Geithner has made it clear that he doesn't harbor as many regrets about his role in bailing out the banks in fall 2008 and early 2009 as Wall Street critics wish he did. In rolling out his book, the former Federal Reserve Bank of New York president and Obama appointee has said that the problem of "too-big-to-fail" banks remains -- and that it's counterproductive to pretend otherwise.
Geithner's successor, Jack Lew, and other top financial regulators such as Federal Reserve Chairwoman Janet Yellen have vacillated about whether the big banks remain too big to fail without causing a system-wide crisis, But they also have repeatedly stated that working to ensure the safety of the financial system by eliminating the phenomenon of too-big-to-fail is a priority. Geithner, on the other hand, has indicated that he is not worried about the moral hazard -- or unfavorable incentives for future behavior -- created by bailouts.
Partly because of his attitude toward America's megabanks, Geithner's legacy will always be a complicated one, a fact he acknowledges in the book. It's not helping him that his book was released contemporaneously with House of Debt, a reflection on the crisis by two economists who place the stress of the housing crash on households at the center of the story -- as opposed to the banks.
The professors, Amir Sufi of the University of Chicago and Atif Mian of Princeton, argue that the collapse of the housing market hit over-leveraged homeowners especially hard. Underwater borrowers had no choice but to drastically curtail their spending all at once, leading to an economy-wide problem of a shortfall of demand for goods and services. As Sufi and Mian point out, spending fell before the banking crisis occurred -- an inconvenient timeline for those who believe that Wall Street's problems are the country's.
In Sufi and Mian's view of the economy, the most effective bailout in late 2008 would have been relief for underwater homeowners. As it happens, such a program was included in the legislation that created the TARP bank bailouts: The Home Affordable Modification Program (HAMP), which was supposed to spend up to roughly $40 billion reducing mortgage principal balances for up to four million homeowners. Only about a quarter of that sum has been disbursed, and only 1.3 million homeowners received loan modifications -- many of whom later defaulted again. Many critics blame HAMP's poor performance on Geithner's leadership. Sufi and Mian's criticism won't make his book tour any easier.
Also on Monday, the Financial Stability Oversight Council, the group of top financial regulators charged with assessing the financial system as a whole, will meet to consider the risks to financial stability posed by asset management firms such as hedge funds and private equity funds. The FSOC has been considering whether certain large asset managers should be designated as systemically important financial institutions — meaning that they are officially too big to fail and will be subject to added regulation.
On Wednesday, Yellen will give a commencement address to New York University at Yankee Stadium. Later that day, the Fed will release the minutes from its April meeting. The notes could contain hints about the central bank’s plans for eventually tightening monetary policy as the economy recovers. Last week, St. Louis Fed President James Bullard declared that the Fed’s goals for employment and inflation are “within sight.”
On Thursday, the National Association of Realtors will report on existing home sales for April, with 4.7 million expected. That number will be followed on Friday with numbers from the federal government on new home sales, with analysts expecting an improvement from 384,000 to roughly 420,000.
Housing remains a crucial aspect of the economic recovery, and policymakers at the Fed and elsewhere noted their concern that new and existing home sales and housing starts declined in March. Last week, however, the number of housing starts for April reported by the federal government — more than a million — was significantly stronger than expected, raising hopes for continued strength in housing.