Exit Geithner


Treasury Secretary Timothy Geithner’s departure from the Obama Administration invites comparisons with Klemens von Metternich. Metternich was the foreign minister of the Austrian Empire who engineered the restoration of the old order and the suppression of democracy across Europe after the defeat of Napoleon. This was an impressive diplomatic feat given the popular contempt for Europe’s monarchical regimes. In the same vein, protecting Wall Street from the financial and economic havoc they brought upon themselves and the country was an enormous accomplishment.

Just to remind everyone, during his tenure as head of the New York Fed and then Treasury Secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by J.P. Morgan in a deal involving huge subsidies from the Fed. The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachs if the Fed, FDIC, and Treasury did not take extraordinary measures to save them.

Citigroup and Bank of America both needed emergency facilities established by the Fed and Treasury explicitly for their support, in addition to all the below-market loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge.

Of the six banks that dominate the U.S. banking system, only Wells Fargo and J.P. Morgan could have conceivably survived without hoards of cash rained down on them by the federal government. Even these two are question marks, since both helped themselves to trillions of dollars of below-market loans, in addition to indirectly benefiting from the bailout of the other banks that protected many of their assets.

Had it not been for Geithner and his sidekicks we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross. Along with the salvation of the Wall Street banks, Geithner also managed to restore their agenda of deficit reduction.

Even though the economy is still down more than 9 million jobs from its full employment level, none of the important people in Washington are talking about measures that would hasten job creation. Instead the focus is exclusively on deficit reduction, a process that is already slowing growth and putting even more people out of work. While lives that are being ruined today by the weak economy, Geithner helped create a policy agenda where the focus of debate is the budget projections for 2022.

These projections are hugely inaccurate. Furthermore the actual budget for 2022 is largely out of the control of the politicians currently in power, since the Congresses elected in 2016, 2018, 2020 and 2022, along with the presidents elected in 2016 and 2020, may have some different ideas. Nonetheless, the path laid out by Geithner’s team virtually ensures that these distant budget targets will serve as a distraction from doing anything to help the economy now.

There are two important points that should be quashed quickly in order to destroy any possible defense of Timothy Geithner. It is often asserted that we were lucky to escape a second Great Depression. This is nonsense.

The first Great Depression was not simply the result of bad decisions made in the initial financial crisis. It was the result of 10 years of failed policy. There is zero, nothing, nada that would have prevented the sort of massive stimulus provided by World War II from occurring in 1931 instead of 1941. We know how to recover from a financial collapse; the issue is simply political will.

This is demonstrated clearly by the case of Argentina, which had a full-fledged collapse in December of 2001. After three months of free fall, its economy stabilized in the second quarter of 2002. It came roaring back in the second half of the year and had made up all of the lost ground by the middle of 2003. Its economy continued to grow strongly until the 2009 when the world economic crisis brought it to a standstill. There is no reason to believe that our policymakers are less competent than those in Argentina; the threat of a second Great Depression was nonsense.

Finally the claim that we made money on the bailouts is equally absurd. We lent money at interest rates that were far below what the market would have demanded. Most of this money, plus interest, was paid back. However claiming that we therefore made a profit would be like saying the government could make a profit by issuing 30-year mortgages at 1.0 percent interest. Surely most of the loans would be repaid, with interest, but everyone would understand that this is an enormous subsidy to homeowners.

In short, the Geithner agenda was to allow the Wall Street banks to feed at the public trough until they were returned to their prior strength. Like Metternich, he largely succeeded. Of course democracy did eventually triumph in Europe. Let’s hope that it doesn’t take quite as long here.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on the Guardian.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

December 01, 2015
John Wight
From Iraq to Syria: Repeating a Debacle
Conn Hallinan
Portugal: the Left Takes Charge
Mike Whitney
Putin’s Revenge? The Fight for the Border
Sami Al-Arian
My Ordeal: One of America’s Many Political Trials Since 9/11
Steffen Böhm
Why the Paris Climate Talks Will Fail, Just Like All the Others
Gilbert Mercier
Will Turkey Be Kicked Out of NATO?
Bilal El-Amine
The Hard Truth About Daesh and How to Fight It
Pete Dolack
Solidarity Instead of Hierarchy as “Common Sense”
Dan Glazebrook
Rhodes Must Fall: Decolonizing Education
Colin Todhunter
Big Oil, TTIP and the Scramble for Europe
Eric Draitser
Terror in Mali: An Attack on China and Russia?
Linn Washington Jr.
Torture and Other Abuses Make Turkey as American as Apple Pie
Randy Shaw
Krugman is Wrong on Gentrification
Raouf Halaby
Time to Speak Out Against Censorship
Jesse Jackson
It’s Time for Answers in Laquan McDonald Case
Patrick Walker
Wake Up Zombie, Kick Up a Big Stink!
November 30, 2015
Henry Giroux
Trump’s Embrace of Totalitarianism is America’s Dirty Little Secret
Omur Sahin Keyif
An Assassination in Turkey: the Killing of Tahir Elci
Uri Avnery
There is No Such Thing as International Terrorism
Robert Fisk
70,000 Kalashnikovs: Cameron’s “Moderate” Rebels
Jamie Davidson
Distortion, Revisionism & the Liberal Media
Patrick Cockburn
Nasty Surprises: the Problem With Bombing ISIS
Robert Hunziker
The Looming Transnational Battlefield
Ahmed Gaya
Breaking the Climate Mold: Fighting for the Planet and Justice
Matt Peppe
Alan Gross’s Improbable Tales on 60 Minutes
Norman Pollack
Israel and ISIS: Needed, a Thorough Accounting
Colin Todhunter
India – Procession of the Dead: Shopping Malls and Shit
Roger Annis
Canada’s New Climate-Denying National Government
Binoy Kampmark
Straining the Republic: France’s State of Emergency
Bill Blunden
Glenn Greenwald Stands by the Official Narrative
Jack Rasmus
Japan’s 5th Recession in 7 Years
Karen Lee Wald
Inside the Colombia Peace Deal
Geoff Dutton
War in Our Time
Charles R. Larson
Twofers for Carly Fiorina
John Dear
An Eye for an Eye Makes the Whole World Blind
Weekend Edition
November 27-29, 2015
Andrew Levine
The Real Trouble With Bernie
Gary Leupp
Ben Carson, Joseph in Egypt, and the Attack on Rational Thought
John Whitbeck
Who’s Afraid of ISIS?
Michael Brenner
Europe’s Crisis: Terror, Refugees and Impotence
Ramzy Baroud
Forget ISIS: Humanity is at Stake
Pepe Escobar
Will Chess, Not Battleship, Be the Game of the Future in Eurasia?
Vijay Prashad
Showdown on the Syrian Border
Dave Lindorff
Gen. John Campbell, Commander in Afghanistan and Serial Liar
Colin Todhunter
Class, War and David Cameron
Jean Bricmont
The Ideology of Humanitarian Imperialism