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Reminder for Geithner: You Work for the *Public Interest*

TPM pointed me to this excellent short piece from Barry Ritholtz, wherein he notes that new Treasury Secretary Tim Geithner doesn’t seem to understand that he’s no longer working for private interests:

Consider this statement from Geithner, who said that Treasury  is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”

No! Defending these idiots was your old gig. In the new job, you no longer work for the cretins responsible for bringing down the global economy. Please stop rationalizing their behavior, and preserving the status quo!

I’ve got a longer post on financial issues percolating, but I think that Josh Marshall might have cut to the quick of my questions earlier today, when he wrote:

The core problem is that many, perhaps most of our major financial institutions are insolvent. They have more liabilities than assets. A functioning financial system requires solvent banks. And only the government has the resources to manage the massive recapitalization to get the key institutions back on their feet. At that level of generality, the issue assumes a degree of clarity.

All the different fix permutations are just different ways of accounting for the transfer of cash. You can take the banks over and assume their debts. Or just give them tons of money to make them whole. Or you can buy their bad investments at the price the banks wish they were worth and thus get the banks out of under the consequences of the financial collapse they helped create.

It’s not clear to me why the dollar amounts spent would really be different in the various permutations. It’s all a question of who owns what when it’s all said and done and who runs the institutions.

The who ought to own it part is pretty clear for me, though I have to admit to being stumped about who ought to run them.  Even if you make the very big assumption of competence on the part of the current crop of folks in there, there is such an extreme amount of demonstrated bad faith that I wouldn’t hire them to run a 7-Eleven.   However, I suspect if the right tone were clearly set at the top – that we’re done fucking around, and that it’s time to grow up and realize there’s a world outside of your own, to which you have some responsibility – we could find some talent in the financial ranks.  But that tone setting?  Well, that gets us back to the failure pointed out in the beginning of this post.

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3 Comments

  1. tx2vadem

    I’m really waiting for this longer post. =)

    So, I would point out that when we originally bailed out the banks in the first super major bailout, our intent was to preserve the private banking system. That is why the Federal Reserve is a public-private partnership. Which brings up an interesting question: is the Federal Reserve Bank of New York insolvent if its members are insolvent?

    I think Geithner understands his role (assuming, of course, that his tax preparation skills are not indicative of something more sinister). He’s just coming from a place where the private system is the best way to handle banking. And a good deal of nation’s agree with that and it has served us well when we don’t take our eye off the regulatory ball.

    To the TPM assertion about why different permutation lead to different amounts, that’s simple: some things reveal more information than others. Because of some complex accounting rules for derivatives (FASB revels in this kind of stuff and they issued more even though they are going away, but I digress) banks would have to mark these assets down if the government were to set a transparent price for them. And also to the extent that you destroy confidence in the system, the more it costs to fix the problem since confidence building is a part of the equation.

    On bank talent, that’s a pretty broad brush. You know JPM, BOA, Wells Fargo and others were doing fine when this crisis began. They were in good enough shape to lend the feds a hand. And then even in the investment bank crowd, they attract good talent. Not everyone in management at those places is all bad.

    I didn’t intend to write a long comment. But I apparently can’t help myself when it comes to banking, energy, and utility regulation topics.

  2. MB

    I’m really waiting for this longer post. =)

    Ha. My promise to you was what I had in mind, when I wrote that.

    and it has served us well when we don’t take our eye off the regulatory ball.

    Maybe. I simply don’t have enough of a historical perspective on the industry. But neither to I buy into many of the premises that seem to be presented as truisms in American economic discussions.

    And also to the extent that you destroy confidence in the system, the more it costs to fix the problem since confidence building is a part of the equation.

    I believe that this, more than anything, gets to the heart of the matter. It’s a confidence game, isn’t it? So much of the models and metrics are simply an agreed upon language that lets the game go on. The point that underlies much of my argument is that the game based so very much on simple confidence isn’t worth preserving.

    Not everyone in management at those places is all bad.

    No, not everyone. The tone is set at the top.

    I didn’t intend to write a long comment. But I apparently can’t help myself when it comes to banking, energy, and utility regulation topics.

    Your comments are quite welcome and appreciated.

  3. tx2vadem

    Truisms and absolutes are for Disneyland. I can’t say that I know for sure what will work and what won’t. I only fear failure. With a scant 25 years until retirement (and, God willing, sooner than that), all I am interested in something that works.

    Of course, the problem I have is I only have history to look at. And every 10-K you look at will basically tell you that past performance is not indication of future results. For want of a crystal ball, what’s a boy to do?

    On confidence, all economics is a confidence game. Well, a study in human behavior anyway. Just as people can be rational in an ordered system that keeps the lights on everyday, they can fall to pieces as a group and wreak havoc on everyone. The same confidence that people have or don’t have in banks can happen to any institution. And that craziness is why we can have deep, downward spirals and fast, expanding bubbles. The cool heads of regulators are supposed to prevent that. But Greenspan just sat on Capitol Hill and just talked about it. Oh, Greenspan should be stoned in a public square; why wasn’t that in the stimulus bill? You know that would have been change that I could believe in. =)

    Agreed on tone, tone is set at the top. You still have, in a decentralized system, the opportunity for multiple messages and styles. It depends on the CEO on whether a message is harmonized throughout the company or not.

    And finally, thank you for the compliment! I certainly look forward to your vision of a new financial system.

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