Tim Geithner Admits “Too Big To Fail” Hasn’t Gone Anywhere (and that’s the way he likes it)

But it is now clear that Geithner never believed his own talking points. To him, too-big-to-fail and the so-called moral hazard, or safety net, that it would create can’t really ever be fully taken away. During his lecture to Summers’s class, one student asked a question about “resolution authority,” a provision of the reform laws that is supposed to let the government wind down a complex financial institution without creating a domino effect. The question prompted Geithner onto a tangent about too-big-to-fail. “Does it still exist?” he said. “Yeah, of course it does.” Ending too-big-to-fail was “like Moby-Dick for economists or regulators. It’s not just quixotic, it’s misguided.”

– From The New York Times Magazine article, What Timothy Geithner Really Thinks

Never in a million years did I think I’d ever use an article by Andrew Ross Sorkin as the basis of a blog post, but here we are. While certainly entirely unintentional, his article serves to further solidify as accurate the prevailing notion across America that former head of the New York Federal Reserve and Obama’s first Treasury Secretary, Timothy Geithner, is nothing more than an addled, crony, bureaucratic banker cabin boy.

There are so many choice nuggets in this article, all of which make Geithner look worse and worse as you read on. It’s almost as if he is some sort of lab created, android bankster butler sent back to earth from the future in order to ensure Wall Street bonuses never experience a downtick. It’s truly remarkable. Early in the article, we learn a little bit about Timmy’s family history, and how, shocker, it overlaps quite nicely with Obama’s own family history.

The following lines from this day forth should be forever referred to as the paragraph that launched a thousand conspiracy blogs. We learn that:

But Geithner and Obama had a somewhat natural rapport. Geithner, like Obama, had an itinerant childhood. His father worked for U.S.A.I.D., and the family lived in India, Zimbabwe, Zambia and Thailand. In the conversation, they discovered that Geithner’s father ran the Ford Foundation’s Asia grant-writing program in the 1980s at the same time that Obama’s mother was at its office in Indonesia. It was a nice coincidence, Geithner says, but it still didn’t make him want the job.

Well yes, quite the coincidence indeed. Also interesting that Geithner’s father worked for U.S. A.I.D., which is the organization recently revealed to have launched the fake Cuban Twitter in an attempt to overthrow the government there. In case you missed that, you can get caught up in my post: Conspiracy Fact – How the U.S. Government Covertly Invented a “Cuban Twitter” to Create Revolution. Meanwhile, Democracy now did an expose titled, Is USAID the New CIA?

While the above is certainly interesting and deserves more research on many fronts from folks far more qualified than me, let’s move on to the meat of the article and Geithner’s unique form of bankster worship. Moving along…

But Geithner’s refusal to condemn the bankers became a recurrent theme during his time at Treasury. According to Bernanke, “I didn’t and Tim didn’t go very far in lambasting individuals in Wall Street, maybe partly because we were more focused on the problem than on the politics.” Others, however, have suggested that Geithner was simply too cozy with Wall Street. He had never worked as a banker himself, but he grew up inside the bubble of elites. (Before going into government, his first job was working for Henry Kissinger at Kissinger Associates.) He was tutored at Treasury by Summers, who later worked for the hedge fund D. E. Shaw & Company, and Rubin, who came up through Goldman Sachs and eventually joined the board of Citigroup, where he has been blamed in some circles for its taking on excessive risky debt that nearly caused the firm to collapse. Each man played a significant role in deregulating the financial industry in the 1990s by supporting the repeal of the Glass-Steagall Act, which separated commercial and investment banking; they also pushed to limit future regulation of derivatives.

There you have it. Geithner and Bernanke never saw the bankers and their practices as a problem. Rather, they seemed to believe that Poseidon came out of nowhere and splashed a once in a million year tidal wave upon the system and only trillions in free money to financial criminals could save the world.

Oh, and Geithner’s first job was working for Henry Kissinger. Quite the pedigree…

What is certain, however, is that for all the malfeasance of the biggest banks, Geithner had a predisposition that Wall Street, even as it was, remained essential to the functioning of the U.S. economy in just about every sector. “I did not view Wall Street as a cabal of idiots or crooks,” he writes in “Stress Test.” “My jobs mostly exposed me to talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.” During his first few months in the job, Geithner fought with Summers, who felt that his protégé had become overly solicitous of the banks. Geithner dismissed Summers as espousing “the hedge-fund view.” (“Hedge-fund executives tended to see the banks as dumb, lumbering giants,” Geithner writes.) He disagreed when Summers suggested to Obama that the administration pre-emptively nationalize banks like Citigroup or Bank of America or even to try to embarrass them into changing their compensation structures. “I feared that the tougher we talked about the bonuses, the more we would own them,” Geithner writes, “fueling unrealistic expectations about our ability to eradicate extravagance in the financial industry.”

Geithner is so bad, he actually makes Larry Summers look good.

As such, it has left him open to endless criticism that he was a prisoner of “cognitive regulator capture” by Wall Street or suffered so greatly from “Lehman Syndrome” that he became soft on the industry. Simon Johnson, an economist at M.I.T., has argued that bailouts were necessary but executed in the form of a great giveaway. He has compared Geithner to Charles Maurice de Talleyrand-Périgord, the French statesman “who served the Revolution, Napoleon and the restored Bourbons — opportunistic and distrusted, but often useful and a great survivor.” Elizabeth Warren, the Massachusetts senator and creator of the Consumer Financial Protection Bureau, has written in her new book, “A Fighting Chance,” that Geithner “believed the government’s most important job was to provide a soft landing for the tender fannies of the banks.” It’s an opinion shared by Neil Barofsky, the former special inspector general of TARP. He told me in an email that Geithner, Bernanke and Paulson “consistently put the interests of the banks over those who were supposed to be helped, like struggling homeowners.” While Barofsky acknowledges that TARP “undoubtedly helped save the system,” he also says, “it was supposed to do so much more.”

On some level, though, data cannot settle the argument. During our time together, Geithner spoke about the “collateral beneficiaries” of the bailout, by which he meant the inconvenient fact that certain investors and institutions came out of the crisis better off. And for some, that is direct proof of another counterfactual argument. To believe that the bailout worked, they would argue, you would have to believe that the system itself was worth saving in the first place.

That’s the question very few people are willing to ask, but which is at the root of the whole debate.

But it is now clear that Geithner never believed his own talking points. To him, too-big-to-fail and the so-called moral hazard, or safety net, that it would create can’t really ever be fully taken away. During his lecture to Summers’s class, one student asked a question about “resolution authority,” a provision of the reform laws that is supposed to let the government wind down a complex financial institution without creating a domino effect. The question prompted Geithner onto a tangent about too-big-to-fail. “Does it still exist?” he said. “Yeah, of course it does.” Ending too-big-to-fail was “like Moby-Dick for economists or regulators. It’s not just quixotic, it’s misguided.”

Yep, so “Too Big To Fail” has gone nowhere and society continues to be held hostage by the criminal financial oligarchs more than ever before. How about this chart on how 37 banks became 4 in just 20 years:

Screen Shot 2014-05-09 at 12.25.57 PM

After much back and forth, Obama eventually appointed his chief of staff, Jack Lew, to the job. Geithner returned to Larchmont as an empty-nester, in the same house he could not sell, where he has spent the last year writing his book, working out of the Council on Foreign Relations and giving speeches for six-figure sums. While he claims he is through with government, he still maintains an intimate relationship with Obama, who was rumored to have recruited him to succeed Bernanke as chairman of the Federal Reserve.

Geithner admitted that he struggled over what to do next. He didn’t want to go back into government, and he wasn’t inclined to go into academia, but he worried about the optics of going into finance. “I think the perception problem — first of all it’s very damaging to me as I was trying to do some tough things, and I think it’s kind of very damaging to the country at the moment because it sees this basic loss of faith in government,” he said. “I thought the only thing I could really do about that was to make sure I didn’t go work for a bank or a firm that we’d regulated or that we’d rescued directly.”

Last month, Geithner officially began a new job as president of a modestly sized private-equity firm, Warburg Pincus. It may not be investment banking, but it’s possibly finance’s second-most-vilified industry, given how Mitt Romney’s Bain Capital experience played out in the 2012 presidential campaign. It’s very unlikely that Geithner will be using TurboTax anytime in the near future, though; he is likely to make millions if not tens of millions of dollars over the next decade if he stays in the business.

He was hesitant to join a financial firm, but he did it anyway! Didn’t take too long. Meanwhile, I think private equity will be seen as the primary villain in the next crisis, as I pointed out in the post: Leaked Documents Show How Blackstone Fleeces Taxpayers via Public Pension Funds.

I asked if the job meant that he had finally given up socialism, which his more severe detractors had accused him of, and embraced capitalism.

“No,” he said, with a laugh. “I wouldn’t claim that yet.”

To Geithner’s credit, he seems incapable of telling a really good lie, so through him at least we see the prevailing mentality of the corrupt sociopaths in charge of this country’s policies.

Moving along to another New York Times article, this one by former U.S. Senator Ted Kaufman, we learn more about the societal destructiveness of not going after bankers. He writes:

After the failures that led to the financial crisis, many taxpayers expected that the government would take a hard stance against those who had committed egregious violations.

The department first strayed from the correct path when it began years ago to resort to non-prosecution and deferred prosecution agreements with banks, focusing on enhancing bank compliance programs. Instead, it should have stayed focused on investigating senior managers and holding them accountable for lawbreaking, however difficult the consequences may be.

What’s far more troubling, however, is that the recent inspector general’s report and accounts from former department insiders show that the Justice Department never made mortgage origination fraud – much less the financial crisis-related investigations of high-level Wall Street executives – a priority.

The department’s Southern District of New York, for instance, chose instead to focus on insider-trading cases. The two task forces that the Obama administration formed (which never had a significant investigative capacity) were more for public show than substantive criminal investigations.

And according to the inspector general’s report, the F.B.I. ranked complex financial crimes as “the lowest of the six ranked criminal threats” and ranked mortgage fraud as “the lowest subcategory threat” within that category.

Yep, the F.B.I., good at going after peasants and protecting the oligarchs.

It is true that congressional appropriators substantially shortchanged FERA, providing only a portion of the promised $165 million. But the inspector general’s report also found that the F.B.I. diverted FERA funds to other priorities. The report said that “significant mortgage fraud cases were being closed due to the diversion” of these resources.

It’s also concerning that conversations took place between Justice and Treasury officials about whether it was appropriate to proceed criminally against particular banks. Under the department’s guidelines, prosecutors are supposed to consider “collateral consequences.” Again, I consider that to be a false issue, as the focus of the investigations should have been on individual executives, not institutions.

But the fact that the Justice Department has failed to even try to adequately hold individual Wall Street bank executives accountable has deeply eroded trust in equal justice under the law.

Just in case you haven’t yet figured out how America works.

In Liberty,
Michael Krieger

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9 Comments

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  1. Pure Hubris.

    Thinking that the Feds can provide a soft landing is like thinking buglers are going to set down your TV stand gently after they load up your big screen.

    • It is hubristic, but in a way opposite from what most people envision.

      A lot of rubes have promulgated and/or bought the notion that a collapse of the dollar means a collapse of the government or a collapse of society (and they often conflate the latter two, as well.)

      In fact, a dollar collapse would result in a return to honest money, and only the cheats and frauds have anything to fear from that (specifically, they would lose the gravy train and their dollar-denominated investments and royalties and have to do real work for their supper again.)

      • Don’t kid yourself, social upheaval will be part off the mix in a return to sound money. Society is wound around the currency so tightly that jobs will be chopped away in a frightening year of reorganization. It’s hard to predict how society will respond but riots are likely.

        • You’re the one kidding yourself. If the oligarchs keep the currency monopolistic, riots are likely because that means continuing the scam that’s ripping everyone off and trashing the economy.

          In those (very few) cases where the authorities strengthen the currency or return to sound money, the recovery takes place overnight.

          Sometimes it starts that afternoon.

  2. America: Freedom to Fascism

  3. What happens if you stop punishing criminals? Does criminal behaviour increase or decrease? What happens when children are given no limits to their behaviour? Do they grow up to be self-confident and productive?

    Collateral consequences? That’s funny – what about the collateral consequences to a family when a man is imprisoned or loses his job (or both) for smoking pot? We clearly have a two tiered justice system that is harmful on every side.

  4. this is amazing. democrats and republicans passing ‘anti-nsa’ spying bill. so orwellian—it privatizes the data warehousing so there is even LESS public accountability over spying. unreal.

    this is ‘anti-nsa’ in so far as it encourages even MORE corruption and authoritian use of data by putting it in the hands of people who probably aren’t even american, let alone public servants i.e. beauracrats.

    i would call this the anti-snowned bill more than the anti-nsa bill.
    with a private company running security on america’s meta-data. any ‘whistle blowers will summarily have their brains blown out.

    http://thedailybanter.com/2014/03/obama-to-propose-the-privatization-of-nsas-metadata-collection-program/

    as bad as this sounds i’m PRO NSA SPYING int this context. that’s how bad this is.

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