By Nathan Tankus, a student and research assistant at the University of Ottawa. You can follow him on Twitter at @NathanTankus
I can’t emphasize enough how satisfying it is to see Timothy Geithner finally leave government. True, it would have been more enjoyable to see him leave in handcuffs, but I take my satisfaction where I can get it.
The unfortunate part about high level government officials who are utter failures leaving government is that when they leave, journalists still fawn over them. Timmy got plenty of interviews from major media outlets but the longest, and thus most nauseating, came from the Wall Street Journal. Reading it is like watching a horror movie where everyone knows what’s about to happen to the character and are trying to warn him/her through the screen. Except in this horror movie I’m throwing my hands in the air and saying “that lie was debunked years ago!” I don’t have the patience to go through each and every lie told in this interview, but I’d like to hit on the major ones.
Crisis as “Exogenous Shock”
To repeat a theme on Naked Capitalism, this crisis wasn’t, and most crisis aren’t, are exogenous shocks. They come from variables endogenous (internal) to the system at hand. It’s easy however, for policymakers to frame their responses to crises as responses to external trauma. First, it removes the agency of important players from within the private sector and the public sector. Second, it portrays whatever society is experiencing as inevitable, like sand castles washing away in the beach. Tim “I’ve never been a regulator ” Geithner evokes this blatantly false conception here:
Of course, in a severe crisis — the once in a century event, or hopefully it’s a once-in-a-century event — then the system will inevitably come under much, much more pressure. And even the strongest firms come under pressure then. And in that context, our successors are going to have to do exceptional things again if they want to protect the economy from a failing financial system. That’s inevitable.
After all, every century or so humans just happen to be giving out “liar’s loans”, pushing them on unsuspecting investors around the world, and then because they couldn’t find enough real economy risky borrowers, they had to use credit default swaps to create synthetics versions of them, and they did all that so big that they blew up the casino. Don’t you remember the liar loan and derivative trading scandal of 1908, 1808, 1708, 1608 etc? It’s just natural, so please look away.
This is what criminals and deviants tell themselves about their behavior. They just can’t “help” it and it will happen inevitably. In reality, the financial system is a social institution and its malfunctioning is the result of purposeful human action, not the law of gravity. Individual people and institutions were central to setting the stage and developing this crisis to maturity. The entire U.S. regulatory community and large swaths of are banking system were involved. Those loans don’t just pour out like an overfilled cup. Someone chooses to make them. Someone chooses to lie to a borrower until he buys the con. Real people defended this decrepit behavior and real professionals were pushed out of their jobs for not being slimy and criminal enough.
Incidentally, if you know a flood happens once every century, why wouldn’t you spend your time PREPARING for it? What, is this a Ricardian equivalence thing where any attempt to prepare for floods just makes the flood worse? With the exception of the rotting American state, most places prepare for flood season.
In reality, the financial system is a social institution and its malfunctioning is the result of purposeful human action, not the law of gravity.
“The enforcement response… is still unfolding”
This is an incredible one. According to Geithner, it’s not that bankers haven’t gone to jail, it’s that they haven’t gone to jail yet. In the fantasy world Geithner is selling to the public, all the bankers that deserve jail are going to be put in jail… at some future date. See the full quote below:
MR. WESSEL: And other side is, there were repeated accusations about not enough of them were punished to pay for what they did. You never were comfortable with that.
MR. GEITHNER: No, I felt from the beginning and I think this was always a great strength of our system that you had to have an overwhelmingly strong, powerful, credible enforcement response for the rules that they had to live with. And two things happened. One is that the enforcement response, which is still unfolding, took a lot of time to get traction because these things are very complicated. And the public saw a long lag. And of course, the other thing is that a huge part of what happened across the system was just a mixture of ignorance and greed, or hope over experience, and not illegal. Most financial crises are not caused by fraud or abuse. They’re caused by people taking on risks they don’t understand, too much risk. when the tide turns, it can have catastrophic damage.
When exactly are these “enforcement actions” supposed to take effect? The statute of limitations is running out. In addition, the cases the SEC and Department of Justice have pursued they’ve been quick to settle without an admission of guilt and with liability waivers. The most infamous was the much-ballyhooed mortgage settlement in early 2012, which amounted to a few billion dollars in cash, “billions more” in “writedowns” on various mortgage debts of questionable meaning. Perhaps they will pass a special law allowing convictions well past the statute of limitations, as long as the subject is already dead.
Suddenly though, Geithner jumps into a completely different lie that contradicts the lie he was just telling. How can the investigations into criminal behavior be “complicated”, have “a long lag” while he’s completely sure that “a huge part of what happened… was not illegal”? Put aside the fact that we have piles of evidence that contradicts that drivel. It doesn’t even internally make sense to that paragraph. It’s like detectives showing up to a crime scene, taking one glance at the dead body and going “this is going to be a long investigation but I can say right now the subject wasn’t murdered”.
“We were worried”
Geithner then goes on to muddy the waters about his role in the boom. He says things like“My colleagues and I at the Fed….were worried about the risks you saw building up across the system”. He does know that we have meeting transcripts right now that show as late as 2007 he was playing down concerns about the mortgage market and financial institutions like Bear sterns. Yet we’re supposed to believe that in 2004 he and the rest of the Fed were fighting to rein in risk taking but didn’t have the regulatory authority (which is clearly a lie)? Even if they did believe this, why weren’t they in front of Congress asking for more regulatory powers? This is all rather damning whichever way you look at it.
Goodbye Timmy, or so I can Dream
Good riddance. Unfortunately Geithner’s history as a complete and utter failure will probably guarantee him a place as “wise sage” for decades to come. I can at least hope to see and hear of him much less. I must confess to not having the stomach to unpack all the lies and the depth of them in this interview nor the other hagiographies floating around. Feel free to do so in the comments! There are still plenty of juicy lies in there just waiting to be untangled. He even begs for a history lesson about Mexico in 1995, which I may provide in another post.
Somehow I think Jack Lew won’t live up to Timmy’s vileness. But perhaps that’s just wishful thinking.