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Tim Geithner | Below The Fold
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Posts Tagged ‘Tim Geithner’

Really Smart People Doing Things I Don’t Understand

Tuesday, March 24th, 2009

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by Brien Jackson

I’m glad someone other than me went there first:

I’m biased in this regard, obviously, because I think the costs of nationalization likely outweigh the benefits, and that in any case it would be very difficult for Obama to get Congress to authorize the trillion dollars or more the government would need to take over America’s biggest banks. And I agree with Thoma that the Geithner plan could work. But what I like best about his conclusion is something else: his implicit recognition that the people who came up with this plan — Geithner, Larry Summers, and Ben Bernanke — are well-versed in the problems of the banking system and serious about trying to solve them, rather than being either oblivious or corrupt. Much of the discourse around the Geithner plan, and around the nationalization debate more generally, seems to assume that Obama’s economic policymakers don’t understand the gravity of the situation or the virtues of nationalization, or else it assumes that they don’t really care about improving the real economy. I’d be very surprised if either of those things was true.

I don’t agree with the first sentence, but the rest of it seems on. It’s easy enough for us (yes, I’m including myself) that writing on the internet doesn’t actually make you an expert about everything, and agreeing with me doesn’t make you the smartest person in the world. Similarly, disagreeing with me doesn’t, necessarily, mean you must either be completely corrupt or the dumbest person in the world, although that’s certainly a possibility. It’s certainly fair to point out that Paul Krugman is a Nobel prize winning economist, but you know who else is a very accomplished economist? Tim Geithner! And Ben Bernanke! And even Larry Summers! And each of them has more experience with financial issues than Krugman, whose Nobel was won for his work on trade issues (and I don’t think David Sirota would approve of those ideas, for the record). Which isn’t to say that Krugman is wrong, or that I think he’s unqualified to give an opinion on the plans, rather it’s simply to point out that he’s not the only really smart person in the room, and there are plenty of really smart people who don’t share his opinions. These guys aren’t quarterhorse afficianados.

Also, making sure the executives get hit hard is not a recovery plan in its own right, and recognizing that does not make you a Wall Street stooge.

More Geithner

Tuesday, March 24th, 2009

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by Brien Jackson

Kevin Drum writes:

If, several weeks ago, you had charged a task force with figuring out how to successfully nationalize a big bank, what do you think they’d say you had to do? Three things, at least: (1) you have to figure out a widely acceptable way to value the toxic assets on bank balance sheets, (2) you have to set up a fair and consistent test for evaluating bank solvency based on those values, and (3) you need to make sure you have the legal authority to take over a huge, multinational financial conglomerate in an orderly way.  Is it just a coincidence that these are precisely the things Tim Geithner has set in motion over the past month?

I think that’s probably a keen observation, and I think it’s at least somewhat likely that the Obama administration is slow rolling a nationalization plan here. As Kevin and others have pointed out, there is a not un-substantial opinion that the administration doesn’t actually have the authority it would need to seize the “less traditional” aspects of the financial industry, meaning Congress would have to give it to them. And it’s not all that clear that the will for nationalization exists, at this time, on the hill. But I think the more alternatives you exhaust, the more consensus you’re going to build amongst experts, and the harder it’s going to be for Congress not to authorize nationalization. So I think that’s where we’re headed but, unfortunately, it’s a process.

As I see it, what you’ll probably have happen is the Geithner plan being put into action, possibly shoring up some firms, seperating any sound assets from the toxic assets…but still leaving a large amount of market share that needs to be nationalized, which would be much easier to do at this point. The only question, to me, is whether or not Geithner will have to be sacrificed for an increase in political capital before the larger push for nationalization. If he’s replaced with a real heavy hitter like, say, Paul Volcker, I think that could make fora much easier time of it vis-a-vis the politics.

In Praise of Mistakes

Sunday, December 7th, 2008

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I’m not sure Frank Rich has this right:

No, it’s the economic team that evokes trace memories of our dark best-and-brightest past. Lawrence Summers, the new top economic adviser, was the youngest tenured professor in Harvard’s history and is famous for never letting anyone forget his brilliance. It was his highhanded disregard for his own colleagues, not his impolitic remarks about gender and science, that forced him out of Harvard’s presidency in four years. Timothy Geithner, the nominee for Treasury secretary, is the boy wonder president of the Federal Reserve Bank of New York. He comes with none of Summers’s personal baggage, but his sparkling résumé is missing one crucial asset: experience outside academe and government, in the real world of business and finance. Postgraduate finishing school at Kissinger & Associates doesn’t count.

Summers and Geithner are both protégés of another master of the universe, Robert Rubin. His appearance in the photo op for Obama-transition economic advisers three days after the election was, to put it mildly, disconcerting. Ever since his acclaimed service as Treasury secretary in the Clinton administration, Rubin has labored as a senior adviser and director at Citigroup, now being bailed out by taxpayers to the potential tune of some $300 billion. Somehow the all-seeing Rubin didn’t notice the toxic mortgage-derivatives on Citi’s books until it was too late. The Citi may never sleep, but he snored.

 I’m not of the opinion that Robert Rudin is The Smartest Man Evah, I’m not even sure he’s all that smart of an economic mind. But it’s still true that his fundamental idea of 1993, that pursuing a path of deficit reduction as a matter of fiscal policy would induce the Fed to lower interest rates which would stimulate the economy, did lead to a period of both economic expansion and prosperity as well as a balanced budget. That he was inept/greedy at Citi doesn’t really change that, it just shows that running a private business and making public policy aren’t two sides of the same coin (no matter what Mitt Romney says), and that being good at one doesn’t mean you’ll be great at the other. So by that measure, that Geithner hasn’t worked in private sector Wall Street doesn’t really bother me, anymore than the fact that Obama never served in the military makes me worry about his ability to function as Commander-in-Chief.

Rich also writes:

Washington’s cheerleading for our new New Frontier cabinet superstars has seldom been interrupted by tough questions about Summers’s Harvard career or Geithner’s record at the Fed. For that, it’s best to turn to the business press: Andrew Ross Sorkin at The New York Times, for one, has been relentless in trying to ferret out Geithner’s opaque role in the catastrophic decision to let Lehman Brothers fail.

I’m not sure this is really right either. Aside from the unlikelihood of finding anyone who’d never been wrong about anything that would relate to the job of Treasury Secretary, whatever happened to learning from your mistakes? After all, it’s not like Geithner was the only person who thought Lehman might not need to be bailed out, with the rest of the world frantically screaming that their collapse would lead to catastrophe. There were some, to be sure, but by and large there was a real debate over the best course of action. That Geithner was wrong isn’t important so much as whether or not he learned from that mistake is (although I don’t want to take anything away from the people who got it right). Besides, there’s nothing that guarantees that Geithner will be wrong about the next question just because he was wrong about Lehman, or that the people who were right then won’t be wrong about the next question. Indeed, given the degree to which it seems everyone was mostly guessing back then, I doubt it has little predictive value at all.

That’s not to say mistakes are good, of course, but all the same we really ought to stop obsessing over these like any mistake is disqualifying, otherwise we’re not going to be able to find anyone to do the job.



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