Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”
June 9, 2011 (New York Times) -- Treasury Secretary Timothy F. Geitner. in a speech in Atlanta this week, said, “The U.S. banking system today is less concentrated than that of any other major country.”
In a major speech earlier this week to the American Bankers Association’s international monetary conference, Treasury Secretary Timothy F. Geithner laid out his view of what went wrong in the financial sector before 2008, how the crisis was handled 2008-10 and what is needed to reform the system. As chairman of the Financial Stability Oversight Council and the only senior member of President Obama’s original economic team remaining in place, Mr. Geithner’s influence with regard to the banking system is second to none.
Unfortunately, Mr. Geithner’s speech contained three major mistakes: his history is completely wrong, his logic is deeply flawed, and his interpretation of the Dodd-Frank reforms does not mesh with the legal facts regarding how the failure of a global megabank could be handled. Together, these mistakes suggest that one of our most powerful policy makers is headed very much in the wrong direction.
On history, Mr. Geithner places significant blame for the pre-2008 excesses on Britain and other countries that pursued light-touch regulation. This is reasonable – though surely he is aware that the United States has led the way in lightening the touch of regulation, at least since 1980. A senior British official retorted immediately, “Clearly he wasn’t referring to derivatives regulation, because as far as I can recollect, there wasn’t any in America at the time.”
More broadly, Mr. Geithner seems to have forgotten how big banks were saved — by government intervention, at his urging. He should probably watch “Too Big to Fail,” now playing on HBO, or peruse the book by Andrew Ross Sorkin of The New York Times, on which it is based –- just look in the index for Geithner and trace the arguments that he made for repeated and unconditional bailouts of big banks and their creditors from mid-September 2008. (Mr. Sorkin’s book ends in fall 2008, while Mr. Geithner was still head of the Federal Reserve Bank of New York; for more on what happened after he became Treasury secretary, see my book with James Kwak, “13 Bankers.”)