(This author produced the superb documentary and book /Inside Job,
/busting off on dodo-economists. "For three years before entering the
Obama administration, Lew was a Citigroup executive, and for the last
year he was the chief operating officer of Citigroup Alternative
Investments, which made some money by betting against mortgage
securities, but which lost many billions more when the crisis came. That
crisis and those losses did not prevent Lew from receiving a handsome
bonus, paid after he had been appointed to his first Obama
administration job. But that isn't his main problem. His main problem is
that he has already demonstrated that he's willing to be a typical
political hack, and to give bankers what they want. In congressional
testimony, he actually said, with a straight face, that deregulation
<http://www.huffingtonpost.com/2013/01/09/jack-lew-deregulation_n_2441249.html>
had not contributed to the financial crisis.")
Jack Lew, Tim Geithner: the treasury's new boss, same as the old boss
Geithner helped save the banking system from collapse, but then did
nothing to reform it. And Lew himself was a beneficiary
*
o
Charles Ferguson
<http://www.guardian.co.uk/profile/charles-ferguson>
o guardian.co.uk <http://www.guardian.co.uk/>, Sunday 13 January 2013
The long-anticipated departure of Tim Geithner and the appointment of
his successor, Jacob Lew
<http://www.guardian.co.uk/commentisfree/2013/jan/10/jack-lew-financial-reform-heidi-moore>,
has brought much discussion of Geithner's record
<http://www.guardian.co.uk/commentisfree/2013/jan/11/wall-street-thanks-tim-geithner-service>,
his legacy, and the likely trajectory of the Obama administration
<http://www.guardian.co.uk/world/obama-administration> treasury
department under Lew. In considering this question, I found inspiration
in our most profound political philosophers. I refer, of course, to The
Who <http://www.guardian.co.uk/music/who>, in the finale of their
immortal and highly relevant Won't Get Fooled Again
<http://www.youtube.com/watch?gl=GB&hl=en-GB&v=Rp6-wG5LLqE>:
"Meet the new boss
Same as the old boss"
Consider first Geithner's legacy, first as president of the New York
Federal Reserve <http://www.guardian.co.uk/business/federal-reserve>,
then as treasury secretary. (Actually, his tendencies were evident even
earlier, when he was carrying Larry Summers' water during the Asian
financial crisis of the late 1990s.) As head of the New York Fed during
the bubble, Geithner did -- well, not much of anything: no regulation,
no warnings, no protests about abuses or excesses, nada, zilch. Geithner
was in the audience at Jackson Hole in 2005 when Raghuram Rajan, then
the IMF's chief economist, delivered his now-famous warning
<http://online.wsj.com/article/SB123086154114948151.html> about
systemically dangerous incentives and risk-taking in the financial
sector -- a warning that Larry Summers slapped down publicly, and about
which Geithner never uttered a public word, then or later.
Then came 2008, when, so far as we can determine, Geithner basically did
everything that Hank Paulson told him to, and not much else. In
fairness, one must concede that Paulson, Ben Bernanke
<http://www.guardian.co.uk/business/ben-bernanke>, and Geithner /were/
effective in preventing utter systemic collapse -- albeit a collapse
caused in large measure by their own earlier actions and inactions.
Geithner continued that pattern, and then firmly established it as his
legacy, after he took over at treasury.
But what, precisely, is that pattern?
In sum, it was to be intelligently pragmatic, in preventing acute
systemic collapse and then returning the financial system, the political
system, and the economy to their status quo. So, on the plus side, the
Obama administration did not embrace the suicidal austerity path and
laissez-faire preached by some, and practiced in some now-devastated
European nations.
Banks and financial markets were propped up by the treasury department
and by Federal Reserve purchases of over $2tn in securities; the auto
industry was saved (or at least General Motors was); and a second Great
Depression was avoided. Not to be assumed -- and worthy of serious praise.
But what /wasn't/ done, and Geithner never even tried to do, is equally
telling.
No purge of the senior managements and boards of directors of the
financial sector, not even those, such as Citigroup
<http://www.guardian.co.uk/business/citigroup> and Bank of America
<http://www.guardian.co.uk/business/bank-of-america>, which were totally
dependent on federal support for their existence (Citigroup was nearly
40% owned by Geithner's department). No curtailment of bonuses, no
attempt even to tax them. No breaking up of too-big-to-fail
institutions, some of which were and remain so complex that they are, as
my colleague Charles Morris has said
<http://www.amazon.com/Two-Trillion-Dollar-Meltdown-Rollers/dp/B002CMLQVQ>,
too big to /succeed/. No attempt to curtail the toxic lobbying and
revolving-door hiring of those same institutions -- once again,
including several that would not exist except for federal aid. No
attempt to develop an evidentiary record to support criminal prosecution
for the massive criminality that accompanied the bubble. No attempt to
develop an evidentiary record for asset seizures under Rico, the law
routinely used
<http://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act>
to seize the assets of criminal organizations. No serious attempt to
rescue millions of homeowners facing foreclosure, or imprisoned in
houses that they will never be able to sell for as much as they owe. No
attempt to rein in the deeply entrenched culture and incentives that
produce toxic financial "innovations" and increasingly frequent crises.
A pattern of hiring truly dreadful people, ranging from Goldman Sachs
<http://www.guardian.co.uk/business/goldmansachs> lobbyists to private
equity executives who worked with banks to bet against their own securities.
And so, now we have, indeed, "succeeded" in returning to something
roughly like the status quo. What is that status quo?
We have an even more dangerously concentrated, politically even more
powerful, still highly corrupt, unproductive financial sector; a clear
message sent that even a horrific crisis caused by massive criminality
yields no punishment whatsoever
<http://www.youtube.com/watch?v=mpz5DVwnbnk>; insufficient, weak
regulatory laws and institutions; an administration largely managed by
people who were, and remain, part of the problem; a massively corrupt
political system in which opaque, uncontrolled contributions yielded a
$3bn presidential election; and even greater economic inequality than
when Obama and Geithner took office.
Tim Geithner, upon returning to private life, will surely be rewarded in
the typical ways. Perhaps, he will become a banker. If not, president of
a university or thinktank, with consulting arrangements, board
memberships, and speechmaking to the financial sector bringing him a
living wage of five or ten million a year.
And now we will have Jack Lew. What can we expect of him?
I refer you to The Who's lyrics. For three years before entering the
Obama administration, Lew was a Citigroup executive, and for the last
year he was the chief operating officer of Citigroup Alternative
Investments, which made some money by betting against mortgage
securities, but which lost many billions more when the crisis came. That
crisis and those losses did not prevent Lew from receiving a handsome
bonus, paid after he had been appointed to his first Obama
administration job.
But that isn't his main problem. His main problem is that he has already
demonstrated that he's willing to be a typical political hack, and to
give bankers what they want. In congressional testimony, he actually
said, with a straight face, that deregulation
<http://www.huffingtonpost.com/2013/01/09/jack-lew-deregulation_n_2441249.html>
had not contributed to the financial crisis.
As The Who have warned us ...
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