Geithner and Summers: Economic Disaster Deja Vu

g + s

Timothy Geithner’s profanity-laced rant against Sheila Bair and Mary Shapiro for their rational, reality-based concerns about increasing the power of Federal Reserve Bank, as opposed to increasing oversight of the system, should elicit a kind of déjà vu because the scenario has been played before. (Note: Increasing oversight does not mean policy disclosure.)

In 1997-8, Brooksley Born, the head of the Commodities Futures Trading Commission, tried to open a discussion about introducing oversight measures into the OTC derivatives market by producing a memo because she could see that:

“There was no transparency of these markets at all. No market oversight. No regulator knew what was happening,” Born says. “There was no reporting to anybody.”

Summers, Rubin’s deputy (and now director of the National Economic Council), said the memo had “cast the shadow of regulatory uncertainty over an otherwise thriving market, raising risks for the stability and competitiveness of American derivative trading.”

History, in the form of the role these derivatives played in this economic disaster, has proven that she was right to undertake that initiative. Unfortunately, Greenspan, Leavitt, Rubin, and Summers, to name some major players, were effective in pushing legislation that ended the CFTC’s ability to undertake oversight.

Born assailed the legislation, calling it an unprecedented move to undermine the independence of a federal agency. In eerily prescient testimony, she warned of potentially disastrous and widespread consequences for the public. “Losses resulting from misuse of OTC derivatives instruments or from sales practice abuses in the OTC derivatives market can affect many Americans,” she testified that July. “Many of us have interests in the corporations, mutual funds, pension funds, insurance companies, municipalities and other entities trading in these instruments.”

Notwithstanding, her concerns were dismissed and her ominous predictions came to pass.

Geithner is a protégé of Summers.

Is it not an ironic twist of fate, and a testament to Geithner’s blind faith against oversight, that he, like his mentor before him, is assailing intelligent, moral, qualified women for pointing out the  folly of his ways.

{Note: I defer all economic inquiries to our resident expert, Dakinikat.  My interest in the situation is the social dynamic.}

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23 Responses

  1. Sorry to be OT, but Breaking: Kim Jong Il has ordered the release of Euna Lee and Laura Ling… I think they will be flying back with Bill Clinton.

    • Sometimes diplomacy is giving a rabid dictator a way out for the greater good. The world will see the Clintons and America as the grown-ups in this exchange.

      • T4C,

        On my way Down SoutH on June 27th I had a discussion about North Korea with a Texas oil man. He said North Korea was the most urgent military threat facing the U.S. I said Kim Il Jong was firing missiles because he was not well and he having a temper tantrum because the world was too busy dealing with more important things than to give him center stage. It was fun to have Hillary confirm my thoughts on the issue.

        S

    • Wonderful news! I knew Big Dawg could pull it off.

    • Such wonderful news for a change!!! Off to read the headlines. BRB.

    • The Clintons are the best ever. That is all there is to say about it.

      Thank God. I am very happy for the journalists.

    • Yeah, just heard that myself.

      Go the Clintons!

  2. Unfortunately, some things don’t change. Getting corporate men to take women seriously is still an uphill battle and it’s a tiresome, costly, and fruitless one.

  3. Regarding the social aspect, I’ve finally come to the conclusion that these folks, mostly men, just like playing king of the mountain. They never outgrew their childish impulses.

  4. g,

    “Men are just large boys.”
    – my mom

    s

  5. The WSJ says that Geithner has a history of blowing up at Sheila Bair too.

    http://blogs.wsj.com/economics/2009/08/04/geithner-has-blown-his-top-with-regulators-before/

    The Fed contemplated but ultimately rejected making an “unusual and exigent” loan. Wachovia was a bank, and the law provided a road map for coping with the collapse of a big bank. The only rub was that it meant dealing with [FDIC Chairman] Sheila Bair. They decided to do it anyhow.

    Bair wanted to do to Wachovia what she’d done to WaMu — take it over, sell the pieces, and wipe out stockholders and bondholders. After all, any losses that the FDIC had to swallow to rescue Wachovia would have to be assessed across the entire banking system in higher premiums on FDIC deposit insurance.

    “I don’t think that the small banks should have to pay for the sins of the big banks,” she said.

    [Then New York Fed President] Geithner blew up. Wachovia has to open on Monday, he argued. It must be sold this weekend, the buyer needs government assistance, and the debt holders need to be protected. “It has to be this way,” he said. “We just went to Congress for $700 billion. The policy of the U.S. government is that there will be no more WaMu’s.”

    • D,

      Hmm. Having just watched the second season of The Tudors I’m cannot help but think that he shares some of Henry’s quirks with regard to not getting his way. ;)

      S

    • Many people seem to have issues with Timmy. I just remembered an excerpt of William Cohen’s House of Cards (which I still intend to read this summer):

      Asked about Geithner’s comments and his decision regarding opening the discount window to Wall Street after Bear had been sold for $2 a share and not earlier, Jimmy Cayne became spitting angry.

      “The audacity of that prick in front of the American people announcing he was deciding whether or not a firm of this stature and this whatever was good enough to get a loan,” he said. “Like he was the determining factor, and it’s like a flea on his back, floating down underneath the Golden Gate Bridge, getting a hard-on, saying, ‘Raise the bridge.’ This guy thinks he’s got a big dick. He’s got nothing, except maybe a boyfriend. I’m not a good enemy. I’m a very bad enemy. But certain things really—that bothered me plenty. It’s just that for some clerk to make a decision based on what, your own personal feeling about whether or not they’re a good credit? Who the f–k asked you? You’re not an elected officer. You’re a clerk. Believe me, you’re a clerk. I want to open up on this fuckerr, that’s all I can tell you.”

      I think Geithner is completely full of himself, in an obnoxious way.

  6. D,

    Actually, I was thinking of Henry’s desire for absolute power and his willingness to do whatever he could to make it so, regardless of the cost to others.

    S

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