Many of the headlines over the past week read “Confirm Geithner or Else!” As corruption in Washington continues to run amuck, “too big to fail” seems to be the excuse to overlook past and current wrongdoings.
Tim Geithner is now too big to fail. The economic crisis is too dangerous to let a man who is too big to fail sit on the sideline. Geithner must be “Superman.” He must have powers that are extraterrestrial, as there is no one else in the financial sector that has the ability to put the economy back on track again according to President Obama and members in the Senate who approved of his nomination.
Well folks, all I can say is if you liked the way the economic crisis has been handled under the Bush Administration, you will no doubt be thrilled with what’s to come. For those who expected change, brace yourselves for a difficult dose of reality. Real change would have been a free-market solution. Instead, Geithner will continue policy that will further erode the free market and expand the power of the government.
Tim Geithner has not sat idly on the sidelines for the past year. He has already had extensive involvement in the government’s response to the financial mayhem. Based on Geithner’s record, he seems to think that bailouts are the solution. He advocated the rescue of Bear Stearns and played a key role in the rescues of American International Group (AIG), Bank of America and Citigroup. It’s a good thing that top executives in these companies put the funds to good use. AIG felt lavish executive retreats were necessary. Bank of America paid huge bonuses to Merrill Lynch executives. Citigroup partnered with the New York Mets baseball team by paying a $400 million naming-right expenditure to call the stadium where the Mets play “Citi Field.” Some may rightfully argue the cost/benefit of such a decision, and it would be a legit argument if the company did not receive federal money. Besides, I thought the credit markets were frozen!
Based on the testimony Geithner gave at his confirmation hearing, I am left wondering what exactly those “superpowers” are.
Geithner said, “Senators, the ultimate costs of this crisis will be greater, if we do not act with sufficient strength now. In a crisis of this magnitude, the most prudent course is the most forceful course.” He says Obama’s stimulus plan “will meet that test.” (1)
It is interesting that the scare tactics continue in an effort to give the government an excuse to spend trillions of dollars and hold stakes in our largest banks; when in reality, this “crisis” isn’t even close to what was experienced in the 1970’s. Has Geithner seen Obama’s stimulus plan? Perhaps he could explain how the same tax incentives that were part of Bush’s plan last year and the massive government spending that includes handouts to states to fund safety-net programs as well as free contraceptives would stimulate the economy. The aim is to stimulate the economy isn’t it? It’s possible that Speaker Pelosi was thinking about a different kind of stimulation…
Geithner mentions the Senate’s passage of the second Troubled Asset Relief Program (TARP) tranche, but says “we have to fundamentally reform this program” to ensure there’s enough credit to support the recovery. He also says the nation needs “investments” in infrastructure, a strategy “to get us back as quickly as possible to a sustainable fiscal position” and then “comprehensive financial reform” so the world will “never again face a crisis of this severity.” (1)
It seems that Citigroup didn’t have a problem getting credit. Nowhere in his testimony does Geithner mention repeal of the Community Reinvestment Act – the act which played a key role in the housing debacle. This act forced banks through government mandates to loan money to people who could not afford to repay which led to the birth of the subprime mortgage market. Instead of overusing the word “crisis,” his plan should focus on transparency and prudent lending standards.
Geithner may not wish to tip his hand at the moment, but I would expect to see proposed changes to the Financial Accounting Standards Board Statement Number 157 which has failed in the attempt to value illiquid assets and has earned the phrase “mark-to-make-believe accounting.”
As for infrastructure spending…there is an idea that’s never been tried before. His expertise in economics should reveal to him that most of the benefits of infrastructure spending are delayed and could take effect during an inflationary period. In addition, the money is rarely used for what it was intended, and we don’t see real economic growth when the government spends money. History has proven that the government cannot spend the country out of recession. This kind of spending can make our dollar worthless, however!
Geithner’s responsibilities also include oversight of the Internal Revenue Service (IRS). It is comical that we entrust a person who has evaded taxes to be in charge of the IRS. Geithner claims his mistakes were innocent. However, if they were innocent, should America have confidence in a man who has difficulty using Turbo Tax (a software that people with no accounting/financial background can easily use), has difficulty understanding IRS Publication 503, and doesn’t realize he has to pay Social Security tax, Medicare tax and employed an immigrant housekeeper who lacked proper work papers?
In summary, Geithner’s appointment further illustrates that there is no real change in Washington. In addition to Geithner’s tax problems, there is a very questionable record of “expertise.” He’s played a pivotal role in managing TARP funds. It’s quite clear that the first half of TARP funds were misspent. As President of the New York Federal Reserve Bank, his supervision of corporate giants like Citigroup was questionable. Although Geithner talked about holding such institutions to the highest regulatory standards, the record shows that New York Fed relaxed the standards as the company bet big on subprime mortgages and had massive risk exposure to other perilous investments.
So why is it that we have so much confidence in people such as Geithner to fix a problem when they have shown poor judgment and played a role in causing the problem? Answer: the elite financial club has its benefits.
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