GEITHNER: ‘WE SAVED THE ECONOMY, BUT WE KIND OF LOST THE PUBLIC DOING IT’ ….

Yep …Mr. Treasury Secretary you got that right…..

While the Dog believes you and The Fed Chairman Bernanke  along with predecessor at Treasury, Hank Paulson did a good job to hold the pieces together of the United States and by that the world’s economy…..there are a lot of questions on the aftermath and promises made to avoid the problem again….

To be fair you guys inherited this mess before you got sworn in…..

And to also be fair….must people still have no idea how hairy things where a little bit more than a year ago…

But most Monday morning quarterbacks like Simon Johnson have the luxury of being able to go over things with a 800 pound gorilla of the world’s economy standing over them while others are screaming don’t do anything let the system collapse…..

Here’s a piece by Simon Johnson that calls to task the promises made to stop a situation like this happening again…and the promise to deal with the ‘Too Bog to Fail’ issue which Johnson correctly states is actually worst now than before…….

Do I think Geithner and the White House have the public on their side?

No…..

Most people really don’t care …..they just know the ‘boom’ times are over for now…..

And that cost them money …and that makes them mad…..

By Simon Johnson @ baselinescenario.com

It would be easy to take relatively cheap shots at the portrayal of Tim Geithner — “we saved the economy but kind of lost the public doing it” — in the New Yorker, out today.

1. Mr. Geithner is quoted as saying, “Some on the left have fallen into a trap set by the Republicans, allowing voters to mistakenly think that the biggest part of the bank bailout had come under Obama rather Bush.”  Mr. Geithner should know – as he spearheaded the saving of banks and other financial institutions under both Bush and Obama.  In fact, it’s the continuation of George Bush’s policies by other means that really has erstwhile Obama supporters upset.
2. “I think there are some in the Democratic Party that think Tim and Larry are too conservative for them and that the President is too receptive to our advice.”  Probably this is linked to the fact that Tim Geithner is not a Democrat.
3. Geithner also suggests that his critics compare government spending on different kinds of programs under President Obama: “By any measure, the Main Street stuff dwarfs the Wall Street stuff.”  This insults our intelligence.  Wall Street created a massive crisis and we consequently lost 8 million jobs; any responsible government would have tried hard to offset this level of damage with all available means.  This includes fiscal measures that will end up increasing out privately held government debt, as a percent of GDP, by around 40 percentage points.  It’s not the fiscal stimulus, broadly defined, that is Mr. Geithner’s problem – it’s the lack of accountability for the bankers and politicians who got us into this mess.

But the Geithner issues reflected here run much deeper.  The New Yorker’s John Cassidy alludes to these but he may be too subtle.  Here’s the less subtle version.

What exactly was the “Geithner stabilization plan” that frames the article – and is the basis for Secretary Geithner claiming to have saved anything?  We are not really talking about the much vaunted but little used toxic asset/loan purchase program (the “PPIP”).  “The plan” here means essentially the stress tests designed by Treasury and run by the Fed – which brought some transparency to banks’ balance sheets, but which also used a relatively benign “stress scenario” (watch commercial real estate, residential mortgages, and credit card losses now unfold).

The main feature of the plan, of course, was – following the stress tests – to communicate effectively that there was a government guarantee behind every major bank or quasi-bank in the United States.  Of course this works in the short-term – investors like such guarantees.  But there’s a good reason we usually don’t guarantee all financial institutions – or act happy when other countries do the same.  Unconditional bailouts lead to trouble, encouraging reckless risk-taking and undermining responsible governance.  You can’t run any form of reasonable market system when some big players hold “get out of bankruptcy free” cards.

All crises end – this is actually Larry Summers’s famous line.  We avoided a Great Depression primarily because, compared with 1929-31, we have a government sector that is large relative to the economy – and which does not collapse when credit goes into freefall.  What exactly did the Obama administration do in ending the crisis that a Clinton or McCain administration – or even Bush – would not have done?  The most plausible answer is: Nothing.

More…….

GEITHNER: 'WE SAVED THE ECONOMY, BUT WE KIND OF LOST THE PUBLIC DOING IT' ….

Yep …Mr. Treasury Secretary you got that right…..

While the Dog believes you and The Fed Chairman Bernanke  along with predecessor at Treasury, Hank Paulson did a good job to hold the pieces together of the United States and by that the world’s economy…..there are a lot of questions on the aftermath and promises made to avoid the problem again….

To be fair you guys inherited this mess before you got sworn in…..

And to also be fair….must people still have no idea how hairy things where a little bit more than a year ago…

But most Monday morning quarterbacks like Simon Johnson have the luxury of being able to go over things with a 800 pound gorilla of the world’s economy standing over them while others are screaming don’t do anything let the system collapse…..

Here’s a piece by Simon Johnson that calls to task the promises made to stop a situation like this happening again…and the promise to deal with the ‘Too Bog to Fail’ issue which Johnson correctly states is actually worst now than before…….

Do I think Geithner and the White House have the public on their side?

No…..

Most people really don’t care …..they just know the ‘boom’ times are over for now…..

And that cost them money …and that makes them mad…..

By Simon Johnson @ baselinescenario.com

It would be easy to take relatively cheap shots at the portrayal of Tim Geithner — “we saved the economy but kind of lost the public doing it” — in the New Yorker, out today.

1. Mr. Geithner is quoted as saying, “Some on the left have fallen into a trap set by the Republicans, allowing voters to mistakenly think that the biggest part of the bank bailout had come under Obama rather Bush.”  Mr. Geithner should know – as he spearheaded the saving of banks and other financial institutions under both Bush and Obama.  In fact, it’s the continuation of George Bush’s policies by other means that really has erstwhile Obama supporters upset.
2. “I think there are some in the Democratic Party that think Tim and Larry are too conservative for them and that the President is too receptive to our advice.”  Probably this is linked to the fact that Tim Geithner is not a Democrat.
3. Geithner also suggests that his critics compare government spending on different kinds of programs under President Obama: “By any measure, the Main Street stuff dwarfs the Wall Street stuff.”  This insults our intelligence.  Wall Street created a massive crisis and we consequently lost 8 million jobs; any responsible government would have tried hard to offset this level of damage with all available means.  This includes fiscal measures that will end up increasing out privately held government debt, as a percent of GDP, by around 40 percentage points.  It’s not the fiscal stimulus, broadly defined, that is Mr. Geithner’s problem – it’s the lack of accountability for the bankers and politicians who got us into this mess.

But the Geithner issues reflected here run much deeper.  The New Yorker’s John Cassidy alludes to these but he may be too subtle.  Here’s the less subtle version.

What exactly was the “Geithner stabilization plan” that frames the article – and is the basis for Secretary Geithner claiming to have saved anything?  We are not really talking about the much vaunted but little used toxic asset/loan purchase program (the “PPIP”).  “The plan” here means essentially the stress tests designed by Treasury and run by the Fed – which brought some transparency to banks’ balance sheets, but which also used a relatively benign “stress scenario” (watch commercial real estate, residential mortgages, and credit card losses now unfold).

The main feature of the plan, of course, was – following the stress tests – to communicate effectively that there was a government guarantee behind every major bank or quasi-bank in the United States.  Of course this works in the short-term – investors like such guarantees.  But there’s a good reason we usually don’t guarantee all financial institutions – or act happy when other countries do the same.  Unconditional bailouts lead to trouble, encouraging reckless risk-taking and undermining responsible governance.  You can’t run any form of reasonable market system when some big players hold “get out of bankruptcy free” cards.

All crises end – this is actually Larry Summers’s famous line.  We avoided a Great Depression primarily because, compared with 1929-31, we have a government sector that is large relative to the economy – and which does not collapse when credit goes into freefall.  What exactly did the Obama administration do in ending the crisis that a Clinton or McCain administration – or even Bush – would not have done?  The most plausible answer is: Nothing.

More…….

The Anniversity of the Fall of Lehman Brothers….what happened?……is it fixed?

I’m no economist……but I’m linking two go pieces for those of you out there who are interested in the who, and why, of the countries second worst economic downturn, in the last 100 years…….the first one is the ‘why’ in a piece from Paul Klugman that defines the countries two major economic groups…..the freshwater and saltwater schools….and takes a look at Keyesan’s and new Keyesan economic theory and  the X factor in all of this ………that is…..the irrationality of human beings……..

The second is a reflective piece by Simon Johnson that asks……What have we learned?…….to which he answer immediately…the Beast still lives……Johnson reviews the fact that after learning what happened during last year………the countries financial system is still favoring large banks (I wrote in a post the middle sized banks are getting shut out certain sectors of the economy by ever growing mega banks)…….he also relates that like anything catastrophic……many little things go sideways before the whole thing gets critical…….he also adds that the Feds fell asleep at the switch ….

Finally…Johnson points out something that bothers me……namely, that by saving the big guys (the admin really had no other choice once Obama took office) they have embolden the big guys to think that they have carte blanc to engage in more unnecessary risk taking of the type, that that started the whole mess………

……again……Is the problem fixed?????