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Tim Geithner’s Amnesia

Secretary of the Treasury Tim Geithner has an opinion piece called Financial Crisis Amnesia in Thursday’s Wall Street Journal (I was pointed there by DrRichardCranium on Reddit; excuse his name). Geithner rightly reminds Wall Streeters that it’s a bit disingenuous to complain about reform when not too long ago they were on their knees for bailouts. And they do need to be reminded of this; they seem to have genuinely forgotten.

But one expects nothing more from Wall Streeters, after all–they’re not exactly selected for their wide knowledge or public spirit, and as I’ve said before the evidence strongly points to them being pretty much boobs.

So it’s not their amnesia that worries me; it’s Geithner’s.

From the article, with emphasis from me:

The failure to modernize the financial oversight system sooner is the most important reason why this crisis was more severe than any since the Great Depression, and why it was so hard to put out the fires of the crisis. The failure to reform sooner is why the crisis caused gross domestic product to fall at an annual rate of 9% in the last quarter of 2008; why millions of Americans lost their jobs, homes, businesses and savings; why the housing market is still so far from recovery; and why our national debt has grown so significantly.

Nowhere in his article does Geithner mention that we didn’t just fail to keep our financial regulatory system modern; over the last 30 years we gutted our regulations. Deregulation, not simply stagnant regulation, was the order of the day for 30 years. Many of our antiquated regulations would have worked just fine if they’d still been on the books.

How does Geithner not mention that? I don’t really believe that he forgot. That leaves two reasons I can think of, one good and one bad:

The good reason would be: he’s arguing to Wall Streeters (who are, as I have previously proven beyond the shadow of a doubt, boobs) in favor of the current reforms, and saying “hey, government just didn’t keep up with your cleverness” flatters them, making his pro-reform arguments go down easier. I can’t really argue with this approach; Wall Streeters do like flattery. Heck, I think half of the profession of economics exists to flatter Wall Streeters, although that’s a post for later.

The bad reason would be that Geithner really believes that the deregulations we’ve seen are unobjectionable; that the basic structure is sound and we only have to modernize it a bit with the mild fixes the administration is proposing. And that’s unfortunately pretty plausible; Geithner comes from Wall Street, and he was proposing giving Wall Street freer rein as recently as 2007. It’s entirely possible that he still doesn’t understand the full scale of the problem.

I’ll be posting about the full problem soon. It’s big. It’s very big.

1 comment to Tim Geithner’s Amnesia

  • To be fair, even very left-leaning economists like Dean Baker have pointed out that the regulations that we HAD would have probably done it… if regulators had done their job. In the effort to try to cover up all the true causes of the recession, people have ignored everything from the fact that the SEC can actually regulate credit rating agencies on to the SEC’s other abilities that have been legislated to them.

    Of course, the proper conclusion from this is that we can’t just have good regulations on paper but also have Presidents who protect and empower the regulators, avoid regulatory capture, and pay regulators enough so that we can hire the best people to keep up with the lies of Wall Street. You can track how many people are remotely coherent by virtue of how many people were willing to offer that idea.

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