Monday, February 4, 2013
Friends in Low Places
Much has been made about Mr. Geithner's seeming recalcitrance with regards to the banking industry; it was believed he was very much of the prototype of the revolving door of Wall Street to Bureaucrat in Washington. Oddly he wasn't, and maybe that is why he seemed so much as a Turtle forced out of his shell.
Frankly it doesn't matter, he did nothing to help the "everyman" on Main Street and he did what he could to protect and preserve Wall Street moneymen. Too Big to Fail and they still are, even moreso. Same as it ever was is not a legacy from which to build or be proud.
The excellent Gretchen Morgenson in the New York Times I think did an appropriate eulogy of kind to commemorate his time in the U.S. Treasury. Door meet ass on the way out. Gone and sadly not forgotten for the catastrophic lack of real change brought by an Administration who once promised as such.
As financial adviser to the president in the tumultuous years immediately after the credit crisis, Mr. Geithner had immense sway over the government’s approach to all things economic. For everyday Americans, his major tasks included responding to the home foreclosure mess, unwinding federal bailouts under the Troubled Asset Relief Program and tackling the problem of financial institutions that are too big to manage and too interconnected for America’s good.
But in scanning these agenda items, a pattern of winners and losers emerges. Let’s just say the financial institutions that dominate the United States were rarely on the losing end in the Geithner years.
I wanted to speak with Mr. Geithner to allow him to respond to his critics and to get his take on his years in the job. A spokeswoman said he was on vacation and unavailable.
So I turned to the Treasury’s Web site, where I found a list of 75 facts about Mr. Geithner’s tenure. Among other things, I learned that on his watch the Financial Crimes Enforcement Network assessed its two biggest penalties against banks for money-laundering and that the Treasury Department cracked down on offshore tax evasion. I also found he has logged more than 600,000 miles on international trips, played basketball in China and cricket in India, and has his signature on $17 billion of United States currency.
Clearly, Mr. Geithner was busy. He had to deal with severe financial troubles overseas, navigate relationships with China and Europe and negotiate with Congress on contentious tax matters.
Mr. Geithner has spoken to other journalists about the work that he and his colleagues did in the aftermath of the financial crisis. He said that this work “was incredibly effective for the broad interest of the economy and the financial system,” and that he believed his financial reform efforts “will significantly reduce the probability and the intensity of crises for a long period of time.” He also denied that bankers have too much political influence in Washington.
That’s news to Jeff Connaughton, who was chief of staff to Ted Kaufman, a former Democratic senator from Delaware. Mr. Connaughton, author of “The Payoff: Why Wall Street Always Wins,” said he believed that Treasury’s kid-glove treatment of the big banks would have the lasting effect of ensuring future crises.
While banks recovered quickly and the Dow is around 14,000, he said last week, “the economy is still sputtering for millions of Americans whose livelihoods were devastated by the financial crisis.” He added: “The legal and regulatory framework that Geithner leaves behind for preventing a future financial crisis inspires little confidence, especially amid scandals emerging almost weekly at banks too big and complex to manage, regulate, police and fail.”
How did Treasury favor the banks? Consider its answer to the foreclosure mess. After promising to help four million borrowers, its Home Affordable Modification Program at last count had helped about one-quarter of that number.
One reason for this is that the program was flawed from the start.
First, the Treasury made the program voluntary, awarding funds to participating banks but failing to penalize those that did not. The program was all carrot, no stick.
Worse, the initial plan didn’t require the banks to write down second liens they may have held — like home equity lines — from borrowers whose original loans were modified. This let the banks put their interests ahead of both borrowers and those who held the first mortgages.
Unwinding the Troubled Asset Relief Program was another area where the department fell short. Eager to trumpet the success of TARP and other bailout programs, for example, Treasury boasted last spring that taxpayers would likely make money on them.
Such a claim, said Dean Baker, co-director of the Center for Economic and Policy Research, should “immediately discredit the teller.”
Treasury’s accounting for TARP and the other programs didn’t factor in the below-market rates the recipients paid on these loans. “We did them an enormous favor,” Mr. Baker said in an interview last week, “at a time when liquidity commanded an incredible premium.”
Neither, critics say, was Treasury transparent about TARP or willing to provide data to Congress on the program’s progress. “Under Secretary Geithner’s leadership, Treasury consistently overstated the results of its actions, painting a rosier picture than reality,” said Senator Charles E. Grassley, the Iowa Republican who is the ranking Republican on the Senate Finance Committee. “Without the special inspector general, the public wouldn’t have a clear, numbers-driven point of view on TARP.”
FINALLY, there’s the matter of Treasury’s response to the weightiest issue of all: banks that are too large to succeed.
Back in 2010, Senator Sherrod Brown, Democrat of Ohio, and Mr. Kaufman were co-sponsors of the Safe Banking Act, which proposed placing tough limits on banks’ size. If it had passed, it would have imposed a strict 10 percent cap on any bank holding company’s share of United States deposits and set a 6 percent limit on leverage.
The act was a way to begin reining in the huge institutions that had caused so much trouble in the credit debacle. It could also have protected taxpayers from having to make future rescues.
A good thing for Main Street, in other words.
But it was not to be. Among the bill’s most aggressive opponents was, yes, the Treasury.
“We were disappointed,” Mr. Brown said in an interview on Thursday. “Not only did Treasury oppose it, but they proudly opposed it. If the Treasury had spoken out for it we could have gotten very close to winning.”
Thankfully, Mr. Brown has not given up on the idea of reducing big banks’ size and threat to taxpayers. He and Senator David Vitter, a Louisiana Republican, have asked the Government Accountability Office to quantify the size of the advantages — and implied taxpayer subsidies — that large financial institutions enjoy over their smaller brethren. The study is expected to take about a year to complete.
“I like Tim personally,” Mr. Brown said of Mr. Geithner. “But he was better at putting out the fire than preventing the next one.”