Geithner's Latest Alibi

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.

Comments

Opine
Our Leftist regime is not to be faulted, they have done the very best they could.
CAP and others of like ilks, published the plan, but like all plans, this one and others went astray. REALITY is far from Leftist Planning. Theories, economic platitudes, Old Econ ideas out of date, failed systems, all were tried and found wanting. Essentially the beloved Left had to get the angst out of thier systems prior to actually implementing solid Progressive ideas.
Fatally, the US suffered thru this for 2 years, till the Common Sense of the US Electorate rose up in 2010. PERHAPS they are not asleep in 2012.
The odds are, 6/10 that this will NOT be case come November. But then, one never can be entirely sure that the Individuals watching March Madness may just get off the couch come November and toss the Lefties down the Capital Steps.
Could happen....
Semper FI

This is hackery at its worst. Geithner argued there was no overall systemic regulator capable of imposing prudential regulation on non-banks and there was no authority to put non-banks into a managed BK process a la the FDIC's authority w/r/t banks. That's just true. Congress tried to fix those things in dodd-frank and we'll see if they work, but geithner did NOT argue that the government lacked legal authority over the issues you describe and your quote from the op-ed conveniently omits ALL the relevant context. Here it is so your readers are actually well informed:

"Regulators did not have the authority they needed to oversee and impose prudent limits on overall risk and leverage on large nonbank financial institutions. And they had no authority to put these firms, or bank holding companies, through a managed bankruptcy that wound them down in an orderly way or to otherwise adequately contain the damage caused by their failure. The safeguards on banks were much tougher than those applied to any other part of the financial system, but even those provisions were not conservative enough."

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