterson, his patron was former Goldman Sachs head and then Citigroup chairman Bob Rubin, and it was Citigroup executive Michael Froman who introduced him to Barack Obama. He was even heavily recruited to be Citigroup CEO in 2007. Geithner made the Fed far more Wall Streetfriendly, recruiting bank veterans for high-level management positions. He also reorganized the New York Fed Board to include prominent financiers, including Lehman Brothers CEO Dick Fuld; JPMorgan Chase CEO Jamie Dimon; former Goldman Sachs Chairman Steve Friedman, who was still on the firms board of directors; and General Electric CEO Jeff Immelt. As he put it, I basically restored the New York Fed board to its historic roots as an elite roster of the local financial establishment. His former colleague on the Obama economic team Paul Volcker even mocked him for being so close to the big banks. These are not the actions of someone who has a distant relationship with Wall Street power players.
An additional lie is that Geithner was never a Wall Street banker. Technically speaking, the New York Federal Reserve, which Geithner headed up for years, is actually a bank on Wall Street. It is in fact a bank of banksthe bank of banks. Its why Chuck Prince wanted him for the Citigroup job. And Geithner lived like a power player. He entertained Wall Street bigwigs as part of his work and could get anyone in the world on the phone. The New York Fed isnt subject to federal-government pay caps, so Geithner was paid $411,200 a year, with a $434,668 severance when he went to Treasury. While this is a low salary for a Wall Street banker, it is a lot of money, especially for a public servant. And its an especially large amount of money considering the remarkable perk package, which included, as he notes in his book, coffee served by staff on a silver tray and a car with a chauffeur and sirens to get to work every day. In other words, the reason people thought Geithner came from a bank on Wall Street is because, both in a technical and a cultural sense, he did. Geithner knows the New York Federal Reserve Bank is a bank on Wall Streeta special public-private bank, of course, not an investment bank, but a bank nonetheless. Yet he denies this because it sounds better that way.
Theres more. While president of the New York Fed, Geithner argues, he didnt take on the subprime crisis because Ned Gramlich, a Fed governor in Washington, was already leading a process to examine excesses and abuses in the mortgage business serving lower-income Americans. I was impressed by Gramlichs work, and those issues seemed to be getting a fair amount of attention from the Fed in Washington. I didnt want us to be like kid soccer players, all swarming around the ball. Gramlichs work was so impressive, apparently, that Fed Chair Alan Greenspan blocked him from even bringing it up to the board level for consideration.
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One of the most remarkable and brazen set of misleading statements is Geithners recounting of his speeches while president of the New York Federal Reserve bank, which is how he introduces the beginnings of the financial crisis. As Felix Salmon noted, these speeches are online, and you can check them against what he says in the book. And his recollections in the book are just not consistent with the speeches themselves. He says that in his first speech he tried to push back against complacency, which isnt really true. He says that in nearly every speech he talked about systemic risk, but again, thats highly misleading. He did virtually nothing at the New York Fed to head off the crisis. And while he says he was concerned about insufficient capital levels at Citigroup, Sheila Bair says in her book, and more recently told Gretchen Morgenson, that the New York Fed under Geithner was undermining her push for higher capital levels at the Basel Accords. Only a hearing and threat from Barney Frank to Geithner and the Fed allowed Bair to go ahead. The crisis was creeping up on regulators, but Geithner was fighting against the most basic measures to do anything about it.
Geithner also misleads the reader about the single most important moment of the crisis: when Goldman got bailed out through Federal Reserve loans to AIG. This mattered because it was when the public really began taking over the debts of the financial system, and its well documented in the Congressional Oversight Report of June 2010. When AIG was on the verge of going under, exposing every big bank that had bought insurance from them, Geithner had a choice. He could force big banks to share the losses or just bail them out. He chose the bailout. Rather than forcing Goldman and JP Morgan to share in AIGs loss, to which they were heavily exposed, Geithner took 100 percent of the liability on the New York Feds balance sheet. Then, in November of 2008, the Fed bought back underlying securities from Goldman, at par, despite their trading at 50 cents on the dollar. This was a massive funneling of resources to Goldman in particular.
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The list of misleading statements goes on and on, and its a long book. Dean Baker captured a lot more of them, from misleading statements about a Second Great Depression to the housing crisis run-up to a bad analysis of the first-time home-buyers' tax credit. Recognizing this tsunami of deceit is actually central to recognizing what happened during the bailouts. The bailouts were, simply put, done in bad faith. Geithner was hired to lie, steal, and cheat on behalf of bankers, and he did so. The rival books, the competing stories about what happened, arent a philosophical debate over policies anymore than stabbing someone in the back with a knife is an honest airing of disagreements.
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Geithner told Ezra Klein at Vox that he chose private equity because of ethical concerns: He did not want to go through the revolving door to the banks, he said, and did not want to be involved in companies he had been regulating. Of course, private equity as an industry was actually placed under regulation by none other than Tim Geithner through Dodd-Frank. The industry is heavily dependent on large banks for syndicate financing, so Geithners contacts and credibility should come in handy.
Beyond that, one of Warburgs very first investments with Geithner at the helm was a $100 million infusion of cash into a company called Source, which is a large European asset manager that handles a shadow banking instrument called an exchange-traded fund (ETF). The government recently warned that ETFs may help contribute to the next financial crisis. And amusingly enough, there is a bitter fight between the regulators as to how and whether to regulate these companies, one that Geithner could be swaying behind the scenes (as he did so often with policies he did not like during the crisis). And this is just one exampleWarburg owns many companies in the heavily regulated finance space, and Im sure Geithner can add value to many of them. Already, SEC Chairman Mary Jo White is aggressively fighting to prevent any regulation of these asset managers. White was nominated to be SEC Chairman on January 24, 2013, the day before Geithner left Treasury. Her nomination might have been the last substantive decision he made in government, and it could be profitable for his new employer.
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Geithner has acknowledged substantial fraud in the crisis, but he wont even deign to answer why the administration did nothing about the individuals who perpetrated it. He doesnt discuss distributional questions from the bailout. He sneers at the notion of justice. He argues for "anti-democratic" measures in a financial crisis, including emergency powers for the president similar to those the president has for national security. He wont really explain why he refused to fight for writing down mortgage debt, or even what his role was in doing so.
Geithner is at heart a grifter, a petty con artist with the right manners and breeding to lie at the top echelons of American finance at a moment when the government and financial services industry needed someone to be the face of their multi-trillion dollar three card monte. Hes going to make his money, now that hes done living his life of fantastic power after his upbringing of remarkable mysterious privilege. After reading this book and documenting lie after lie after lie, Im convinced that theres more here than just a self-serving corrupt official. Theres an entire culture, of figures at Treasury, the Federal Reserve, in the entire Democratic Party elite structure, and in the world of journalism, a culture in which Geithner is seen as some sort of role model.
