Tuesday, November 25, 2008
Geithner = Paulson.
On Friday, we learned that Timothy Geithner, president of the New York Federal Reserve, would become his new treasury secretary and Larry Summers, who held the same position in the Clinton administration, would be the White House overseer of economic policy. On Monday, Geithner was busy executing the government's massive rescue of Citicorp -- the very banking behemoth that Geithner and Summers helped to create back in the Clinton years, along with Federal Reserve chairman Alan Greenspan and Robert Rubin, Clinton's economics guru. Now Rubin is himself a Citicorp executive and his bank is now being saved by his old protege (Geithner) with the taxpayers' money.
The connections go way beyond irony. They raise very serious questions about where the new president intends to lead and whether he has the nerve to break from the weak and haphazard strategy of the Bush administration. It has dumped piles of public money on the largest financial institutions and demanded little or nothing in return, hoping for the best. Geithner has been a central player in the deal-making, from Bear Stearns to AIG to Citi. The strategy has not only failed, it has arguably made things worse as savvy market players saw through the contradictions and rushed out to dump more bank stocks....
Their approach has clearly been designed to preserve what's left of the Wall Street establishment and maintain the supremacy of the largest financial firms while the taxpayers pick up their losses. That model has failed and too many smart people know why. The bailouts have been too little too late and aimed at an impossible objective -- persuading private capital investors to believe in the phony assurances proffered by the bankers. AIG, the insurance giant taken over by the feds, has turned into a bloody hemorrhage. Citigroup will be another and may soon be joined by other major banks demanding the same favorable terms. Wasting more public money on insolvent mastodons is the least of it. The real scandal is it doesn't work. It can't work because the black hole is too large even for Washington to fill. Government should take over the failing institutions or force them into bankruptcy, break them up and sell them off or mercifully relieve everyone, including the taxpayers.
Stock markets rallied again with the salvage of Citigroup. But not everyone in Wall Street was cheering. Christopher Whalen of Institutional Risk Analytics, the bank monitoring firm that has repeatedly been right about the banks when the government officials were wrong, had harsh words for the deal. "Pretending that Citi is going to be a going concern I think is silly," Whalen said. "We should be thinking about breaking this company up and redistributing the assets into stronger hands."