Some people were surprised this week when Treasury Secretary Timothy Geithner announced his post-Obama job: distinguished fellow at the Council on Foreign Relations.
There was, as Matt Yglesias noted at Slate, a widespread belief that Geithner would land a job on Wall Street. For one thing, everyone cashes out these days. But Geithner, particularly, was friendly to Wall Street.
At the NY Fed, Geithner was something of a mastermind of the Bear Stearns bailout and the AIG bailout, and a guiding force behind the TARP. In Obama’s Treasury, Geithner expanded TARP and made it more generous to the big banks. He presided over a bailout and regulatory regime that resulted in saving failed megabanks like Citigroup and increasing the market share of the five biggest banks.
Geithner denies that banks have too much clout in Washington.
So, some people thought of Geithner as a shill for the banks, corruptly aiding his buddies, in expectation of a cashout. Geithner, on the other hand, says what he did ”was incredibly effective for the broad interest of the economy and the financial system.”
I agree with all the criticisms that Geithner was too friendly to the big banks. But I also believe that he believes that being very friendly to the big banks was part of serving “the broad interest of the economy.”
There are benefits to our economy from having a handful of huge investment banks and huge commercial banks. Geithner supports the regulations and bailouts and implicit subsidies that make our big banks safer from potential threats, such as the market or criminal and civil law. There is a debate over whether those benefits outweigh the costs of such a system and the government interventions (and exceptions) needed to preserve such a system.
Many folks on the Left and Right see things Geithner’s way. Just as it’s widely held that our economy needs a domestic steel industry or General Motors, it’s widely believed that we need Citibank.
I think Geithner is mistaken. I think his friendliness to the big banks was economically destructive and contrary to Obama’s rhetoric battling the special interests. But I think the only dishonest or crooked part here was Obama’s populist rhetoric. I think Geithner saw the strength of big banks not as an end in itself or a means to a cashout, but as a means to a stronger economy.
I suspect we’ll suffer from Geithner’s mistakes. But I think they were honest mistakes.