â€å“mr. Geithner
Reliving the Crunch
A Unified Theory of Timothy Geithner
Tim Geithner is not a creature of Wall Street.
This assertion may seem shocking and incorrect to the many, many people for whom Mr. Geithner is the human being symbol of the Obama administration's undue deference to the financial institutions that caused a virtually-collapse in the global economic system. Mr. Geithner was an engineer of the bailouts; an opponent of nationalizing banks; a minimally enthusiastic supporter of programs to assist homeowners direct. With his spread collars and tailored suits, he even looks like a Wall Street sharpie.
But Mr. Geithner spent his youth largely abroad and his early on adulthood working on international trade and economics in the United States Treasury Department. Simply starting in 2003 did he have much of anything to do with the financial industry, and that was equally its overseer at the captain of the Federal Reserve Banking concern of New York. He is now the president of Warburg Pincus, a private equity firm, but he has held that chore for all of 10 weeks. He was never an investment banker like his predecessors Hank Paulson and Robert Rubin, or even a hedge fund consultant like Larry Summers.
As far back equally college, as he puts it in his new memoir, "I had never idea of finance as a specially special or prestigious profession."
All of which makes the fact that he earned a reputation equally a tool of big financial interests that much more intriguing. After covering Mr. Geithner for the meliorate role of a decade and reading the memoir, I think hither's the all-time way to make sense of him: Timothy Geithner isn't captured by Wall Street. He'southward captured by working within systems as they exist.
He is a principal of the art of the possible, angle bureaucracies to his will to attempt to get the best possible result. He is much more than talented at developing the best policy he can given existing constraints — legal, political, technical — than he is at breaking those constraints.
This was near axiomatic during the darkest periods of the early Obama administration. The hot contend was over how the government should handle Citigroup and Bank of America, two megabanks that had get de facto wards of the country later billions of dollars of capital letter injections from the authorities bailout funds.
Larry Summers, Mr. Geithner's old boss and by then Mr. Obama'southward pinnacle White Firm economic adviser, was advocating that the government take over financial institutions that had too little capital. He wanted to rapidly restructure any banks in that position and liquidate their bad assets. Another proposal was to put such banks nether authorities conservatorship, much the way Fannie Mae and Freddie Mac remain to this day.
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It's interesting to run into how Mr. Geithner describes his opposition to these ideas. "Both options had their theoretical merits, but I didn't think Larry's approach was feasible or desirable," he writes in "Stress Test."
In a later on meeting to hash out the forceful restructuring that Mr. Summers proposed — firing direction, unloading assets, maybe forcing banks' creditors to take losses — Mr. Geithner describes his response this way: "Certain that might make sense in some cases. We'll see. We couldn't know what would exist optimal months in advance; it would depend on the bank and the state of the globe at the time. … We were also constrained past the limits of our authority, which didn't really permit pre-emptive nationalization. We still had no way to wind down complicated financial firms. … We were likewise constrained by the limits of our remaining financial resources."
In other words, a more radical arroyo to the banks might make sense in some starting time-principles, what-is-off-white sense of the term. It merely wouldn't piece of work inside the applied constraints that he was grappling with in trying to actually execute the policy. He argued that the stress tests he engineered, carried out by the Federal Reserve using existing legal potency, would be tough enough to restore the banking arrangement to health, even if they lacked the visceral dial of firing C.E.O.'s and nationalizing banks.
You see something similar in the fiscal reform legislation that would become the Dodd-Frank Deed, which Mr. Geithner was a guiding strength in designing. There is no question the constabulary brings greater oversight to the biggest banks. But it also doesn't reimagine the nation's financial system.
It doesn't force the Citigroups and Goldman Sachses to suspension themselves into smaller institutions, or place the huge shadow cyberbanking sector under explicit oversight. Mr. Geithner tells of one early on coming together plotting strategy on the law. Diana Farrell, a White House staff member, "made an impassioned plea for a more than ambitious regulatory overhaul," noting the irrational and convoluted system by which financial regulators are organized.
"But I pointed out to the room that in domestic policy every bit in foreign policy, in that location are wars of necessity and wars of choice," Mr. Geithner writes. "Reform was a necessity. Reorganization felt like a choice that could mire the neb in the quicksand of interagency warfare." The administration put broader overhaul of the regulatory arrangement on the back burner.
In another sphere for which Mr. Geithner is frequently criticized, the administration's perpetually underwhelming programs to help homeowners who were underwater on their mortgages, he writes this in his book: "We tried to do what nosotros could within the constraints we faced. Information technology wasn't plenty. But it was more than most people realized."
That's a plumbing fixtures summary of Mr. Geithner'due south tenure as the nation'due south most senior economic policy maker. He is not your vision guy. He is not a person who might reimagine the very structure of Wall Street, or the world monetary system or American financial regulation equally it ought to be.
Rather, he is a main of using the tools he has to their utmost, working inside the system, avoiding unnecessary risks, and when a crisis strikes, keeping it from spiraling out of control.
Source: https://www.nytimes.com/2014/05/15/upshot/a-unified-theory-of-timothy-geithner.html