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Are the Knives Coming Out for Geithner?

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The clout of the press has decayed enormously over the last 40 years. The fourth estate was feared, resented, and begrudgingly respected in the corridors of power. But rule by beancounters, savvy media spin, and access journalism (journalists who write pointed stories get frozen out) have largely leashed and collared the press. Indeed, a friend who grew up in Eastern Europe when it was Communist said as of roughly 2000 that the news felt controlled.

So to see a front page (and super long) story in the New York Times honing in on Geithner’s close, as in overly close, relationship with Wall Street executives, is a stunner. In the old days, a report critical of a prominent public official would be a leading indicator that they were at least facing headwinds, perhaps in bona fide trouble. But given the new rules of the game, one has to assume a story of this sort is a lagging indicator, that Geithner is perceived to be sufficiently at risk to be fair game.

Thus what is surprising about tonight’s New York Times story, “Member and Overseer of the Finance Club,” on Timothy Geithner is not its content, but that it was written at all, and moreover (as of now) is a front page item. It’s extraordinarily long for a weekday story. the number of column inches usually reserved for natural, not bureaucratic disasters.

Any reader of any remotely plugged in econoblog, or savvy enough to read between the lines of MSM reports will know that Geithner is a creature of the financial establishment. Probably the most important element in his pedigree is that he is a protege of Larry Summers and Bob Rubin. It also appears that he and Summers are working fist in glove (witness the marginalization of Paul Volcker).

At a minimum, Geithner crony capitalist policies are finally leading to a hard look at his loyalties. There is no reason to think Geithner is personally corrupt (well, there was his little tax problem) but rather that he is as die hard a believer of finance uber alles as Alan Greenspan, albeit without the libertarian zealotry.

Of course, if one were Machiavellian, this move may be Team Obama realizing rather late that they have made the success of Obama’s presidency contingent on the Summer/Geithner program, and now they are trying, even more so than before. to pin the policies on Geithner. That may work tactically but in the end, the banking mess is too central a problem for Obama to try to shift blame of policy failures onto his team. He picked the chefs, he has to eat the cooking. If the economy is still a mess in 2012, he will not escape the taint.

And as much as this piece signals that Geithner may be starting to be perceived as a liability, it seems unlikely that he is in serious trouble yet. Sadly, the programs have to flounder first (although with the PPIP, that could happen sooner rather than later…..).

And while the Times piece finally points to the elephant in the room, namely, how bankster friendly the new regime has been, it is far less pointed than it could have been. I suppose one has to treat Treasury secretaries with kid gloves The questionable incidents and relationships are diluted by a lot of narrative. But recall we never saw anything remotely like this treatment (save lots of grumblings) about Hank Paulson. Of course, handouts to the big end of town was standard operation in the Bush administration, so it was hard to work up much outrage about it (at least until the heinous TARP).

From the New York Times:

Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.

Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele A. Smith, then an assistant Treasury secretary.

The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars…..

Yves here. The story fails to note this was almost assuredly the most bank friendly program possible. Back to the story:

But in the 10 months since then, the government has in many ways embraced his blue-sky prescription….

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.

Rodg Cohen is the managing partner of Sullivan & Cromwell, which has long had an extremely close relationship with Goldman. Rodg is also considered to be the top bank regulatory lawyer in the US. It may seem like too much inside baseball to point out who Rodg is in more detail, but the fact that the Times quoted him as a defender of Geithner is telling. Back to the article:

Today, Mr. Geithner ….finds himself a locus of discontent… range of critics — lawmakers, economists and even former Federal Reserve colleagues — say that the bailout Mr. Geithner has played such a central role in fashioning is overly generous to the financial industry at taxpayer expense.

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions….

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

In a pair of recent interviews and an exchange of e-mail messages, Mr. Geithner defended his record, saying that from very early on, he was “a consistently dark voice about the potential risks ahead, and a principal source of initiatives designed to make the system stronger” before the markets melted down.

Yves here. Revisionist history. See here and note the date of the speech. Back to the article:

Traditionally, the New York Fed president’s intelligence-gathering role has involved routine consultation with financiers, though Mr. Geithner’s recent predecessors generally did not meet with them unless senior aides were also present, according to the bank’s former general counsel.

By those standards, Mr. Geithner’s reliance on bankers, hedge fund managers and others to assess the market’s health — and provide guidance once it faltered — stood out.

His calendars from 2007 and 2008 show that those interactions were a mix of the professional and the private.

He ate lunch with senior executives from Citigroup, Goldman Sachs and Morgan Stanley at the Four Seasons restaurant or in their corporate dining rooms. He attended casual dinners at the homes of executives like Jamie Dimon, a member of the New York Fed board and the chief of JPMorgan Chase.

Yves here. Presumably someone who was or is at the NY Fed who was plenty upset at the goings-on provided the calendar. Anyone who knows the NY Fed is encouraged to comment, but for a private company, this would be a major breech, and the Fed has to be at least as secretive. The Times has open sourced Geithner’s calendar and is asking for further remarks.

Update: A reader pointed out the Times obtained the calendar via the Freedom of Information Act, but I still find this curious. I haven’t recalled seeing a calendar analysis in a major news story before. Either the journalists were unusually creative or someone suggested this angle of investigation (I suspect the latter). Moreover, the Fed has successfully fought back disclosure at the NY Fed level, claiming it is a private company, but since the Board of Governors would clearly also have the calendar (and it is deemed to be subject to FOIA), they must have pursued this angle. That further suggests that this inquiry has been some time in the making. Back to the article:

…for all his ties to Citi, Mr. Geithner repeatedly missed or overlooked signs that the bank — along with the rest of the financial system — was falling apart. When he did spot trouble, analysts say, his responses were too measured, or too late.

In 2005, for instance, Mr. Geithner raised questions about how well Wall Street was tracking its trading of complex financial products known as derivatives, yet he pressed reforms only at the margins…..

To Joseph E. Stiglitz, a Nobel-winning economist at Columbia and a critic of the bailout, Mr. Geithner’s actions suggest that he came to share Wall Street’s regulatory philosophy and world view….

In theory, having financiers on the New York Fed’s board should help the president be Washington’s eyes and ears on Wall Street. But critics, including some current and former Federal Reserve officials, say the New York Fed is often more of a Wall Street mouthpiece than a cop.

Willem H. Buiter, a professor at the London School of Economics and Political Science who caused a stir at a Fed retreat last year with a paper concluding that the Federal Reserve had been co-opted by the financial industry, said the structure ensured that “Wall Street gets what it wants” in its New York president: “A safe pair of hands, someone who is bright, intelligent, hard-working, but not someone who intends to reform the system root and branch.”….

Throughout the spring and summer of 2007, as subprime lenders began to fail and government officials reassured the public that the problems were contained, Mr. Geithner met repeatedly with members of Citigroup’s management, records show
From mid-May to mid-June alone, he met over breakfast with Charles O. Prince, the company’s chief executive at the time, traveled to Citigroup headquarters in Midtown Manhattan to meet with Lewis B. Kaden, the company’s vice chairman, and had coffee with Thomas G. Maheras, who ran some of the bank’s biggest trading operations.

(Mr. Maheras’s unit would later be roundly criticized for taking many of the risks that led Citigroup aground.)

His calendar shows that during that period he also had breakfast with Mr. Rubin. But in his conversations with Mr. Rubin, Mr. Geithner said, he did not discuss bank matters. “I did not do supervision with Bob Rubin,” he said.

Yves here. Of course not. Rubin knew nothing about anything bad and was determined to keep it that way. Back to the piece:

In a May 15, 2007, speech to the Federal Reserve Bank of Atlanta, Mr. Geithner praised the strength of the nation’s top financial institutions, saying that innovations like derivatives had “improved the capacity to measure and manage risk” and declaring that “the larger global financial institutions are generally stronger in terms of capital relative to risk.”

Two days later, interviews and records show, he lobbied behind the scenes for a plan that a government study said could lead banks to reduce the amount of capital they kept on hand.

The story continues with many of the key decisions of the crisis. The narrative detail has the effect of somewhat dliuting the focus on what Geithner did when, but it also highlights some now largely forgotten incidents like no-bid contracts to BlackRock (most notably, managing the assets the Fed took on in the Bear Stearns deal). And it has some new revelations:

A bill sent recently by the Treasury to Capitol Hill would give the Obama administration extensive new powers to inject money into or seize systemically important firms in danger of failure. It was drafted in large measure by Davis Polk & Wardwell, a law firm that represents many banks and the financial industry’s lobbying group. Mr. Geithner also hired Davis Polk to represent the New York Fed during the A.I.G. bailout.

Treasury officials say they inadvertently used a copy of Davis Polk’s draft sent to them by the Federal Reserve as a template for their own bill, with the result that the proposed legislation Treasury sent to Capitol Hill bore the law firm’s computer footprints. And they point to several significant changes to that draft that “better protect the taxpayer,” in the words of Andrew Williams, a Treasury spokesman.

But others say important provisions in the original industry bill remain. Most significant, the bill does not require that any government rescue of a troubled firm be done at the lowest possible cost, as is required by the F.D.I.C. when it takes over a failed bank.

This is damaging in the eyes of the great unwashed. But there is nothing here that was presumably not fully known by the Obama vetters. This storm, like the tax fracas, will pass. But Geithner is nevertheless looking more and more like damaged goods.

This story now makes official what only those who kept tabs on these matters knew, that Geithner is captured by the industry. It will now be much easier for Obama to cut Geithner loose should that prove necessary. But with Summers still in the mix, I’m dubious that even an outster of Geithner would produce much of a change in policy direction.

Update 3:30 PM Apologies for the headline, now corrected. Some weird problems with posting today, in that a post did not go up and a repost (with correction) did not take.

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46 comments

  1. nowhereman

    I cried when Obama made these appointments. Summers, Geitner and keeping Barnanke. I knew all was lost. And now I watch as the whole thing falls apart. Maybe the NYT, being in the financial difficulty it finds itself has finally decided to start reporting the news regardless of the media conglomerate ownership in America, perhaps to save itself.

  2. Steve

    I assume this came to the NYT from somewhere in the administration (perhaps it’s Summers’ fist showing through his sock-puppet Geithner). Summers today was preparing public opinion for worsening employment numbers. Geithner will be the fall-boy. And then Obama will replace him with someone much the same.

  3. Richard Kline

    So the banking industry dictates a Stealout Continuance Bill, sends it to the Secretary of the Treasury, who clumsily changes the letterhead and forwards it to Congress for rubberstamping. Oh yes, it talks about ‘seizures’ so that those mooks in the Leg Branch can make the right noises to their constituents, but the real function is to vote more money for corporate fascist banks, amounts neither specified nor limited. We all knew that Federal finance has been completely seized by the banksters in a soft coup, but here we see its naked gun for hire or loan.

    I think it is not perceived amongst Prez O’s inner circle that the Banker’s Stealout is a political plague dog: all who shake its paw get buboes all over their career. Bo Prez doesn’t have two years to get it right; he doesn’t have one year. And it he is to salvage his own narrow tochus somebody needs to go to the guillotine in the immediate future. Geithner is the one who’s come down with the Green Plague, so he’s the obvious choice—and this will play better than one supposes. Remember how much heat Rumsfeld’s heave took off the last Admin? How when they should have been crucified subsequently they let Rove go, and got political space? These things work.

    The remarkable aspect about Geithner to date is his inability to give a straight and meaningful answer to anyone on anything. Now, that is in part a function of the script’s he’s given to read, but in part also his own complete unsuitability for a political management position. I doubt that he has the least shred of credibility in Congress, and his ass would be in a crack there but for the fact that Demos are in charge and they’re committed to working close with a Demo Admin. _Congress_ needs some cover in a hurry on this, and the smoke from the involuntary immolation of Timmy the G-Man may be their first demand. He will just be replaced by another puppet on the same string, but once head’s start to roll it’s hard to stop the vector. And if anyone is keeping tabs, it’s clear that when pressed Obama’s feet start pedaling backwards in a hurry.

  4. Carrick

    Here’s more speculation, for the hell of it…
    Maybe the story was put out there to raise enough public pressure on Geithner, that he’ll have the cover to “sorry I gotta do this, guys” push the banks around.. sort of a good cop scenario.
    “I’m the best you’re gonna get, fellas, and my back is to the wall now! If you don’t play a little ball, they’re gonna send in Volker!”

    I really doubt it, since there’s no heavy info here that the WH could have leaked to prompt the story. Unless they’ve got the Times so deep in their pocket that they can block or request a story like this. File this under brainstorming or wishful thinking.
    Knowing that the tea parties didn’t make waves, and general populism has chilled a bit, the Times saw they could run an obvious story w/o giving the Administration anything they didn’t deserve, or couldn’t handle.
    And most importantly, they could print it before a rival saw what time it was too and beat them to the punch. Half the story here, is that the NYTimes wrote it — this wouldn’t get much more than a shrug was it in the Washington Times.

  5. Matt

    http://hedgedbet.blogspot.com/2009/04/geithner-is-wall-streets-guy.html

    Interestingly a lot of these quotes seem to come from FDIC people, defending Sheila Bair and showing how concerned she is about protecting the taxpayers. Seems as though the FDIC isn’t too enthused about being used to lever up private investors for the PPIP.

    The fact that the article quoted Stiglitz, Buiter, and Roubini is interesting too. Whoever pushed this story seems sympathetic to liberal critics who have called for receivership and restructuring of insolvent banks. We can only hope that whoever has an axe to grind with Geithner gets more influence over policy.

  6. VG Chicago

    I’m a little confused about the title of this post: “Are the Knives are Coming Out for Geithner?”

    What is it, exactly? Are knives coming out? Is Geitner coming out [of the closet]? What’s going on here. Can somebody help me understand, please?…LOL

    Vinny GOLDberg

  7. DiverCity

    A minor quibble: Greenspan is no libertarian; he was and is that strange creature known as a Randian or an objectivist. Whilst these “rationalists” have some libertarian tendencies and advocate for free markets, they decidedly don’t have and indeed despise the populist tendencies that help check capitalism.

  8. joebek

    It’s hard to figure this at this point. It had seemed that Geithner had weathered the storm and it is not clear what the next storm might be. Maybe sacking Geithner will provide cover for Bernanke in the Merrill/BofA scandal?

  9. Dikaios Logos

    Lashing out at the press is very important. Big media is even more an Ivy League clique than the banks. The days of lower middle class muckrakers is long gone. Now you have the current group of journos which just try to protect the status quo. BTW, I know a bunch of these people personally. They were good at school but tend to be utterly oblvious to the trangressions of members of their own class.

    As for Geithner, that tax thing was BS. Every American at the IMF/World Bank knows that their taxes are funny. But Obama might be wisely using Summers/Geithner to get the banks’ political playbook. This is speculation on my part, but it would be one good reason to go this path. I also try to imagine that Obama’s reading of Lincoln is at work here. Lincoln found the right people to fight the last clique of unapologetic rent seekers to imperil the county by patiently exhausting conventional wisdom. He ultimately found Grant and more importantly Sherman (a truly great man) who saw that extreme measures necessary and implemented them.

  10. Koshem Bos

    We shouldn’t forget the social and personal cost of Geithner’s errant policy. Reviving the banks through an infusion that comes out of the pockets of all salaried American means that the standard of living of these people will be lowered substantially as a result of the heavy debt burden of the country.

    Furthermore, it accelerates the speed in which our society divides into the haves and have nots. That is a major catastrophe that irresponsible people like Geithner bring about.

    Finally, Geithner’s/Obama’s bailout guarantees that we will repeat the financial collapse in about ten years and probably in much worse form.

  11. Fred

    Geithner is in trouble, but not for the reasons you surmise. The key issue for WS lobbyists currently is repayment of the TARP funds.

    Banks and i banks want to repay the funds and retire the warrants on terms that depart from TARP Term Sheet. The Hill wants to let them do it because there is significant public pressure to get some money back for the taxpayer. The reason the repayment terms being offered are bad for taxpayers is complicated and being spun as more WS financial mumbo jumbo. The COP is still cleaning up the underbrush from the first round of TARP funding and not in a position to focus on this new proposed fleecing of the taxpayer. Warren – as good as she is – explicitly sees her role as reviewing what has been done and setting ground rules for how administrative decisions are made, not getting in the middle of a current fight. Sensible position.

    The TS is personally responsible for the repayment decision under key legislation. Both the Hill and WS want Geithner to own the decision so they have clean hands. If he accepts the repayments he survives for a while until the COP does the math on the warrants and discovers that another $XX billion in value has gone missing. If he does not accept the repayments he departs more quickly and a new TS is brought in with the “experience and judgement” needed to make the “tough decisions” Paulson style.

    Forget the inside baseball silliness on draft legislation metadata as being anything other than an attempt by reporters to try to prove they are seeing the trees while missing the forest. The story here is that the Hill and WS are both cooperating with stories like this because they need the TS to bless this next move.

    Logic would dictate that Geithner goes along with the repayment proposals. The likelihood that the COP can effectively explain – in open sessions of Congress – why getting TARP money repaid was bad for taxpayers is low. Therefore better for Geithner to live to fight another day.

  12. Annie

    Geithner’s father and Obama’s mother both worked in Indonesia for the Ford Foundation. They go way back…..I’d be surprized if Obama dumped Geithner any time soon.

  13. Greg

    “But with Summers still in the mix, I’m dubious that even an outster of Geithner would produce much of a change in policy direction.”

    This is such an understatement that it seems naive. You have me scratching my head because you even made the statement:

    “This is damaging in the eyes of the great unwashed. But there is nothing here that was presumably not fully known by the Obama vetters.”

    Go back and look at Obama’s appearance on Jay Leno last month (it seems more like a year). Obama framed Geithner to take responsibility to such a degree that Leno joked about it and said something like “wait a minute…” (that should have been the big story but all anybody talked about, even his supposed detractors was the Special Olympics comment).

    If you want to talk elephants, then the biggest is Obama, and he’s supposed to be a donkey. You said it yourself in so many words that Obama picked Geithner with full knowledge regarding who is was. He most likely picked Geithner because of his history of being close to Wall Street. Then he drapes it in the “Team of Rivals” mythology that the media and therefore public eats up.

    Team Obama has been working this distancing between Obama and Geithner since day one. If all slips under taxpayers noses without too much of a grumble (which most of it has), then Obama can swoop in and take the credit. If it explodes in their faces, they’ll pull a Geithner and let him dangle in the wind, while Obama finally quotes Shakespeare (he’s saving that up).

    The bottom line is that Obama should be getting the majority of the press and questions rather than be allowed to hide in the shadows and hand pick his publicity photos.

  14. Jim T

    I'm sorry, but Prez Obama doesn't GET A FREE PASS out of this mess just by dumping Geithner!

    SUMMERS & BERNANKE need to go too as they have fully supported and have contributed to these NEW OBAMA POLICIES / OLD BUSH POLICIES – OF RIDICULOUSLY BANKER FRENDLY BAILOUTS! (At Our Expense)

    Tim Geithner's appointment should never have happend. He was a PROVEN FAILURE at his job as Prez of the NY Fed for 5 years before OBAMA REWARDS HIM with the appointment to SEC of TREASURY! Why?

    REWARDING FAILURE! Not a good policy, so I think Obama REALLY NEEDS TO WEAR this BLACK EYE! (It's going to cost tax payers BILLIONS)

    The MSM has given him a free pass on everything else he has stuffed up (Release of CIA Memos, etc….) it's high time he starts wearing his errors!

    Open your eyes America, THE EMPEROR IS NAKED!

  15. Lee

    “Treasury officials say they inadvertently used a copy of Davis Polk’s draft…”

    “inadvertently?” what the hell does that mean? “Oh we had this Word document sitting on our hard drives and didn’t want to draft a new document from scratch.” And — quelle surprise — it was a draft from the most powerful law firm in the world. Whoulda thunk it.

    Why is that sentence unsourced?

  16. Edwardo

    First things first, and pardon my pedantry, but the following sentence,

    “So to see a front page, and super long story in the New York Times honing in on Geithner’s close…”

    misuses the word honing. It’s homing that is required in this context.

    Sending Geithner packing would be a welcome sign that perhaps, just perhaps Obama had, to put it indelicately, grown a pair.

    Wht is really required, for starters, is an indictment against Bernanke.

  17. VG Chicago

    I hate to break the news to you, guys and gals, but Geithner isn’t going anywhere.

    Let me restate that again, in case some still cannot accept this simple reality: Mr. Geithner, the tax cheat, is not going to be relieved of his duties anytime soon. President Obama will not allow that to happen. Is that clear now?

    Now, if that’s still hard to swallow please allow me to illustrate with an example from recent history. Do you remember the disastrous Iraq war led by the incompetent old fart imbecile known as Donald Rumsfeldt? How many years of public outrage, and how many American lives have been lost, and how many hundreds of billions of dollars have been wasted because of his sheer incompetence, ignorance, and obvious corruption. Did all that matter? No, it did not. The reason is that the other incompetent leader known as “W” did not allow him to be replaced. Please understand that these people, will sacrifice the country in a heartbeat for their allegiances.

    So now let us all put this issue to rest, let us accept that our country will be bankrupted and sacrificed for the friendship of Obama and Geithner (and their respective mothers), and let us all change the topic of discussion to more urgent matters.

    I’ll give you a coffee talk topic: “Swine flu emergency response to a global swine flu pandemic in the context of sheer government greed and incompetence. Contrast and compare the benefits of the swine flu pandemic over total economic collapse.”
    Talk amongst yourselves!

    Vinny GOLDberg

  18. LeeAnne

    so, now Geithner -next to go Summers. And then what? who? Its so frustrating that we have no leaders. Would anyone from the corporate sector step up? Everyone’s tainted in a system like this. That’s probably why we have these little twits running things. Who’s to stop them?

    Yves, I miss your links this morning -makes me appreciate the work you do more. I offer the following on the flu:

    Here we go from this morning’s Apr 27, 2009 7:30 am US/Eastern

    CBS 2 News This Morning on the Internet
    =”http://wcbstv.com/cbs2crew/swine.flu.st.2.995247.html”Francis Prep Responds To Swine Flu OutbreakThis wording isn’t fear mongering and irresponsible?
    “The stringent cleaning comes after eight of its students were confirmed to have the sometimes deadly swine flu.”

    A responsible media would be headlining in bold “wash your hands” and “don’t hold hands.” And take precautions. Every year the flu brings death statistics.

    This is a new flu. There are no reported cases of death from this flu in the US.

    A vaccine has to be developed as quickly as possible and distribution improved. Government resources need to be concentrated on that task.

    All media and TPTB must be called out on wording that fans the flames of fear.

    I’m afraid we can look forward to more of this.

  19. Alex

    The reference to your East European friend is apt, as the US is looking more and more like Russia with each passing day.

    I look at the events unfolding as largely parallel to the consolidation of the energy industry by Putin in the early ’00s. Energy is to Russia as finance is to America, and the respective national security apparatuses won’t let a bunch of self-interested oligarchs run their countries into the ground through their control of these critical industries!

    Oligarchs that understood what was happening in Russia compiled, others were put in jail or exiled for “tax evasion”.

    Due to the rapidly shrinking pie in the US, more oligarchs will need to be sacrificed; Geithner probably has his resignation speech already prepared for him.

  20. happyashell

    Is President Obama Making A Mistake?

    The Means Of Exchange

    How to Stimulate the Economy Without a Huge Deficit!

    Our economy has been turned upside down. Instead of the enterprise-capitalistic economic system providing the needs of the citizens, the government is attempting to provide employment, social programs and stimuli, for our economy, with a huge deficit. Because of the government’s excessive spending, the government will have to either raise taxes or create inflation to pay off the in creased debt. A problem arises when Congress cannot keep their hands of the increased revenues when the economy comes out of recession and taxes are raised to decrease the debt. Instead of paying down the debt, they re-inject the money into the economy, thur programs and expenditures, increasing the money supply, creating an inflation economic crisis, that the increased taxation was designed to prevent. If you would like to read the rest of the economic policy paper go to: hppt://economysflaw.wordpress.com Other policy papers by the author: Repeating The Mistakes Of The Great Depression, Zero Inflation Taxation Policy, Alternative Economic Stimulus Plan, How To Stablize The Value Of Your Home, Reduce Oil Imports Without Cap And Trade, and other papers. Leonard C. Tekaat

  21. Doc Holiday

    VG,

    RE: I'm a little confused about the title of this post: "Are the Knives are Coming Out for Geithner?"…

    What is it, exactly?

    > Actually, what is this may be a better way to think of this than what it is: I think this was to be an old song about Chicago mobsters, sung to the tune of The Saints come Marching, but then it seems to have morphed into a new hybrid of jazz fusion which mixes lyric "parts" together by using the word are to confuse present-tense subject matter, which is obviously related to the text in terms of Knives & Geithner. I find this new art form both appealing and refreshing and enjoy shifts in time related to insulting people both then and now! It is Wunderbra!

  22. DownSouth

    Yves said: “There is no reason to think Geithner is personally corrupt (well, there was his little tax problem) but rather that he is as die hard a believer of finance uber alles as Alan Greenspan, albeit without the libertarian zealotry.”

    True believers are at least as dangerous as those motivated by greed. Perhaps Eric Hoffer put it best:

    The monstrous evils of the twentieth century have shown us that the greediest money grubbers are gentle doves compared with money-hating wolves like Lenin, Stalin, and Hitler, who in less than three decades killed or maimed nearly a hundred million men, women, and children and brought untold suffering to a large portion of mankind…

    Whoever originated the cliche that money is the root of all evil knew hardly anything about the nature of evil and very little about human beings.

  23. LeeAnne

    sorry about the formatting. Preview removes/changes it.

    sorry about formatting lost in preview. correction:

    Here we go– from this mornings Apr 27, 2009 7:30 am US/Eastern

    CBS 2 News This Morning on the Internet. IMHO media capture.

    ABC NEWSFrancis Prep Responds To Swine Flu OutbreakIs this wording fear mongering and irresponsible? Is this an opportunity for Tamiflu investors to cash in?

    “The stringent cleaning comes after eight of its students were confirmed to have the sometimes deadly swine flu.” A responsible media would be headlining in bold “wash your hands” and “don’t hold hands.” And take precautions.

    There are no reported deaths from this flu in the US. Tamiflu is taken as a remedy only after symptoms are present. It is not a vaccine. If this is an emergency, the emergency is for government to authorize funds to develop a vaccine as quickly as possible (as always) and improve distribution. Problem is financial incentives for responding to public needs have been shattered Banana Republic style.

    I’m afraid that temptation to distract from economic woes is too great for guv to resist and calls for pushing back on tricky rhetoric – sound bites, headlines and ambiguous statements whose purpose is to create fear rather than solutions. Can we demand accurate reporting with verifiable facts?

  24. Luke Lea

    Let us hope Obama is like Lincoln, looking for a competent general to lead his army. He chose Geitner for the same reason Lincoln chose George B. McClellan, because he was there and seemed like the obvious choice at the time.

    The more interesting question is where will Obama find his Grant? Among the personell of the regional Federal Reserve banks? Regional bankers who have managed their banks well all along and have manifested the necessary talent and ability.

  25. Doc Holiday

    This is a public service post, or maybe more like an FYI, but can also be related to government and wall street swine:
    Absolute humidity modulates influenza survival, transmission, and seasonalityInfluenza A incidence peaks during winter in temperate regions.
    In temperate regions, both outdoor and indoor AH (absolute humidity) possess a strong seasonal cycle that minimizes in winter. This seasonal cycle is consistent with a wintertime increase in IVS (influenza virus survival) and IVT (influenza virus transmission) and may explain the seasonality of influenza.

    >> I'm not a friggn doctor, but it would seem that summer weather will play a critical role in where this flu may be able to travel, i.e, environment and climate will probably play a role in transmission in regard to humidity — but I'm just a blogger… so wash your hands and stay healthy!

  26. VG Chicago

    DownSouth,

    You’re absolutely correct. It’s not the money-grabbers that have caused the most suffering in history – it’s the idealist tyrants that have inspired the foolish masses to follow them in their empty pursuits and grand visions. The pursuits and visions all failed, but the human suffering was immense.

    The best description I’ve heard of this type of people (the truly dangerous ones) was given in “Dr. Zhivago” by Komarovsky, who explain what people like Pasha are all about – they are inherently unhappy people that somehow inspire the masses, are idealized by most, yet cause incredible amounts of pain to those around them.

    The human unconscious is full of powerful archetypes that can easily be transposed on certain individuals. We have inherited these archetypes genetically, most come form our darker distant pasts, and are largely beyond rational understanding (much like human unconscious is). We can’t help but look for saviors at every corner. Hitler was able to masquerade and draw upon such archetypes, and the fools that followed him could not help but do so simply because he reached deep into their minds and drew on little-understood psychological forces that are best left undisturbed. Religious cult leaders often do that too, usually with disastrous results.

    It is important to know that human beings remain inherently foolish, evil, and dangerous, and there is very little truth and goodness on this planet. Having said that, not trusting our leaders is a good place to start in order to minimize the damage they are certain to inflict.

    Vinny GOLDberg

  27. VG Chicago

    Doc Holiday,

    I enjoyed your insightful remark that this pandemic was caused by Wall Street swine in cahoots with the government.

    I would like to take this further, and propose the hypothesis that the swine flu actually started from pigs that gradually morphed into human beings. To further prove the accuracy of my theory, I now quote a detailed description of this process:

    “The creatures outside looked from pig to man, and from man to pig, and from pig to man again: but already it was impossible to say which was which.” (“Animal Farm” by George Orwell – the very last paragraph in the book).

    So there, it’s now settled — the swine flu was caused by Wall Street banksters.

    Vinny GOLDberg

  28. DownSouth

    DiverCity said… “A minor quibble: Greenspan is no libertarian; he was and is that strange creature known as a Randian or an objectivist. Whilst these ‘rationalists’ have some libertarian tendencies and advocate for free markets, they decidedly don’t have and indeed despise the populist tendencies that help check capitalism.”

    There may indeed be several intellectual pathways one can follow to becoming libertarian. Embracing the New Atheism of Rand or the Four Hosemen is one. Another is to embrace the Pollyannish belief that the competition of interests in society will make for justice without political or moral regulation. As Reinhold Niebuhr noted, this “would be possible only if the various powers which support interest were fairly equally divided, which they never are.”

    But regardless of the mental pathway one follows to arrive at libertarianism, to argue that the philosophy is pro-democratic is misguided at best, and an outright deception at worst.

    I found an obscure essay by Niebuhr, “The Children of Light and the Children of Darkness,” where he explains. I have excerpted the more pertinent passages:

    Most of the democratic ideals, as we know them, were weapons of the commercial classes who engaged in stubborn, and ultimately victorious, conflict with the ecclastical and aristocratic rulers of the feudal-medieval world… The middle classes defeated the combination of economic and political power of mercantilism by stressing economic liberty, and, through the principles of political liberty, they added the political power of suffrage to their growing economic power…

    Bourgeois democracy frequently exalted the individual at the expense of the community, but its emphasis upon liberty contained a valid element, which transcended its excessive individualism. The community requires liberty as much as does the individual, and the individual requires community more than bourgeois thought comprehended. Democracy can therefore not be equalied with freedom. An ideal democratic order seeks unity within the conditions of freedom; and maintains freedom within the framework of order…

    The democratic ideal is thus more valid than the libertarian and individualistic version of it which bourgeois civiliztion elaborated…

    If democracy is to survive it must find a more adequate cultural basis than the philosophy which has informed the building of the bourgeois world. The inadequacy of the presuppositions upon which the democratic experiment rests does not consist merely in the excessive individualism and libertarianism of the bourgeois worldview…

    [T]here is a more fundamental error in the social philosophy of democratic civilization than the individualism of bourgeois democracy and the collectivism of Marxism. It is the confidence of both bourgeois and proletarian idealists in the possiblity of achieving an easy resolution of the tension and conflict between self-interest and the general interest…

    Modern civilization did indeed seek to give the individual a greater freedom in the national community than the traditional feudal order had given him; and it did seek to free the nations of restraints placed upon their freedom by the international church. But it never cynically defied the general interest in the name of self-interest, either individual or collective… In the field of domestic politics the war of uncontrolled interests may have been the consequence, but it was certainly not the intention, of middle-class individualists… They did not make the mistake…of giving simple moral sanction to self-interest. They depended rather upon controls and restraints which proved to be inadequate.

    In illuminating the important distinction more fully, we may well designate the moral cynics, who know no law beyond their will and interest, with a scriptural designation of “children of this world” or “children of darkness.” Those who believe that self-interest should be brought under the discipline of a higher law could then be termed “the children of light.” This is no mere arbitrary device; for evil is always the assertion of some self-interest without regard to the whole, whether the whole be conceived as the immediate community, or the total community of mankind, or the total order of the world… The “children of light” may thus be defined as those who seek to bring self-interest under the discipline of a more universal law and in harmony with a more universal good…

    Our democratic civilization has been built, not by children of darkness but by foolish children of light. It has been under attack by the children of darkness, by the moral cynics, who declare that a strong nation need acknowledge no law beyond its strength. It has come close to complete disaster under this attack, not because it accepted the same creed as the cynics; but because it underestimated the power of self-interest, both individual and collective, in modern society. The children of light have not been as wise as the children of darkness.

    The children of darkness are evil because they know no law beyond the self. They are wise, though evil, because they understand the power of self-interest. The children of light are virtuous because they have some conception of a higher law than their own will. They are usually foolish because they do not know the power of self-will. They underestimate the peril of anarchy in both the national and the international community. Modern democratic civilization is, in short, sentimental rather than cynical. It has an easy solution for the problem of anarchy and chaos on both the national and international level of community, because of its fatuous and superficial view of man.

  29. lambert_strether_openid

    I thought only Republicans sent bills to the Hill that were drafted by lobbyists. Color me shocked.

  30. kackermann

    The remarkable aspect about Geithner to date is his inability to give a straight and meaningful answer to anyone on anything…But that is what Congress demands. Please cite one example of congress demanding the truth that does not involve a baseball player.

    In fact, please cite one example of any elected official getting anything right, or doing the right thing. We don’t work that way anymore.

    Why does everybody think Obama picked Geithner?

    There is no way Obama could accidentally say so many intelligent things and be a moron. Therefore, the economic team he ended up with looks suspiciously pressed on an intelligent, but compromised president.

    If Protect-the-Bondholder was a game of twister, this team would all be bent over backwards, each with their head planted firmly up the other guys ass.

  31. Richard

    excellent post, this was precisely my reaction when I came across the article this morning

    if I had to guess, I’d say that David Axelrod had something to do with it, as he has been opposed to the bailout on political grounds

  32. sabordelmar

    Greenspan is in no way a Randian, and to suggest so shows a complete ignorance for what Objectivism is and what it advocates. Greenspan, once a staunch advocate of the gold standard, parted with the Objectivist movement when he fell in love with politics and pandering– and suddenly he favored fiat currency, an unelected, unsupervised central bank, and rampant adventures in monetarism. People villify Greenspan for advocating deregulation, but his most disastrous contribution was to embrace the most Leviathan form of regulation there is: control of the money supply.

  33. Hugh

    The Times article is damning but Yves is correct it does not go far enough.

    Geithner is the boy who failed upward. He is the kid who made his reputation by completely screwing up the response to the Asian banking crisis. As head of the NY Fed, he had one of the best seats in the world to see the housing bubble and financial meltdown coming and he missed both of them. He then helped engineer ineffective and increasingly expensive responses to the meltdown. His primary goal in all this has been to prop up at any cost a financial system which runs from the corrupt to the criminal.

    Reports in the media are now saying the worst is over. But these are coming from sources that like Geithner have been wrong at every turn. I have lost track of the number of false dawns that have been announced.

    But so much of the recovery is based on easy money from Geithner’s programs like the PPIP and TALF which are falling apart before they even begin. So really where is this upturn supposed to be coming from?

    The math that odd curiosity that no one in a position of power takes seriously still says that Obama-Summers-Geithner are not going to get us out of depression. There may be some moderation in the descent in 2010 because of the stimulus and what programs are currently on the table, but for so many reasons: the failure to fix the fundamentals, reform the financical system, help homeowners and other debtors, move beyond the paper economy, re-industrialize sustainably the real economy, the likelihood is that we will be back where we are now in 2011, deeper in debt, with fewer tools to try a different more effective approach.

    And at that point our elites will no doubt tell us with a straight face, despite all our warnings, that no one could have predicted this.

  34. Adam Young

    Yves, thank you for this post, so well written and fascinating. I think there is a slow awakening to crony capitalism and “finance uber alles” mentality (deftly put)…I am engrossed in how it will play out and how it make even the casual observer more keen to the fact that the mainstream media are now “lagging indicators.” Awesome.
    -Adam
    http://www.thebarricadeblog.com

  35. Carrick

    I posted a comment in the previous Links post, in regards to the Clusterstock story about the high financial cost an influenza pandemic. The comment mentioned McCain’s Senate floor speeches about the uselessness of pandemic influenza funds, and money to study Colony Collapse Disorder.

    Anyway, there were successful..
    the GOP did strip the pandemic flu money from the Stimulus Bill…

    http://www.huffingtonpost.com/2009/04/27/gop-stripped-flu-pandemic_n_191732.html

  36. Warm, Dry and Well Fed

    I beg to differ with Yves on the meaning of the Rodgin Cohen quote. When Cohen calls Geithner the regulator most willing to “push the envelope” I don’t take that as a ringing endorsement. A test pilot pushes the envelope for a living; the Director of the New York Fed doesn’t. And Cohen is willing to be quoted. It sounds a bit like the usual “But he was pushing the envelope” comment we here after a crash.

  37. Yves Smith

    Warm, Dry,

    If you read the context, it was in Geithner pushing a very pro industry position, namely, backstopping the bondholders. The Fed’s creative facilities have also propped up markets, which could be argued to have been a necessary short term expedient, but there is no will to do more.

    More to the point, the Fed has largely abandoned its regulatory responsibilities. Geithner was most assuredly not pushing a pro regulatory agenda at the NY Fed, In fact, in a March 2007 speech, he basically claimed the regulators could not do anything about financial innovation!

  38. mejustme

    “The New York Times obtained this calendar through a Freedom of Information Act request.”

  39. Juan

    But it ['modern civilization'] never cynically defied the general interest in the name of self-interest, either individual or collective…so niebuhr denies the collective self-interest of class and in doing so pretends away relations of class and state…all in the name of ‘modern civilization’ and ‘democracy’ — or am i perhaps too cynical w/his notion of ‘modern society’ never defying itself.

  40. Doc Holiday

    This stuff {(Milton Friedman’s book Essays in Positive Economics (1953)} really fits in here with the visuals of knives and guillotines, which is part of the extra credit portion for Yves Economic Class today, which is based on the loss theory of disembowling wall street pirates and political stooges (IMHO):

    FYI: The essay argues that economics as science should be free of normative judgments for it to be respected as objective and to inform normative economics (for example whether to raise the minimum wage). Normative judgments frequently involve implicit predictions about the consequences of different policies. The essay suggests that such differences in principle could be narrowed by progress in positive economics…

    From: Essays in Positive EconomicsAlso see: Normative economics:

    In a famous and controversial passage, Friedman writes (of TARP and all this retarded stupidity) that:
    Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense) (p. 14}.

    Also see and hear: Heads Will Roll

  41. DownSouth

    Juan,

    But I think Niebuhr has been vendicated by history.

    At the time he wrote his essay, the “Catholic pholosophers and medievalists” were asserting that, once the commandments of the Church had been disregarded, the result was a slippery slope that could end nowhere but in secular regimes such as those that existed in Nazi Germany or Soviet Russia. Niebuhr, however, was arguing that these were not inevitable.

    And he was proven right. In the United States, instead of secular tyranny, a new secular “religion of social salvation” evolved. Frederick Lewis Alen describes it as follows:

    [O]ne can hardly deny that the shock of the Depression did not find the churches, by and large, able to give what people thought they needed.

    Yet in the broader sense of the word religion–meaning the values by which people live, the loyalties which stir them most deeply, the aspirations which seem to them central to their beings–no such shock could have failed to have a religious effect. One thinks of the remark of a young man during the dark days of 1932: “If someone came along with a line of stuff in which I could really believe, I’d follow him pretty nearly anywhere.” That remark was made, as it happens, in a speakeasy, and the young man was not thinking in terms of puritan morality or even of Christian piety, but in terms of economic and political and social policy. For such as he the times produced new creeds, new devotions.

    But these were secular.

    Their common denominator was social-mindedness: by which I mean that they were movements toward economic or social salvation–whether conceived in terms of prosperity or of justice or of mercy–not so much for individuals as such but for groups of people or for the whole nation and also that they sought this salvation through organized action.
    ~

    I of course have no way of proving this, but I believe it was, during a difficult time of trial by fire, the embrace of philosophies such as those articulated by Niebuhr that had a lot to do with the United States going the way it did and not following in the footsteps of Nazi Germany or Soviet Russia. As Arthur Schlesinger Jr. noted, Niebuhr was “the most influential American theologian of the 20th century.”

    http://www.nytimes.com/2005/09/18/books/review/18schlesinger.html

    I truly lament what has happened to religion in America. I think Robert Hughes in Culture of Complaint: A Passionate Look into the Ailing Heart of America summed it up best:

    The GOP’s “morality” was all about sex and honoring thy father, and it tactfully avoided other commandments, particularly the one against stealing. Thus one of the prototypical figures of the time was Charles Keating, a Cincinnati businessman with the lantern jaw, piercing eyes and strict ehtical look of the risen cracker-salesman. Keating co-founded the National Coalition Against Pornography, with the intent of saving the innocent from Satan, and became a major agitator for “traditional moral values” in the Midwest. Only later did it appear why Keating was so interested in preserving American innocence: he cheated thousands of innocent people of hundreds of millions of dollars in his manipulations of Lincoln Savings and Loan, though–unlike most of his fellow swindlers in this racket–he went to jail for it.

  42. Doc Holiday

    One last stab at Treasury:

    Neil Barofsky, TARP’s top cop, has Boca Raton rootsWe’re a law enforcement agency,” says Barofsky. “We are here to be a check on the TARP program for taxpayers, to monitor how their money is being spent. We have already initiated criminal investigations, about a dozen of them. They involve securities fraud, mortgage modification fraud, possible insider trading, different types of white collar crimes.”

    Barofsky has also already had some disagreements with other Treasury officials about how best to watch taxpayers’ money. By the time he took the job Treasury had distributed tens of millions of dollars without insisting on a thorough accounting on their use, which didn’t make Barofsky happy.

    Since assuming his new job he has pressed for more stringent auditing and he has rejected the idea that insisting on that documentation will cause bankers to pull out.

    He says so far only CitiBank and Bank of America, two of the institutions that have received the most funds, are being held to his standards.

    “The banks have to be required to report how they use the money,” he says, irritation evident in his tone. “We continue to think that is a very important condition.”

    He has also already drawn grief from bloggers who don’t like him.

    Some accuse him of being a tool of the Bush administration, even though he is a lifelong Democrat. The people he is investigating will probably not be big fans of his either.

    “It may make some people uncomfortable,” he says of his office, “but if they are there to lie, to use deceit or fraud, then it is our job to find them out and to bring them to justice.”

    arofsky wants the people to help him defend their interests. He is asking anyone with information on possible TARP fraud to call an anonymous tip line at 1-877-SIG-2009. SIG stands for special inspector general.

    “It is incredibly important to get information, especially from insiders inside banks and other financial institutions,” Barofsky says. “It is an important way for us to find out about frauds that are being perpetrated. We assure that every tip is getting very serious attention.”

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