Tuesday, October 6, 2009

Being Timothy Geithner III

William Black, a former federal banking regulator who was active during the Saving and Loans crisis of the 1990's, have scathing words about the current Secretary of Treasury, Timothy Geithner, and the administration's effort or lack thereof to reform banks.

In a recent Newsweek interview Black says,

The administration's officials have all been failures as regulators. [Chairman of the Securities Exchange Commission] Mary Shapiro's big thing was self-regulation. That worked real well: the self-regulation of the investment banks. Ben Bernanke [Chairman of the Federal Reserve] I'm also very critical of, but I do give him credit for being willing to drop a lot of his anti-regulatory ideology in the face of the crisis. He literally wrote the book on the Great Depression, but he was not going to go down in history as the person who caused the second Great Depression. Some of the things Bernanke did were very bad, but he is in sharp contrast to Geithner who has been wrong about everything in his career. When Geithner was once answering a question in response to Ron Paul, he said, 'I've never been a regulator.' He was then the President of the New York Federal Reserve, and he purports that he was never a regulator? That is a demonstration of what is wrong with the Federal Reserve banks if the head of the unit doesn't think he's a regulator. He's a disaster.
Mr. Black points out that during the S&L scandal that there were convictions. During the banking scandal there have been none:

During the Saving & Loans crisis, we had over 1,000 convictions that involved insiders and gigantic borrowers. Now we have zero. The FBI did not even begin to investigate the large subprime lenders until March 2007. People would be upset if they had the facts, or if you asked them how many criminal referrals there were for mortgage fraud. (There were 65,000 last year.) Meanwhile, the administration is saying there is no problem and that the financial crisis is over. That's the exact opposite of what you want to say and do if you want dramatic resources to change things.
There has obviously been and apparently continues to be misconduct on Wall Street. Nassim Nicholas Taleb has been shouting this for some time now. So, why haven't there been any convictions and why do we expect that the same people who got us in the mess will now get us out?


zorro said...

One of the simplest things that won't be done (the politics won't allow it) it to raise marginal taxes on rich people. Here's what Krugmam has to say about it.

"As for high marginal tax rates – yes. Back when socialists like Eisenhower ran the country, and taxes on the rich were much higher, there was less temptation to run big risks with other peoples’ money in search of giant bonuses."

Another intersting story about Eisenhower. The kids show Howdy Doody that was on every day and all 1950's era children watched, ended each show with a toast (milk and cookies) to the president.

Judith Ellis said...

Thank you so much for that comment, Zorro. I love it!

First, I laughed aloud with calling Eisenhower a socialist. Second, I thought that taxes on the top 1% would increase to that when President Clinton was in office. No? Third, it so beautiful for children to learn to give honor where honor is due no matter who's in office. The President of the United States is the Head of State.

I love the Howdy Doody story! Thanks!