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Name Your Favorite Geithner Nickname: "Turbotax Tim" "Chicken Little"

By all indications by year end we will be granted a reprieve from listening to Secretary Geithner’s outrageous claims about how the bailouts, largely engineered from his perch as the President of the New York Fed, saved the world from absolute financial Armageddon. To Geithner anyone who disagrees with him has amnesia as this recent WSJ editorial from earlier this month details. In today’s Investor’s Business Daily I give the countervailing narrative (click the link for the full editorial):

“Timothy Geithner is in full "swan song" mode. Word is he will give up his job as secretary of the treasury at the end of 2012, regardless of whether President Obama wins or loses in November.

To influence history's judgment of his tenure as president of the New York Fed and as treasury secretary, he is now aggressively shaping a glowing narrative. This explains his current victory lap in the media highlighting the fourth anniversary of the bailout of Bear Stearns.

He recounts how the CEO of Bear, with his firm on the brink of bankruptcy, came to him looking for a shoulder to cry on. From his then leadership perch as president of the New York Fed, the bank ultimately extended nearly $30 billion for a bailout, the first in a series of such interventions.

Although this effort to shape a narrative has begun, the countervailing narrative is also clear. This narrative couches the bailout of Bear Stearns as the "original sin," the first in a series of short-sighted interventions with negative consequences and highlights that our system is just as vulnerable, if not more vulnerable, to similar crashes in the coming years.”

  • Bill Bergman

    Thanks, Vern. Appreciated and learned from your discussion of the evolution of moral hazard from pre-Bear Stearns to post-Lehman Brothers. Will be reading "Financing Failure" again. Very thorough, carefully documented, and good lessons that need to be learned and put in practice soon.

    • Vern McKinley

      Thanks would also like to hear some more details on your prior work at the Chicago Fed if there is a good summary.

  • Paul Marks

    Central Banking does not automatically mean bailouts – after all in the time of Walter Bagehot (the oringinal defender of bailouts) the Governor of the Bank of England actually opposed the idea.

    However, once government (or a government backed "private" organization) is given such powers (the power to create money from nothing) the temptation to use the power is vast.

    And there will always be intellectuals (in universities and outside them) who will be there to defend collectivist antics (no matter how insane they are).

    As for bankers (and other such) – they have a choice.

    Either they can lend out real savings (i.e. be money lenders), or they can play credit bubble games.

    If they choose to play credit bubble games and the games go wrong (as they always do in the end), then the banks (and other such) should be allowed to go bankrupt.

    No "suspension of cash payments" or other contract breaking.

    "But the economy will be harmed by the collapse of major banks and the enterprises that are dependent upon them".

    Of course it will – but intervention just makes the harm worse in the end.

    • Vern McKinley

      Not sure I agree that Bagehot was a supporter of the bailouts as I would define the term. For example, there is the contemporary example of Overend, Gurney & Co., an interconnected discount house, that failed in 1866. He was not very concerned that it was allowed to fail, and in fact he ridiculed its lending practices implying that it deserved to fail. This is precisely the type of institution that Timothy 'Chicken Little' Geithner would have supported a bailout for.

  • Paul Marks

    I agree with you that the specific main bailouts of the modern era violate the rules for bailouts that Walter Bagehot.

    However, he got rid of the principle of no bailouts (as he, and British liberalism generally, tossed away principles in general).

    Once one has no general principles – then one will, in the end, loose the arguments over details.