Asking The Wrong Questions On Tim Geithner

Both Matt Yglesias and Kevin Drum simply ask the wrong questions with regard to the disastrous tenure of Tim Geithner as Treasury Secretary.

The startng point of the discussion is Neil Barofsky's criticisms of Geithner's refusal to consider measures that truly help homeowners and consumers if such measures in any way are opposed by the banks.

Using Ezra Klein's interview of Barofsky, Yglesias writes:

Team Tim would say that they're trying to create a well-capitalized banking system in order to bolster the broader economy. Team Neil counters that the broader economy would be better served by a policy that imposed steep losses on banks and instead repaired household balance sheets. Beneath all the anger and accusations and counter-accusations is a fairly wonky policy disagreement about the relative importance of household balance sheets versus the credit channel to laying the preconditions for growth.

So who's right? I think this is actually a much more difficult question than partisans on either side are willing to acknowledge. Team Tim has bolstered their argument with the overblown notion that homeowner bailouts "launched the Tea Party" via Rick Santelli and are therefore politically impossible and thus one doesn't even really need to address the merits of the case. On the other hand, Team Neil has never really presented a coherent alternative course of action that takes real account of the consequences of imposing very large losses on the banks.

This simply misstates the issue. As someone who supported (and supports) TARP, my criticism, and I think Barofsky's, are primarily aimed at the failure to condition bank bailouts on their taking actions that helped homeowners. Exhibit A is of course the disastrous HAMP program.

I don't think Geithner's motivations really matter on this. His policies on the homeowner crisis were simply incompetent, disastrous and by any measure a complete and utter failure. If that answer is difficult for you, then you are either ill informed or not telling the truth.

You can argue that Geithner faced political constraints that did not allow him to go further, but that is not what Team Geithner has ever said. They said they got the policy just as they wanted. This seems likely in that there was over $40 billion available to structure a much better homeowner relief program (for say, a HOLC program.)

Drum is a little better, but not much. He writes:

This is basically a long way of saying that we didn't do enough and we didn't spend enough money. Yes, the banks had to be rescued. But homeowners should have been rescued too. The stimulus needed to be bigger and longer. And the Fed should have ignored the wailings of the wealthy and temporarily targeted a higher inflation rate. None of this would have stopped the recession, but it would have made it a lot shorter and shallower. It's a crime that millions have suffered needlessly because we didn't have the guts to stand up and do this.

But this is the Team Barofsky argument.Sure there are other criticisms in terms of bank reform, but on the issue of homeowner relief, Drum is agreeing with Barofsky.

The long and short of it is Tim Geithner has a been a terrible Treasury Secretary when the country needed a great one.

Speaking for me only

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    I will never know why his replacement (5.00 / 1) (#5)
    by Militarytracy on Fri Jul 27, 2012 at 01:31:16 PM EST
    wasn't attempted.  It seems like Obama doubled down on him, the very last of the losing economic team from the soldout dysfunctional academia.  From Suskind's book.....

    Sen. Byron Dorgan (D-N.D.) denounces the president's economic team, shouting at Obama: "You've picked the wrong people. I don't understand how you could do this. You've picked the wrong people!"

    Yep (5.00 / 2) (#7)
    by Dadler on Fri Jul 27, 2012 at 02:12:09 PM EST
    And I read a quote recently to the tune of Obama kind of begging for help from some group about how to talk about economic inequality without the right hitting him hard with the class warfare card.

    Jeebus, buddy, it's called IMAGINATION. Go Colbert on their aces, and I am SERIOUS.  Or a "Have you no decency, sir?" moment.  Something.  

    I just don't think he has the game or the personal inclination to lean that direction. Or, again, the creative ability.

    Luckily for him (the rest of us will find out how we fare later), Mittens is about as sentient as a chewed pencil.


    A few weeks ago (5.00 / 1) (#11)
    by NYShooter on Fri Jul 27, 2012 at 06:52:12 PM EST
    I wrote a post commenting on T. Geithner's weird facial & body expressions during an interview I happened to watch. Yesterday, a commenter on Yves Smith's "Naked Capitalism" said it best:

    "Whenever i hear geitner speaking, and see him on televison defending his monstrous self and his monstrous industry, he has all the twitchy,shifty eyed obsseive-compulsive tics of an individual wired out of his mind on cocaine or amphetamines. He posses all of the arrogant,nihilistic, sleight-of-hand distraction and blame shifting conversational strategies of recently arrested tweaker.Im not saying Timmy is a meth addict, im just saying his mind, veiwed through his eyes and and enhanced by his body language and facial expressions,appears to be howling and squirming just the same."

    What do you think of Geithner's (none / 0) (#1)
    by Anne on Fri Jul 27, 2012 at 12:47:42 PM EST
    alleged support for Jeff Merkley's new plan that would create a HOLC-type program to help underwater borrowers?

    First, here's d-day's explanation of the Merkley plan:

    Here's how it works. Every underwater homeowner, under this plan, could go to any loan origination center and refinance their loan into one of three options, which I'll detail later. That loan would then get sold to a one-time vehicle modeled on the Home Owner's Loan Corporation from the Depression era. The vehicle, which Merkley calls the Rebuilding American Homeownership Trust or RAH, could be housed in the FHA, the Federal Home Loan Banks or the Federal Reserve. It would be an available option for three years, and would only manage and service the loans it purchases under that time, going out of business once all the loans are completed. The RAH Trust would use Treasury-like bonds to generate capital from private investment, purchasing at the current low cost-of-funds rate of 2% on 15-year debt and 3% on 30-year debt. Then it would lend out at 4-5%, using the money gained on the spread between the cost of funds and the interest charged to cover any defaults (there are also some other insurance fees and bank fees to cover that spread). Merkley's team includes several levels of analysis in the presentation piece showing that the RAH would turn a profit, and it's not hard to see how; it basically uses the model of traditional banking to cover its losses and still offer a low finance rate to borrowers, saving them hundreds of dollars a month.


    Those terms are open to any underwater borrower, even the severely underwater folks. In circumstances where the borrower has over a 140% loan to value ratio, the bank would have to write down the loan to that level in order for the RAH Trust to purchase the loan. Merkley said his discussions with bank executives convinced him that they would leap at the chance to sell off deeply underwater loan with that kind of a haircut. Now this presents a significant risk on the trust, even at 140% LTV. But that's why the spread is there, to cushion the blow of a potential default. Banks would also pay a risk transfer fee, a small fee to help cover the spread. "They've said to me, if it's a modest haircut, it's a reasonable business proposition, and they will participate," Merkley said.

    And so, when Geithner was testifying before the Senate Banking Committee, Merkley asked Geithner what he thought:

    We share your view completely. As you know the president has been very supportive of legislation in that context. Your own leadership in that context we fully support. We like the way you designed it. I think it would be -- it's good economic policy, good for the country for that to become law just for the reasons you said. It's not just a fairness question, but it would help reduce the remaining pressures that housing is putting on the economy as a whole. Very good economic case for doing it.

    You could do it in ways that doesn't leave the taxpayers exposed to any meaningful risk in that context. So we'd be very supportive of progress in that area.

    D-day again:

    Afterward, Merkley asked if Treasury would help in setting up pilot programs:

    GEITHNER: Well, I'd like to -- I think the policy is very good. It's very well designed. We'd like to work with you on it. And the questions is whether we can find legal authority and resources to -- to test on a pilot basis.

    So Geithner does hold up the possibility of working out legal authority, which is usually used to throw up a roadblock on something Treasury just doesn't want to do. But this operates from a position where it's in line with a Presidential priority on refinancing, so Treasury may have incentive to find the legal authority rather than find the reason they can't do something. Geithner isn't all that interested in doing things that help people over banks, but if this reaches a sweet spot where people could get help along the way with everyone else, well... you go to war with the financial policymaking overlords you have.

    Is Geithner just head-faking, or do you think there's a half a chance he - and the president - would actually support such a plan?

    He had 40 billion in 2009 (5.00 / 2) (#3)
    by Big Tent Democrat on Fri Jul 27, 2012 at 12:50:29 PM EST
    probably still has it.

    He is a liar.


    Yeah, I pretty much feel the same way... (none / 0) (#4)
    by Anne on Fri Jul 27, 2012 at 12:53:34 PM EST
    Geithner's just "Eddie Haskell" in a bespoke suit.

    With technology and math... (none / 0) (#2)
    by Dadler on Fri Jul 27, 2012 at 12:48:27 PM EST
    ...we could be honing and adjusting the economy and prices, etc., hourly, by the minute, the second, we could be providing sliding scales for deserving individuals and organizations, we could be fairly and comprehensively enforcing the rules of a fair game, we could be running a system that is humane and STILL rewards innovation, imagination, luck, what have you, with wealth...but instead, we argue about how much bullsh*t it takes to stuff a bull. I tune out all discussions and debates about the economy and money that aren't prefaced with the disclaimer "Money is a human creation, has no value in an of itself, and is completely under the control of human beings."  IOW, I pay little attention to the nonsense being constantly bandied about by "experts."  I just tune out. Far too much delusion in these discussions for my rational mind to handle. Delusion 24/7/365.  That said, I agree with everything you say about Geithner.  And I do not believe he is of this planet.

    We??? WE??? (2.00 / 1) (#10)
    by jimakaPPJ on Fri Jul 27, 2012 at 06:51:48 PM EST
    Would that be on the 5th or 6th day??

    We're going to provide remuneration... (2.00 / 1) (#12)
    by Gandydancer on Mon Jul 30, 2012 at 07:15:20 AM EST
    ...on a sliding scale, depending on how "deserving" you are. But it's going to be "fair" too? And the guy in charge of "adjusting" everything is somehow assuredly going to have none of the deficiencies of Timmy Geitner? When you say "this planet", what planet is that?

    Any reaction to Sanford Weill's comments? (none / 0) (#6)
    by oculus on Fri Jul 27, 2012 at 01:31:36 PM EST
    See p. 1 of yesterday's NYT.

    He's the guy who was foursquare (none / 0) (#8)
    by Anne on Fri Jul 27, 2012 at 02:49:45 PM EST
    behind the dismantling of Glass-Steagall to facilitate the Travelers-Citi merger, which was obscenely rewarding for him.

    But Yves Smith says it much better than I can:

    When I see someone like Weill or Dick Parsons putting a big chunk of their ill-gotten gains to fund lobbying or a think tank promoting tough-minded financial services reform, I'll give the backers their due for making a sincere and serious effort to undo the considerable damage they have done. But absent that, this career death-bed conversion is a hollow and insulting gesture.

    Makes sense to me.


    And the impact of the egos and ... (none / 0) (#9)
    by Erehwon on Fri Jul 27, 2012 at 05:17:26 PM EST
    the relationship between Weill and Dimon ...

    Jamie Dimon vs. Sandy Weill.

    Lot of history there!!!