Treasury Secretary Tim Geithner is on the cover of the April 2009 issue of Bloomberg Markets magazine. In the lead article, “Man in the Middle,” the authors refer to his time at the New York Federal Reserve Bank (FRB) as “experience as a consensus builder.” This overlooks the fact that it was easy for him to get everyone to agree, to build group solidarity, when he simply gave the banks and broker-dealers everything they wanted.
The Primary Dealers, those broker-dealers and banks who have a special arrangement with the FRB for trading in treasury securities, agreed when Geithner let them fail to deliver $2.5 trillion of treasury securities for seven weeks in the fall; they agreed when he let them fail to deliver more than $1 trillion two years earlier; they agreed when he let them fail to deliver treasury securities even after Geithner’s own economists told him it was dangerous. By the way, last year the New York FRB’s public information department prevented those economists from speaking on the record about that research with a Bloomberg reporter.
Now, at a hearing on March 24, 2009 before the House Financial Services Committee, Secretary Geithner and Federal Reserve Chairman Ben Bernanke lectured us on the awesome responsibilities of Treasury and Federal Reserve in the current crisis – without admitting that they had those same responsibilities while the crisis was being created.
In a joint statement from the Department of the Treasury and the Federal Reserve they offer no explanation for their failure to fulfill their “central role … in preventing and managing financial crises.” Rather, they use the fact of that role to require that we accept whatever plan they put before us today as the best and wisest course. To convince us that their plan is the right one, they can all point to the fact that the stock markets rallied (gaining nearly 7% across the board) led by the shares of financial institutions (Goldman Sachs’ shares went from $97.48 on Friday night to $111.93 on Monday – a gain of about 15%).
I criticized the “Public Private Partnership” when it was announced in February 2009. Calling Wall Street’s bad investments “Legacy Assets” doesn’t change the fact that they are “junk.” They could call it “the hair of the dog” because they now want to invest taxpayer money into the same junk investments that started the financial snow ball rolling in the first place.
Just because the stock market rallied doesn’t make this “consensus building” – I call it being Wall Street’s lapdog.