Although I have yet to read former Treasury Secretary, Timothy Geithner’s book, “Stress Test: Reflections on a financial crises,” by virtue of the significant publicity generated and in-depth interviews conducted with Mr. Geithner (Charlie Rose), I do feel competent to comment on issues raised about the book and a persistent critique to the effect that the bailouts did everything to benefit Wall Street with little at all trickling down to Main Street.
Let the banks fail!
As a working institutional broker at the time, I can attest to the severity of the situation and, really how close we were to a “China Syndrome” melt down of our (and the world’s) financial system. It was an extraordinary time, calling for extraordinary measures. I believe the measures taken by Paulson, Bernanke and Geithner were absolutely necessary and proper. They successfully brought us through the eye of the storm avoiding “Great Depression” number two. However, then, as is the case now there are those, both on the Right and the Left, who believe that these interventions were an overreach. “Let the banks fail…recalibrate. We need a good purge. All will be well in the end.” There are also those who point to the bailouts (TARP et.al.) as only beneficial to the ‘fat cat’ bankers with little or no help for the little guy. Neil Barofsky is one of those guys.
Who is Neil Barofsky and why is he misguided?
Neil Barofsky is a Geithner critic, former Special Inspector General for the Troubled Asset Relief Program (TARP), who had two years of oversight responsibility for that $700 billion dollar program. In the end, Barofsky felt that the program was terribly mismanaged and wrote a book about it “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.” Unfortunately, no where in Mr. Barofsky’s thought process does he consider the idea that stabilizing a financial system that was spinning out of control to be the equivalent of rescuing Main Street. This is plumb stupid.
Just a modicum of sophistication and knowledge of economic history would have probably made a difference in Barofsky’s conclusion. If he’d just remembered that they did not bail out those sinister banks that failed by the droves in the early 1930s. The result was the “The Great Depression.” And, if you lived on Main Street back then you had a one in four chance of being unemployed (vs. one in ten in 2009). Also, you had a really good chance of having your life savings wiped out by one of those bank failures. Oh yes, chances are you would have stayed unemployed for a much longer time with NO benefits.
BTW, The $700 billion bailout has been completely repaid with interest. See, now that wasn’t so painful. Was it?
Please, don’t tell me tarp was no help to Main Street!
This is a fantasy harbored only by the economically ignorant, or those politically motivated to denigrate the accomplishments of both the Bush and Obama administrations in dealing with the crisis. The concept is ludicrous.
Regrettably, there remains a chorus of naysayers, who in the presence of overwhelming evidence, continue to deny the efficacy of these measures…The “world is flat crowd.”
Finally, there is much indignation about the fact that none of the captains of finance that perpetrated this disaster went to jail. We have to separate that from the reality of saving the economy. On that account Geithner and Co made the right moves. Regarding the perps going before the bar of justice?–They should have. But, then, as in post-World War II Germany, who would have been left to keep the trains running on time.
What do you think?
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I think that you are much more right than wrong but do indeed miss a key point. Had many (perhaps most) of the leaders of the bailed out banks been indicted and (hopefully) served prison sentences for the incredible abuses that took place several things would have happened and all of them would have been good.
1) The talent (???) pool in the banks is large and deep and there would have been no problem with leadership shortage to steer the banks through the crisis.
2) The new leadership would have received a harsh warning that they were personally responsible and accountable and had better be well informed and think twice before following a course (outsized risk with others funds) similar to their predecessor. That alone may well have improved the performance of the top leadership.
3) Main street would have been much more satisfied that their interests were being considered even if only after the fact. That satisfaction would have reduced the reticence to return to the markets and also shorten the time that Wall Street would be accused of being favored by the bailout.
4) Your point that the bailout has been repaid is (and continues to be) part of the problem. Whether or not the losses are repaid, as long as the perpetrators continue to believe that the only consequence is repaying a fine, the behavior at the top will not change. It is not their money they use to pay any fine and the outsized salaries and bonuses they collect during the wrongdoing are personal and continue to be strong motivation to continue the behavior that caused the problem.
I cannot disagree with any of the points you have raised. they are all very valid. My railroad comment may have been over-the-top, an illusion to some really bad guys.
The aftermath of the financial crisis is in some way like the aftermath of Watergate. Many would have liked to see R. M. Nixon hung out to dry (including me). It didn’t happen. As a result (maybe) we may have been allowed us to put the scandal and constitutional crisis he brought to us behind us more rapidly…at the time we had much bigger fish to fry than Richard Nixon.
This was the case with the financial crisis. We had huge obstacles to overcome.
It is hard to say what the impact of a high profile tribunal dealing with these miscreants would have had on the slowly-blossoming economic recovery, wether the recriminations and negativity surfaced by such trials would have kept us longer in the ditch. I don’t know. And, it is not that we don’t deal with felonious business types…Enron with Ken Lay and Jeff Skilling for example. But Enron was not systemic or an existential threat to the economy and we were never teetering on the brink, and we were in 2009 and 2010 (and if you don’t remember psychology in 2011 wasn’t that great eitheer). in fact, with the 10-year below a 2.5% yield this morning, the psyche of the market is still very skittish. They got away with it because of fragile sentiment!
Hi Bill,
Generally speaking, I am with Marty. The presumption that only the corrupt can run the railroads and the banking industry is not one that I am willing to accept. What must occur is a change in the culture and, unfortunately, that will result only from regulation and accountability. Regulation without accountability will be ignored!
“If a poor man steals a car he’s a lizard,
If a rich man steals a railroad he’s a wizard”
Yip Harburg (wrote the lyrics to Over the Rainbow and Finnian’s Rainbow
Evidently you have struck quite a cord. People will continue to feel strongly about this issue as long as they know that the consequences for greed and reckless stupidity are rewarded rather than punished. Gretchen Morgenson’s column in today’s (5/18) NY Times asks tougher questions than Geithner is evidently getting on his scripted book tour. As far as I’m concerned, nothing short of reviving the Glass-Steagall Act will keep this all from happening again.
I concur. Having said that…bankers and financiers are very creative folks and they will, i can assure you, step in it again. And they will do it big time, Glass-Steagall or not. It unfortunately is the way of the world, a never-ending pattern.