Treasury Secretary Tim Geithner, chiding Wall Street for trying to undermine enforcement of the Dodd-Frank financial-reform bill, is trying to rewrite history. He would have us believe that regulators lacked the power to prevent the financial collapse. In fact, they had plenty of power. The problem was that Geithner and company were in industry’s pocket, and didn’t use the power they had.
Writing in today's Wall Street Journal, in an op-ed piece titled “Financial Crisis Amnesia,” Geithner contends:
Regulators did not have the authority they needed….A large shadow banking system had developed without meaningful regulation, using trillions of dollars of short-term debt to fund inherently risky financial activity. The derivatives market grew to over $600 trillion, with little transparency or oversight. Household debt rose….with a large portion of those loans originated with little or no supervision and poor consumer protections.
Jesus wept! The amnesia is Geithner’s.
Take these in turn. Derivatives: Brooksley Born was sounding the alarms about derivatives in 1998, and was crushed by the same Treasury Department where Geithner was then a top deputy to Robert Rubin. Born wanted to issue regulations requiring much greater “transparency and oversight,” for which she had full authority as head of the Commodity Futures Trading Commission. She was blocked politically by the Treasury. Where was Geithner?
Fast forward to the Obama administration. Born’s successor as CFTC Chairman, Gary Gensler, repeatedly tried to toughen scrutiny of derivatives, and was opposed or blocked by none other than Tim Geithner.
What about subprime, the heart of the collapse? Geithner was president of the New York Fed. His colleague, Fed Chairman Alan Greenspan repeatedly refused to use his authority under the 1993 Home Equity Protection Act, which directed the Fed to issue loan underwriting standards. Had Greenspan acted, there would have been no subprime meltdown. As the crisis was gathering, the risks of subprime were all over the financial press. As president of the New York Fed, he could observe these exposures. Where was Geithner?
The junk bonds backed by subprime mortgages, and blessed with Triple-A ratings by the credit rating agencies, could not have been sold without the corruption of those ratings. The rating agencies are supposed to be monitored and supervised by the SEC. Even after the collapse in 2009, when Geithner wrote his grand design for the financial reform that became the Dodd-Frank Act, there was no tough oversight of these rating firms, and there still isn’t.
Now, Geithner is trying to cover his butt writing an op-ed (that the Wall Street Journal was happy to publish) blaming Wall Street for his own failure to be a tougher regulator.
In Ron Suskind’s fine book, Confidence Men, on how Geithner, Larry Summers, and company protected Wall Street, Suskind quotes an appalled Senator Byron Dorgan telling President-elect Obama in December 2008, “You’ve picked the wrong people!”
Did he ever. Geithner keeps proving that over and over again.