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Monday, March 30, 2009

So Just Who Is This Geithner Dude, Anyway?

Treasury Secretary Tim Geithner seems to be in the unfortunate position of being one of the favorite punching bags of conservative pundits. The criticism as a blunder of his first news conference, in the midst of which the stock market tanked, is probably fair. He wasn’t prepared to present details of a rescue plan for the banking industry, and it’s hard to see much excuse for that.

It’s especially hard to see if you look back a bit further into his background. Among his publishing credits are a 2006 lecture, “Hedge Funds and Derivatives and their Implications for the Financial System,” and a 2004 paper “Changes in the Structure of the US Financial System and Implications for Systemic Risk,” in which Geithner wrote that “… the increased size and scope of these entities necessarily exposes them to a wider array of shocks and risks and means that the failure of one of them could have a broader impact than in the past and be considerably more difficult to resolve. The implications for such a failure would almost certainly fall outside the range of experience captured in conventional markets.”

In this remarkable passage we see that, four years before the fateful events of Fall 2008, the President of the New York Fed already seemed to be aware of the unprecedented vulnerabilities in our banking system. At a time when the U.S. was just entering the upward curve of the Great Housing Bubble, Geithner was apparently well aware that our economy could be dwelling in a house of cards.

If Geithner knew this, so too, no doubt, did the rest of the Fed, which begs the question of why preventive action wasn’t taken sooner. Maybe behind the scenes the keepers of the temple were indeed quietly exploring the issue. Perhaps they were alarmed but didn’t see much that could be done without creating a panic that would bring down an economy that, after the collapse of the tech bubble, was being propped up entirely by the housing bubble. Perhaps the Fed, which of course is almost infamous for its cautious approach to public comment, and understandably sensitive to the impact of its statements on the markets, saw delaying the inevitable as the best among options that were all pretty bad. It also seems quite plausible that political pressure from the George W. Bush administration may have played no small role in the acquiesence.

But now, of course, a different administration is in power. And, in view of Geithner’s above-referenced contributions to the financial literature, we can perhaps take comfort in the idea that the new administration has at least placed someone at the helm of the financial system who has a thorough understanding of the issues behind the crisis.

Much has been made recently in the media of the alleged difficulty the administration has experienced in hiring deputies for Geithner. Given the beating he has taken in the media, maybe a good PR guy is among his staffing needs. In case you’re reading this, Mr. Geithner, I’d certainly be interested in entertaining an offer. Sphere: Related Content

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