On the occasion of the release of former Secretary of the U.S. Treasury Timothy Geithner’s new book, Stress Test: Reflections on Financial Crisis, any account of the economic meltdown he directed during 2008-2009, must be measured against the truth of what actually transpired in addition to the destruction left in its wake.
Geithner has been called many things. Matt Stoiller in his truly epic takedown review of Stress Test has dubbed Geither the “Con-Artist of the Democratic Party. Stoller goes on to say, “By presenting globalization as an inherent natural force, and not mentioning his role in crafting the policies that led to hot money flows, he misleads by omission. In other words, Geithner wasn’t just a firefighter, but an arsonist. See another review below, by Abigail Cpaovits Field.
Call Timothy Geithner what you want. But he is not a rat.
In another kind of stress test, research from the University of Minnesota suggests that rats exhibit at least three behaviors consistent with regret. Rats looked backward after making a bad choice, they settled for a bad deal after passing up a good deal, and after gobbling up the lesser reward it did not rest but went after a better food deal.
Sadly, Geithner is simply all too human.
BY ABIGAIL CAPLOVITZ FIELD | JUNE 8, 2014
When Timothy Geithner orchestrated the bankers’ bailout, giving them a ‘wall of money’ without accountability, and without matching funds for ordinary Americans suddenly facing foreclosure–Geithner took justice out of the American political economy.
Hence the title.
If Geithner’s book “Stress Test” becomes the definitive history of the financial crisis–or even is viewed as a more or less accurate account–then the correct title would be: Geithner and the American Way.
Geithner lies throughout his book, as Matt Stoller documented. In his takedown of Stress Test, Stoller partially relies on this groundbreaking work by Josh Rosner in 2010, in which Rosner exposed the Geithner’s long history of serving the biggest bankers.
But if We (the sovereign We) accept Geithner’s false history, the title Geithner and The American Way becomes apt in a snark-free sense too.
Geithner’s accountability-free bailout of the reckless richest while demonizing ‘irresponsible’ homeowners is the current, fragile precedent for how ‘our’ government responds to national crisis. If we believe Geithner’s claims of necessity and right, then the precedent solidifies and defines government policy going forward.
So: when the next crisis hits, will the response be democratic and the policy in the public’s interest? Or will it be Geithner 2.0?
Actually, as Stoller explained, it would be Rubin/Geithner 3.0. In 1994 Treasury Secretary/Citigroup leader-in-waiting Robert Rubin and protege Geithner funneled a wall of bailout money to ‘American’ banks through Mexico, ostensibly bailing out Mexico. Funny thing though, Mexico suffered two more decades as a result, as Dean Baker noted. Worst, Rubin did this even though Congress explicitly said: NO.
So that’s what’s at stake in how people receive the Geithner book. Take it as true, and ensure that next time the bankers will again have easy, accountability-free access to our tax dollars while ordinary Americans get nothing, or worse, lose everything. Reject it for the self-serving pack of lies that it is, and create the possibility that America will face the next crisis with everyone’s interest in mind.
The Proof Is In The Runway Foam
I’m not being hyperbolic. To understand how profoundly captured our government is–how closely Geithner and his ilk embrace the reckless richest while disdaining the rest of us, revisit his infamous runway foam comment.
Neil Barofsky told the story in his book, Bailout.
It involves Geithner’s use of the money that Congress gave Treasury to help homeowners restructure their mortgage debt. The policy goal was foreclosure prevention; Congress wanted people to stay in their homes as much as possible.
Sound like a homeowner bailout? Well, the money was part of the 2008 bailout–it was part of “TARP”. But unlike the billions that went to the banks, a wall of money directed at homeowners would have saved the economy by de-leveraging households, preserving their savings, and enabling them to express their demand for goods and services, fueling economic recovery.
What’s more, restructuring debt when the debtor faces economic crisis likely to be temporary–as millions of homeowners were–is an ordinary business transaction. Not so for the financial ‘innovations’ the Fed and Treasury engaged in to bailout the bankers.
One last piece of context before the story: Treasury announced the details of HAMP on March 4, 2009. At the time, headlines screamed about foreclosure spikes; Fannie Mae and Freddie Mac had imposed a moratorium on foreclosures of occupied homes. Everyone knew housing was in crisis.
So here’s the story: now-Senator Elizabeth Warren (D-MA) was questioning Geithner about HAMP (I would’ve loved to see her directness make him squirm) when he explained that his purpose in designing and implementing HAMP was to facilitate the banks’ ramping up their staffing so that they could better handle the massive wave of foreclosures coming toward them. Geithner’s words:
“We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.”
Watch this 45 second CNBC clip of Barofsky; he leaves no doubt about what Geithner meant.
As David Dayen pointed out at the time, this meant that when Geithner considered the impact of 10 million foreclosures, his instinctive empathy was for the bankers, not for the people losing their homes.
Geithner wasn’t moved by the fact that foreclosure took their retirement security, their savings, and too often, their shelter. He didn’t care about foreclosures’ impact on the foreclosed, on their neighbors (both in terms of property value and health), on their communities or states, on our national economy. He just worried about bankers’ ability to process the paperwork.
But actually, it’s worse than than that.
HAMP and its cousin, HARP, paid the banks to take economically rational actions they should have taken regardless. Again, creditors restructuring debt in the face of temporary hardship is a normal thing; many many foreclosures have resulted in huge losses to the creditors and should have been avoided on that basis too.
Indeed, the banks have been so careless about acting economically rationally that California had to pass a law just to make sure banks did the math transparently when calculating whether the “net present value” of the modification was greater than the foreclosure.
So to recap-Geithner took money that was supposed to help homeowners and used it to pay banks for behaving rationally, and to stretch out the foreclosure process to the point where the banks could process the foreclosures more effectively.
No, Beltway Bubble Denizens, Geithner Didn’t “Save the System”
Perhaps the biggest lie of all implicit in the “debate” over Geithner’s policies–it’s not a real debate when one side lacks a coherent set of facts, as Geithner’s side does–is that his ‘wall of money’ saved our financial system. By failing to impose accountability while bailing out the bankers, Geithner ensured that their reckless behavior would continue. At most he saved the status quo, meaning he preserved bankers’ ability to gamble recklessly.
I get so frustrated when people like me–people who remain outraged that everyone from Geithner to the “Justice” Department failed to impose or even seek accountability–are portrayed as blood thirsty rabble screaming for heads regardless of justice or meaning. We are not mindless rioters, consumed by vengeful rage. We do not seek retribution; we do not want an Old Testament eye.
We want deterrence.
We want our government to prevent future crises by deterring would-be white collar criminals from creating them.
No, Eric Holder, it is not about banks being too big to jail; banks don’t go to jail. In fact, banks don’t do anything. Bank executives and the employees they manage do things. Anthropomorphizing the institution exonerates the humans who run it.
Would be white collar criminals are rational actors; they are much easier to deter than people who commit violent crime, sex crimes, addiction/drug crimes. The key to deterring them is making the threat of being caught and prosecuted credible, and the consequences of being prosecuted painful.
When powerful bankers and traders confront a choice, they weigh the downside risk against the potential upside. Because our government chose to eliminate perceived downside risk (except for insider trading, which is bad but no systemic threat), it liberated would be white collar criminals, facilitating crime sprees.
Already Living Geithner’s American Way?
Although I’m presenting the need to preserve truth and reject Geithner’s book in save-our-democracy terms, I’ve got a confession: I’m not sure we’ll have another public bailout regardless of how reckless the bailout-emboldened bankers become.
Geithner and his patrons resent the democratic backlash so much that I’m not sure the next bailout will be publicly disclosed. We still have an ongoing policy that’s kind of a pre-emptive bailout: guaranteed profit for the banks and the bankers who run them. A couple years ago Shelia Bair detailed how.
More ominous, “our” bankers are so hardwired into the halls of Congress and the White House that it may well be possible to pull off a completely stealth bailout. Consider that the Banking Caucus can be publicly identified without triggering consequences, and Jamie Dimon can offer to have JPMorgan Chase write the financial reform bill and be irritated his offer wasn’t accepted. (Dean Baker has that anecdote in his “Stress Test” takedown.)
I’d bet that if JPM or any other banking behemoth were truly at risk, the CEO would speed dial the then-head of the Federal Reserve, the then-Treasury Secretary, the President, and perhaps (but only perhaps) Congress. After explaining the risk, these sages would agree that it would be better for everyone if the situation could just be handled quietly. And the necessary wall of money would appear in the failing bank’s accounts.
At least that’s where Geithner and The American Way are headed, if his false history is taken as true.