The Two Faces of Tim Geithner

Tim Geithner has two faces. This is bad news and good news for those who believe market fundamentalism is responsible for the current fiscal hole we are in, and that climbing out will require a fundamental revision of fundamentalist market ideology.

The bad news, reinforced on this past Wednesday morning when Geithner answered questions at the Council on Foreign Relations in New York, is that when push comes to shove (and push has come to shove) our Treasury Secretary has a market fundamentalist face. He still believes in markets, and thinks that his job is to get them to fix everything, even if that means getting government to help out for a while. But the aim is to restore the status quo ante so that credit flows again and consumers go back to consuming by borrowing, banks regain solvency, and democracy recedes back into the background as an attentive watchdog where shoppers are again more important than citizens.

But Geithner has a problem: capitalism's recipe makes profit the reward entrepreneurs receive for taking risks. The collapse of trust in the global fiscal system, however, means no one wants to take risks anymore. They will take the profits, yes, but not the risks.

I asked Geithner during the Council discussion whether his private/public plan for selling bad bank debt amounted to a scheme to socialize risk: asking taxpayers to underwrite the downside of our stupendous debts but allow private investors to get the lion's share of whatever profits ensue from their sale. He answered me by agreeing that government (us taxpayers) had to take risks in order to save banks from sinking under the weight of their own debt. But it was investors who had to be rewarded, or they would never buy back into the market. In other words, yes, socialize risk but keep the profits private!

This approach is little more than a vigorous version of Bush's policies, and seems to accord not only with Geithner's Wall Street inclinations, but with President Obama's liberal market outlook. It wasn't an accident that his key economic advisor during the campaign was market liberal Austan Goolsbee; or that economists like Joe Stiglitz and Jeffrey Sachs have no role in his administration.

Yet Geithner showed a second face at the Council, as well, and this is the good news. For he said repeatedly that the greatest danger of our time was not government doing too much but government doing too little; that recovery would require persistent experimentation; that if market solutions and public-private partnerships fail, other option must and will be explored. Like the president he serves, Geithner may believe in markets but he is a pragmatist, a progressive and a Democrat, and seems willing, if market strategies fail (as they will), to abandon them in favor of whatever works.

This is the difference between true fundamentalists for whom ideology is always trump, and pragmatists who like market strategies but are ultimately committed to the public good in accord with the mandate of social justice. The good news then, in case you missed it, is that President Obama and his Treasury Secretary are Democrats, and this actually means something.

Comments

[cherrycola]

Geithner is a tool of the Establishment. I guess that makes him a "pragmatist."

[knowBuddhaU]

Wizards or Frauds? Geithner's plan is a fairy tale:
~~~~~~~~~~~~

PAUL KRUGMAN: But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks. Above all, the key promise of securitization — that it would make the financial system more robust by spreading risk more widely — turned out to be a lie.

[...]

In essence, the administration seems to believe that once investors calm down, securitization — and the business of finance — can resume where it left off a year or two ago.

To be fair, officials are calling for more regulation.

[...]

But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.

[...]

I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.

http://www.alternet.org/workplace/133775/krugman%3A_the_market_wizards_were_exposed_as_frauds_--_too_bad_obama%27s_team_still_believes_in_their_magic/

IOW, They "overleveraged" the head right off the goose who lays the golden eggs. And now you seem to think they can somehow make that dead bird fly.

[OzzieTonto]

I can't believe this writer thinks that you/we can 'experiment' with the world's economy, or that Mr. G. thinks that either. My take is that if you get this stimulus wrong (and it looks totally wrong), you're cooked for good. Even a plan that worked would see us all (and I mean the entire world) suffering under a few years of stagnation and possible war: the plan described by Mr Stiglitz as 'robbery' will lead, as in Japan, to a lengthy period of breakdown from which few will emerge unscathed, especially those who've mortgaged themselves into the Dream, not to mention those at the margins. This plan needs to be dumped, and Geithner et al with it.

[Bonobo]

What everybody else sez.

I've never heard anything about this guy being a progressive, and he seems pretty wedded to market fundamentals. This scheme of his really bends over backward to try and find a "market" solution (through government­-subsidize­d risk). The problem is that someone took a really big dump in the marketplace sandbox, and nobody's gonna let their kids play in it anytime soon, no matter how much you try to clean it. The pragmatic approach would be emergency credit directly from a government bank, at least temporarily (a few years). That way, we don't have to get tangled up in the toxics, and those high paid screw-ups can get cleared out of the system (well, maybe).

[inthecolour]

Geithner is not a Progressive or a Democrat.

He's a registered Independent.

[thnk4selfagain]

You'll have to pardon me if I do not take your word for it that Geithner is a "progressive" and a Democrat. The evidence is that he is a Wall Street worshipper who is wasting time with torturous and convoluted policies that are causing justified mistrust -- and did I say he wasting out money? There are direct and straightforward ways to approach this crisis, to inspire trust and stability. Geithner refuses this approach. So after his PPIP and other half-measures fail to effect the desired outcome , you seem to be saying that there will always be enough money to get "practical." Why do you sound as tone-deaf as many on Obama's economic team?

[zull2]

When you're unemployed, you have a whole lot more to be in favor of "whatever works". When you can't pay your freaking bills, you become a whole lot more warm to "whatever works".

The problem with this crisis is that the last administration, through immense inactivity and thoughtlessness, left this current administration with virtually no "wiggle room" to sit down and put a good progressive agenda for restoring the economy in place. It's like a bus on a road, and there's a big cliff in the middle. If we had taken a different road earlier, the crisis would be avoided, but at this point, the bus is right in front of that cliff and less than desirable actions pretty much have to be taken.

We're so used to things going well, that we really don't "get it" when things suddenly aren't going well. You've been seeing those tent cities springing up since early last year. That should have been a sign that something needed to be done. We could have done something that would have been a better long term strategy then. Now, it's a totally different beast. The rest of the world wants to pull out of this market because they know the only way we can fix it is really messy.

[johnsonc20]

I can hardly wait to see Obama and Geithner show their "good" side. So far, we've only seen their corporate welfare side.

[emjay1954]

Geithner (which is to say, Obama) has one face, and it is the same face of every Wall Streeter. It is the face that continues to stuff its gaping maw with our money.

Here's how the current proposal would work. A bank has a loan for a face value of $1 million. But say it's only worth $200,000 in the market. The bank can "bid" $800,000 to buy it back. The bank need only put up 15%, or $120,000, while you and I, through the FDIC, put up $680,000. In fact, the bank could bid the full face value of $1 million! Why not? The more you bid, the more the taxpayers subsidize it.

This is the biggest reverse-Robin Hood scheme ever. Bernie Madoff was a piker compared to Geithner and Obama.

[clarryr]

No where near. The banks don't bid on their own assets, they already own them.
The banks offer their assets for sale to the newly formed funds that will bid on them.
Multiple funds are created to enable competition in the bidding process to assure they are reasonably priced - solving this problem of not knowing how much the assets are worth - a willing buyer and a willing seller.
The funds assume ownership of the assets turning them into long term investments, while the banks write off the difference from the sell price and the face value. The banks no longer have the assets on their books so can continue lending.
Later on, when the asserts mature or increase in value the funds can resell them for a profit, the fund managers pays the government load back and splits the profit with their partner Uncle Sam.

[johnsopinion]

"capitalism's recipe makes profit the reward entrepreneurs receive for taking risks."

I'm not exactly sure how accurate this statement is. Capitalism ALLOWS people to make a
profit, yes, but is profit the ultimate goal, the reward? For some, those of limited vision-
-which may be intentional, sure, no question. For most, profit is still the means to an end,
the well-being of their families and themselves. Man enjoys working, being useful to himself
and his community. It validates his reason for being. Some can turn that work into a profit,
others prefer the work. No matter how technological or how menial the work seems, it gives
everyone a sense of accomplishment.

" The collapse of trust in the global fiscal system, however, means no one wants to take risks anymore."

Momentarily, sure. But I believe that after the initial shock is over, there will always be someone
who will see an opportunity to step in, take the risk, and start a business. It is man's nature,
not his obligation.

Compliments of Seth and Ayn Rand

[bayside]

Tim just showed me what color hat he is wearing ,and its not white.

[TJCole]

We need to employ what works, it's that simple and take the best of both systems again it's that simple..

That's why I hope others read J.S. Mill who addressed more than any today the moral contradictions of unbridled capital...!

If we bare in mind at all times that, "The purpose of government is to serve the people..!" We can then reconcile and use that as a guide and blueprint for what we need to do in regard to energy, health care, housing and essential industries and services such as our or a steel industry and or even auto and truck which is essential not to mention the ability to build ships which we are also losing..

We'll need to Nationalize a lot more than just a few banks before this ever begins to turn around...

We are losing valuable time and many will suffer needlessly lose their homes and even sicken and go untreated due to these half measures and favoring cheap self serving politics over pure simple logical beneficial economics...

[pepper47]

I agree with TJCole, some how theres people think that capitalism is an article in the constitution. Hamilton nationalized the state banks assuming thier debt, and can anyone argue with the results !

[JGC1010]

When John Stuart Mill said "The purpose of government is to serve the people..!" (and I take this quote from you), the key phrase is "the people". You and I think "the people" refers to us, the little people. But the rich know that they, and they alone, are "the people". The rest of us mean nothing. To rephrase Mill,...or to bring out the true sense of his phrase...the purpose of the government is to serve the rich. The rich institute governments to protect their property from the rest of us, the little people.

[Carolab]

Pfft. A progressive who believes in the Fed? That's a complete contradiction, not just two faces.

[jeanruss]

Obama and Geithner are Globalists. It is more obvious every day that this is the case. They see the world through the corporatist eye. We will never get a decent leader who represents us until we fight for it.

[Carolab]

You are so right.

[mb32]

I don't know how one man can be all the 'ists' he's been called: Socialist, Communist, Marxist, Fascist, Pragmatist (which is how Obama describes himself), and now Corporatist (interchangeable with Bankster?) and Globalist. For him to be all of those things, he must have the worst case of schizophrenia since 'Sybil.'

[clarryr]

Dismantling the current system and trying to put it back together without plunging the world into Great Depression II is not feasible. The case study of IndyMac shows how disasterous it would be if bank seizures were done on a larger scale. We need a more nuanced, complex, solution. That is what Geithner is trying to accomplish. It is very much a "see what works" process that will need constant tuning. Triache starts by stopping the massive bleeding and stabilizing the patient. Then the slow path to recovery and life style changes to prevent a reoccurence.

[MistahCharleyPhD]

I hope you are ultimately correct in your assessment that Secretary Geithner and President Obama are "pragmatists who like market strategies but are ultimately committed to the public good in accord with the mandate of social justice".

I hope you will understand why some of us are deeply skeptical - and why the reassurance that these men are Democrats does not help very much, given the record of what Congress did after the 2006 elections (i.e., basically nothing.)

To me, it appears that Geithner and Obama are determined to maintain the status quo, with as little change as possible.