The following post is by InfiniteGuest, a regular reader and frequent commenter.
Ask a friend, "What do you think of Ben Bernanke," and you get a substantive response, making comparisons to Greenspan, speaking more generally about Central Banks, the Great Depression, society at large, widening and continuing the discussion. "What do you think of Barack Obama?" yields comparisons to President Bush, opinions on the Presidency as an institution, on health care, our wars and our foreign policy, and of course, the state of race relations in America. Ask a friend about Larry Summers, Paul Volcker or Robert Rubin and expect a long conversation to follow. Hank Paulson provokes a referendum on Goldman Sachs. The mention of Paul O'Neill or John Snow makes for a good discussion of ethics. But ask, "What do you think of Tim Geithner," and after, "I don't like him," the conversation stalls.
I don't like Mr. Geithner. I don't know him, and I really never thought about him per se before 2008, but I don't like him nevertheless, and I don't know anyone who does. That's beside the point, though. Since Mr. Geithner is not an elected official, it doesn't ultimately matter whether the electorate likes him. What matters is how well he does his job.
Mr. Geithner's broad purview includes our fiscal policy, the international coordination of our monetary policy, the regulation of national banks and the management of TARP. More generally, he is the President's most senior economic adviser and he is also, more particularly, our most senior bond salesman. Hypothetically, maybe, someone else could do better than Mr. Geithner, and it may be that under fundamentally different circumstances, his job would require a fundamentally different approach, but we don't have the luxury of living in a hypothetical world. In the context of current events, and relative to his predecessors, how well does he discharge his responsibilities?
There doesn't seem to be any friction between Secretary Geithner and Fed Chairman Bernanke. The conflict between Chairman Greenspan and Secretary Brady having been disastrous, it clearly serves the interests of the Administration to have good relations with the Fed. Indirectly, their relationship serves the interests of the nation by strengthening our political stability during trying economic times, and to see the risks that conflict between the Fed and the Treasury pose to the financial system, we need not travel further back in time than the failure of Lehman Brothers. On principle, Secretary Paulson opposed bailouts, and on principle, Chairman Bernanke supported them. Their joint intervention on behalf of Bear, Fannie and Freddie, reinforcing prior implicit guarantees, set the expectation that Lehman Brothers would not be allowed to fail, but only because it masked their strongly held differences. I don't know whether Dick Fuld would have been able to sell the Firm prior to its collapse, but I can only imagine he would have tried a little harder had he realized that the argument between Mr. Paulson and Mr. Bernanke was ongoing, even intensifying, as the Presidential election approached. In the contest over the fate of Lehman, in hindsight, it would appear that Mr. Bernanke had time and history on his side, and Mr. Geithner stood to gain from Mr. Paulson's Pyrrhic victory.
Beyond any consideration of the financial system, our national economy benefits directly from the coordinated actions of the Fed and the Treasury. Since Mr. Geithner became Secretary, the Fed has monetized a large share of our national wealth, as a matter of policy. Facing generally tepid foreign demand, sales to the Fed are vital in consideration of our fiscal policy. I realize that people far better informed than I do not automatically agree, even now, that an expansionary fiscal policy is advisable or even worthwhile. Mr. Geithner himself professes to believe that spending is not indefinitely sustainable, but he does not question its necessity in the medium term. Rather, taking the classical view that the magic of loose monetary policy has worn off, Mr. Geithner touts expansionary fiscal policy as our only hope, and if I understand him correctly, not only for the United States, not only for our allies, not only for industrialized nations but also, even more so, for the rest of the world. Apparently his plan for a strong domestic economy is to spur everyone else to consume even more than we Americans do. Considering which, he may have been smart to publicly accuse China of manipulating the Yuan. I do find it noteworthy that despite plummeting exports the Chinese have not weakened any further since then.
I can't really differentiate Mr Geithner's rationalization of fiscal policy from his rationalization of anything else. Secretary Paulson struggled to reconcile his beliefs with reality, as so many of us do. Secretary Geithner, by comparison, does not struggle at all. He has no freedom to struggle. He has no freedom at all, other than freedom from contingency. Mr. Geithner is an instrument of the inevitable. In his view, however unhappy he may have been with a host of issues surrounding AIG, he had no other choice. He was devastated to see Lehman collapse, but he had no choice. He has so far had no choice with TARP and he had no choice, ultimately, with General Motors. The particulars of the story he tells around every decision he's participated in may vary a little, and in some cases, even a lot, but the stories are only noble lies, after all. What remains constant throughout, what I take to be real, is Mr. Geithner's belief that his course of action is the best course of action if for no other reason than that it is the only course of action available. That is not to say that he is predictable, far from it. What Mr. Geithner regards as inevitable defies easy categorization. His apparent lack of a fixed dogma generally works to his advantage. If nothing else, it creates a level of insecurity in the markets that favors holding safe assets, like Treasurys.
SIGTARP's latest quarterly has drawn attention as an exercise in eschatology, from which point of view the jury is still out of course, but it paints Mr. Geithner's management of TARP funds thus far in a flattering light. Whether TARP is successful "in two, or five, or ten years' time" remains to be seen. SIGTARP's grousing over the supposed failure of Treasury to address fundamental, structural problems over the past 16 months fallaciously assumes that we know, in advance, the full future consequences of our present actions. SIGTARP's characterization does not mitigate the facts that big banks have repaid early, that private capital is returning, and that even with the albatross of General Motors around its neck, the ultimate cost of averting disaster will be smaller than we once feared. Looking beyond the logical fallacy implicit in SIGTARP's criticisms one sees a willful ignorance of the present reality. The foreclosure mitigation and small business lending that SIGTARP finds wanting are the stated present purpose of TARP funds, over which Mr. Geithner has ample discretion. The subsidies that SIGTARP views as moral hazard are closed to new investment. SIGTARP points to the current bonus season as an illustration that recipient institutions, having repaid their subsidies, are free from the influence of Treasury, unrepentant and confident that future rescue financing awaits them free of cost. No one who has been paying attention could believe such fantasy. If anything, the experience of TARP has taught the industry to beware of bureaucrats bearing gifts. Finally, SIGTARP's hand-wringing over the Federal government's support of the housing market, in light of their other complaints, falls somewhere on the spectrum between mendacious and absurd.
The quality of his economic advice to the President, and the degree to which he is heard, are evident from the tension between Secretary Geithner and FDIC Chairwoman Sheila Bair. Their supervisory responsibilities overlap, creating a natural level of antagonism between them. Ms Bair, a political appointee, made a forceful political argument in favor of maintaining competition between the FDIC and the Treasury, but she stated her argument as a defense of the safety of redundant systems. Never mind that the redundancy she supports, far from reducing systemic risk, actually promotes it, both by offering financial institutions a choice of regulatory oversight adapted to their risk profile, and by preventing any one American regulator from pursuing the sort of horizontal integration that American companies, and foreign regulators, for that matter, are free to achieve. Mr. Geithner, in response, did not adopt the vocabulary of systems thinking and quite explicitly attacked the more political objections of Ms Bair and other regulators. His plan placed the Fed, rather than the Treasury, at the center of financial regulatory reform. The Administration's support of the transfer of its ultimate authority from Treasury to a politically independent body should be quite surprising. Surely, it can't be something the President wants to do. Mr. Geithner must have convinced him that, for the benefit of the larger economy, he had no other choice. It seems Mr. Geithner does what he must do, without presuming to know what the future holds, without regard for his personal feelings, believing that the right intentions determine the right choices, out of duty.
To an outsider, it may not be at all obvious that Mr. Geithner's decisions are all so closely proscribed. Did he consider all the alternatives? Of course not. No one considers all the alternatives. That would be a profligate waste of valuable time. He claims to have considered some of the clear alternatives, and in a few cases - PPIP comes to mind--he has chosen some of the more creative. I don't actually know how deeply he has considered the implications of his actions, or of his inactions, as the case may be, but on the other hand, would I really want Hamlet running the Treasury? For the time being I'm more comfortable having a Treasury Secretary for whom the execution of duty is uncomplicated by fussy moral, political or ideological considerations, a Treasury Secretary who has inherited the accumulated incremental mistakes of his predecessors and who casts himself powerless to take any action in response beyond administrating his inheritance in accordance with the desires of whoever his paymasters may be at the time. In Tim Geithner, I'm tempted to conclude, we have just such an apparatchik.
Earlier from IG: We Have Met The Crisis And He Is Us