_The Atlantic_ on Geithner


Reaction to the below: I am sure that it's heroic that Geithner, Obama, et al. managed the would-be Second Great Depression such that I can barely make enough money to live on my own and may not even have health insurance pretty soon here. Thanks for the recovery. But the essence is that there are people on Wall St. getting bonuses that dwarf what a thick cut of the population makes in their lifetimes. That is morally wrong, and the Democratic Party elite (i.e. Geithner) are on the wrong side, or rather, touching two wrong sides -- identifying with and coddling Wall St. robber barons and continuing the deregulatory ideology of both the GOP and Democratic Party from the past 30 years. Like most dyed-blue Democrats, I have so little motivation for my party -- the Washington elite, GOP and Democrat alike, is allergic to  simple phrases like "working people", "collective responsibility", and "dignity." I read this Atlantic article's defense of Geithner and Obama's treatment of Wall St. and a simple rule occurs to me: a nation that imports more than it exports is losing wealth. The "post-industrial" economy means a lot of blue-collar guys working humiliating service-sector jobs while their baby's mama gets paid $25 an hour to work as a nurse and give shots to retirees. That is a formula for social unrest, it's unsustainable, it'll make for a country that sucks, and it's an odd irony that only the popular movements from the right can point it out. The problem with Obama is that he isn't comfortable with the fact that he can change history, that he is the wild card to bring about peace (get out of those goddamn wars), prosperity (get real people jobs and f*** Wall St.), and justice (bring back equality and roll back Cheneyite ideology). It won't just happen as part of some political calculation devised by Rahm Emanuel.

Any study of Geithner is unavoidably a study of how both political parties came to agree that the interests of the financial sector must predominate, of what went wrong when those interests did predominate, and of how someone whose glittering career is a product of that system wound up at the center of an effort to write new rules for it. At the center, really, of the whole Obama presidency.
[Henry] Kissinger took note of his young charge. Geithner was asked to write a series of longer papers, not for the firm but for Kissinger personally, and they became part of the basis for Diplomacy, Kissinger’s sweeping history of international statecraft. Although Geithner moved on to the government after three years, Kissinger remains an enthusiastic backer.
The incoming undersecretary for international affairs was Lawrence Summers, the brilliant, prickly Harvard economist entering government for the first time. Geithner had never heard of Summers, but agreed to stay on temporarily as a special assistant. He never left. The pair fast developed a symbiotic relationship. Geithner had the rare capacity to withstand Summers’s intellectual bullying and thrive, giving back as good as he got.

One of the great mysteries of the Clinton years is how a team so adept at bringing financial order around the world imagined that it would be a good idea to strip away so many of the rules governing banks and investment firms here at home, rules that dated back to the New Deal. How did Washington get it so wrong?

Much of the thinking about the current crisis goes like this: the problem proceeded directly from the deregulation of the financial industry in the 1980s and ’90s, which was orchestrated by a handful of free-market academics and conservative think tanks that conspired with Wall Street to seduce Washington into going along. That’s true, but it doesn’t tell the whole story. The intellectual history of the movement to deregulate finance features radicals along with conservatives, and the process began being implemented under Jimmy Carter, not Ronald Reagan. It wouldn’t have happened without Democrats.


But liberal antipathy toward Reagan did not abolish the impulse to deregulate; it simply held it in check. “The intellectual orientation of the mainstream of the Democratic Party in the Reagan years was much closer to Wall Street than anyone admits today,” Canedo says. When Bill Clinton was elected, pent-up Democratic desire, gladly facilitated by the new Republican leadership in Congress in 1995, unleashed the wave of deregulation that culminated in 1999 with the repeal of the Glass-Steagall Act, the seminal New Deal banking reform. The financial industry was anything but a bystander. Its size relative to other sectors of the economy exploded, increasing its Washington heft. The assets of securities brokers and dealers, for instance, which represented less than 2 percent of gross domestic product in 1980, grew to 22 percent in 2007. In the mid-1980s, the Democratic Party began soliciting from Wall Street in earnest, and contributions climbed steadily from then on. In the 2006 election cycle, Democrats got more money from financial interests than Republicans did....


When Lehman failed, its hundreds of billions in derivatives contracts were settled within 72 hours, sparing untold amounts of anxiety and money (a panic would have driven down the market even further). Geithner’s actions were shrewd, but also disconcerting, since they addressed the problem only insofar as met the banks’ self-interest. He took no drastic steps to warn the public.


Most Democrats also leave for the private sector [from government], though for a different reason—money.


Geithner became phobic about intervening in the markets in any way that investors could perceive negatively, fighting off White House efforts to impose stringent pay caps on banks receiving federal aid. When Britain’s prime minister, Gordon Brown, advocated a tax on financial transactions to reduce the appeal of purely speculative trading (an idea Summers once favored), Geithner publicly dismissed the notion out of hand. He has exasperated the bailout program’s chief watchdog, Neil Barofsky, by refusing to make all of the banks explain how they use their bailout money. “It’s hard to be on the wrong side of this issue,” Barofsky marveled when I asked him about it. “This is just basic accountability.” Barofsky has become Geithner’s chief tormentor.


Even with unemployment high and anger at Wall Street intense, the mood at Treasury is quietly exultant because the imminent possibility of another depression has disappeared and growth has resumed, all at a fraction of the cost estimates being bandied about last year when it still looked like the government might need to take over large banks.


And yet, a year into his presidency, the overwhelming criticism of Obama is that he is taking too much control of the economy and spending too much money—which must really sting, because by avoiding nationalization and its colossal costs, he has probably saved an incredible sum. “We’re getting killed from the right and from the left on the basic strategy,” Geithner told me. “The right argues that we unnecessarily socialized the entire financial system. The left says we wasted money on things they’d have rather used to help real people directly. As you might understand, I have no sympathy with either. Neither critique is right. To the right, I would say: ‘No, the strategy we adopted was overwhelmingly designed to try to make sure that private markets came and took us out of this as quickly as possible. That was a conscious choice, a shift in strategy, and a more pro-market approach that will help us deal with our fiscal challenges.’ And to the left, I would say: ‘And that saved the taxpayer hundreds of billions of dollars that you can use to meet the main challenges we face as a country—health care, education, infrastructure, and our long-term deficit.’”


The angry uprising that stopped the Obama agenda in its tracks is part of the steep political cost of following the Geithner Plan—a cost that seems to keep rising, even as the fiscal cost continues to fall. Even the most prominent indicator of recovery, the robust stock market, has come to seem a curse, by reinforcing in the public mind how quickly Wall Street has recovered while everyone else is left to endure.


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