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Well, talk about bad taste!
Springtime for Bankers
Paul Krugman, The New York Times
MAY 18, 2014
By any normal standard, economic policy since the onset of the financial crisis has been a dismal failure.Tim Geithner, unreliable narrator
Now Timothy Geithner, who was Treasury secretary for four of those six years, has published a book, “Stress Test,” about his experiences. And basically, he thinks he did a heckuva job.
How can people feel good about track records that are objectively so bad? Partly it’s the normal human tendency to make excuses, to argue that you did the best you could under the circumstances.
But there’s also something else going on. In both Europe and America, economic policy has to a large extent been governed by the implicit slogan “Save the bankers, save the world” — that is, restore confidence in the financial system and prosperity will follow. And government actions have indeed restored financial confidence. Unfortunately, we’re still waiting for the promised prosperity.
Much of Mr. Geithner’s book is devoted to a defense of the U.S. financial bailout, which he sees as a huge success story — which it was, if financial confidence is viewed as an end in itself.
One reason for sluggish recovery is that U.S. policy “pivoted,” far too early, from a focus on jobs to a focus on budget deficits. Mr. Geithner denies that he bears any responsibility for this pivot, declaring “I was not an austerian.” In his version, the administration got all it could in the face of Republican opposition. That doesn’t match independent reporting, which portrays Mr. Geithner ridiculing fiscal stimulus as “sugar” that would yield no long-term benefit.
But fiscal austerity wasn’t the only reason recovery has been so disappointing. Many analysts believe that the burden of high household debt, a legacy of the housing bubble, has been a big drag on the economy. And there was, arguably, a lot the Obama administration could have done to reduce debt burdens without Congressional approval. But it didn’t; it didn’t even spend funds specifically allocated for that purpose. Why? According to many accounts, the biggest roadblock was Mr. Geithner’s consistent opposition to mortgage debt relief — he was, if you like, all for bailing out banks but against bailing out families.
Felix Salmon, Medium
Published May 18, 2014
one thing has become generally-received wisdom about the book: whatever you might think of Geithner’s actions and opinions, he’s at least presenting himself in an honest and unvarnished manner. Michael Lewis describes this as a “near-superhuman feat”: “there’s hardly a moment in Geithner’s story when the reader feels he is being anything but straightforward,” he writes.This man made millions suffer: Tim Geithner’s sorry legacy on housing
If Geithner isn’t being honest about his actions and the actions of others, then the whole book becomes much more problematic. And already critics on the right have, predictably enough, accused Geithner of lying.
Most of the time, such accusations boil down to a he-said-she-said about private conversations held in secret. But sometimes, Geithner makes simple declarations which are easily fact-checked.
Geithner at his most prescient and heroic. He enters a hidebound wood-paneled institution where coffee is brought to his desk on a silver tray while briefings involved precious little discussion or debate; and in his very first speech he decides to speak truth to entrenched financial power, trying to “push back against complacency” and warn against the rise of the shadow banking system.
But here’s the thing: we can read the speech, it’s archived on the Fed’s website. And so it’s pretty easy to tell whether Geithner did indeed try to push back against complacency, in his speech, and warn of the rise of the shadow banks.
Spoiler: he didn’t.
Geithner was saying that the shadow banking system is getting bigger, that the banks the NY Fed regulated were accounting for a smaller and smaller part of the total financial system — and that this was a positive development. Geithner wasn’t warning his audience about the risks of shadow banking, he was extolling it, on the grounds that it had “improved the capacity of our system to handle stress”!
This is a bright green light to all the bankers in the room, saying “go ahead with all your whiz-bang new innovative products, we think they’re great, even if we don’t really understand them or know how to regulate them, it’s our job to keep up with you, and we have people in Basel who are on it.” Not once did Geithner indicate that the financial system was getting too complex and that the Canadian approach of forcing banks to keep things simple was maybe a good idea. Instead, he embraced all of the complexity, and just said that the regulatory architecture would have to cope, somehow.
There are two big worrying things here. The first is that Geithner didn’t see the crisis coming at all, and indeed was something of a cheerleader for all of the dangerous activities that the banks were getting up to. The second, which is just as bad, is that with hindsight, Geithner sees this speech as being prescient and heroic — that it’s something to be proud of, rather than sheepishly ashamed of.
As I read the rest of Geithner’s book, then, I’m basically forced to treat the author as an unreliable narrator. Geithner might seem to be straight-up and guileless, but his report of this speech shows that he can remember things — even things which are easily found on the internet — in an extremely self-serving manner. Maybe that’s only to be expected, from a political memoir. But it’s disappointing, all the same.
David Dayen, Salon
Wednesday, May 14, 2014 07:45 AM EDT
“I saw some of the excerpts about housing and I must say I split my side in laughter because Tim Geithner personally and actively opposed mortgage refinancing, constantly,” Hubbard told Politico. “And now he’s claiming this would be a great idea in the country.”Geithner: As Wrong about Soccer as Regulation
When Hubbard talks about refinancing, he’s being very specific. He co-wrote a plan in 2008 endorsing mass refinancing through Fannie Mae and Freddie Mac, as a economic stimulus, getting homeowners reduced monthly payments. This was one of the major fiscal policy tools available to the Administration that didn’t require additional spending — the Federal Reserve had lowered interest rates, it was merely up to Fannie and Freddie to take advantage of it. But in the early years of the crisis, the White House did little. Brad DeLong backs up Hubbard on this point, saying he never got a satisfactory answer for the lack of mass refinancing.
It took until 2012, just coincidentally an election year, for the administration to remove blockages on their key refinancing program (the Home Affordable Refinancing Program, or HARP). In an interview with Ezra Klein, Geithner plays the classic three-card monte trick of taking credit for every single refinance in the entire country, a number surpassing 20 million. In reality, HARP just hit 3 million refis this February, with the overwhelming majority of them coming after 2012. In the darkest years of the recovery, failing to engage in mass refinancing, particularly for those underwater homeowners (who owed more on their houses than they were worth) who couldn’t get a refi without government assistance, really missed an opportunity to put more money in homeowner’s pockets that would get spent.
On the more critical issue of helping homeowners stay in their homes, Geithner looks even worse. One smoking gun in the debate is the continued presence, throughout the Geithner tenure, of Ed DeMarco, a Bush-era official running the Federal Housing Finance Agency, the conservator for Fannie and Freddie. DeMarco blocked both refinancing for underwater borrowers and principal reductions for struggling homeowners, seen as the strongest and most sustainable way to keep people in their homes. The administration made no effort to remove DeMarco from his post despite claiming to be at odds with his policies.
In reality, Geithner made the same arguments as DeMarco against principal reduction, most explicitly in a hearing of the Congressional Oversight Panel in December 2009, arguing it would be “dramatically more expensive for the American taxpayer, harder to justify, [and] create much greater risk of unfairness.” Geithner later cited the potential moral hazard of “strategic default,” where homeowners would intentionally not pay their mortgage to get a principal reduction (something that never has and never would happen), to argue against making such modifications mandatory when they made sense for the investor and the borrower.
Keep in mind that this was the guy who handed hundreds of billions of dollars over to banks with basically no strings attached, suddenly worried about fairness when homeowners get a break on their mortgage payments. The White House was certainly chilled by the Rick Santelli rant about “the loser’s mortgages,” and mindful of giving money to the “wrong” people, but that was a political problem, one that could be solved by a stronger economic recovery, like through preventing foreclosures.
In his book, Geithner says that “I don’t think a more compliant FHFA would have produced a dramatically different result,” meaning that whatever differences existed between the administration and DeMarco were immaterial. In fact, the thrust of Geithner’s argument on housing in the book is that the administration did the best they could possibly do, that the alternatives were impractical or unwise, and that ultimately their efforts prevented 5 million foreclosures. This is another three-card monte trick, taking credit for every single mortgage modification, including ones not aided by the government’s HAMP (Home Affordable Modification Program) incentive payments. Even modifications that later went into default get counted as “preventing” a foreclosure under Geithner’s math. For context, there are currently not even 1 million permanent HAMP modifications.
Here are a few points to puncture holes in that balloon. On January 15, 2009, Larry Summers wrote a letter to Congressional leaders, promising a “sweeping effort to address the foreclosure crisis,” including a measure to “reform our bankruptcy laws.” This letter was critical to getting the second tranche of bailout money for the banks out of Congress, and yet afterwards, the administration gave little more than token support for the bankruptcy reform, known as “cram-down,” which would have allowed judges to modify terms of primary residence mortgages. Geithner admits in his book that “I didn’t think cram-down was a particularly wise or effective strategy,” meaning that, unless you believe Geithner played no role in administration decisions, the economic team effectively lied to Congress about cram-down to get the bailout money.
Geithner elaborates about cram-down to Klein, saying you would still have to go through a broken servicing industry and the court system to get it done, showing that he has no understanding of the value of cram-down whatsoever. The point, as the Cleveland Federal Reserve makes clear, wasn’t to actually use the bankruptcy process, it was to keep it in reserve it as a threat, to force banks toward modifications instead of a unilateral write-down administered by a judge. The point was increasing leverage for homeowners, and it’s not surprising Geithner wouldn’t grasp that.
By William K. Black, New Economic Perspectives
Posted on May 21, 2014
Geithner begins his (brief) discussion of his regulation of Citi by stating that seven months after he became NY Fed President the NY Fed imposed a “hefty fine” on Citi. And then one reads the single clause that he devotes to detailing Citi’s conduct. It deliberately targeted its customers in a scheme to profit by placing its customers in grotesquely unsuitable investments – and then it covered up that abuse by lying to the NY Fed’s examiners – which is a federal felony. The deliberate sale of unsuitable investments to its own elderly customers may not have been a crime, but it was reprehensible and could have provided the basis for the “removal and prohibition” of the officers who led the abuse and huge fines against them. The crime of lying to examiners to cover up the breach of Citi’s fiduciary duties and own procedures should have led the NY Fed to file a criminal referral and demand that the Department of Justice (DOJ) prosecute the Citi officers who committed the felony. Instead, Geithner imposed only a “hefty fine” (trivial from Citi’s perspective) as a minor cost of doing Citi’s abusive and criminal business. It is revealing that he chooses to start his brief discussion of Citi with example of his feebleness as a regulator under the delusion that it demonstrates how tough he was. His narrative is deliberately disingenuous and unintentionally damning of Geithner as a faux regulator.Andrew Ross Sorkin, Timothy Geithner, and the Three Card Monte Model of Propaganda
Remember, Geithner wrote this only months ago – after the federal government, state government, and investigators had demonstrated the three epidemics of accounting control fraud that drove the crisis, plus the Euribor and Libor cartels/frauds run by the world’s largest banks, plus the willingness of top banks to aid the most violent drug cartels in the world and (if Geithner believes his own agency’s findings) terrorist groups, and nations subject to Treasury sanctions because they are developing nuclear capabilities and/or support terror.
Geithner obviously still doesn’t get it. His story is preposterous – but it explains why there are zero prosecutions of any of the elite bankers for leading the frauds that caused the crisis. His story is that he was misled about the “capab[ility] and ethic[s]” of “Wall Street” because met almost exclusively with: “talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.” Even Greenspan is more honest than Geithner – and failing that relative test means that Geithner should never be allowed to run anything.
I have a question for Geithner that perhaps some reporter would ask when he is flogging his book: was it the “senior bankers’” supreme “talent,” “capab[ility],” or “ethic[s]” – or some combination of those stellar traits – that proved most useful in making them fabulously wealthy through “looting” “their” banks (Akerlof & Romer 1993) and brought the global economy to the edge of destruction (Geithner 2014)?
Geithner is seriously peddling the claim – in 2014 – that the crisis was caused by the junior clerks and lending officers of the banks. The noble “senior officers” that dined with Geithner are blameless. After all, everyone knows that the systemically dangerous institutions (SDIs) are “too big to manage” – no, wait, must not admit that or my support for SDIs looks bad. Rewind tape. Delete last sentence. Geithner’s “introspection” is phony.
Geithner has contributed the ideal dishonest bookend book to pair with a book that blames the crisis on the idiot-savant hairdressers who conned the poor banks run by Geithner’s “talented … capable and ethical” “senior bankers” into making them home loans they could not repay. Please put the over-the-top paperback fictions novellas of your collection between those bookends so that they will feel at home in your library. And if you believe the “blame the loan officer” and “blame the hairdresser” memes – well, there’s a house in Las Vegas I’d like to sell you at its June 2006 price. Read Geithner to see where Wall Street accountability went to die. And then recall that Axelrod described President Obama and Geithner as having a mutual “man crush.”
by Yves Smith, Naked Capitalism
Posted on May 12, 2014
The focus on TARP (and to a lesser degree, Lehman) allows Sorkin to omit mention of actions that were clearly Geithner’s doing, including: his fighting Sheila Bair tooth and nail on resolving the clearly insolvent Citigroup; his decision to pay AIG credit default swaps counterparties 100 cents on the dollar; his defense of the failure to haircut AIG employees’ pay; [Treasury’s acceptance of intransigence by AIG’s CEO, Robert Benmosche; his refusal to use $75 billion in TARP that Paulson’s Treasury had courteously left aside for homeowner relief; the clearly too permissive “stress tests”; Geithner’s Treasury allowing banks to repay TARP funds early rather than rebuild their balance sheets (get this: because they were eager to escape very limited restrictions on executive pay); Treasury letting banks repay TARP warrants at an unduly cheap price until Elizabeth Warren’s Congressional Oversight Panel caught them out; his cynical policy of “foaming the runway,” as in using what were billed as homeowner relief programs merely to attenuate foreclosures and thus spread out bank losses, which had the secondary effect of wringing more money out of already stressed borrowers before they were turfed out of their homes. And this is far from a complete list of Geithner’s actions that favored banks over the public at large.I can only hope Jon gives Turbo Tax Timmy the slow roasting he deserves. At best he's a gibbering idiot, more likely a lying confidence man and thief.
While as always I'm open to someone stepping up for tomorrow, I'll be assembling next week's guests so at least you'll have that to look forward to.