Tag Archives: Geithner

Quote of the Day

“What’s the right policy toward China? They put a few trillion dollars worth of stuff on boats and sent it to us in exchange for U.S. government bonds. Those bonds lost a lot of value when the dollar fell relative to the euro and other currencies. Then they put more stuff on boats and took in ever more dubious debt in exchange. We’re in the process of devaluing again. The Chinese government’s accumulation of U.S. debt represents a tragic investment decision, not a currency-manipulation effort. The right policy is flowers and chocolates, or at least a polite thank-you note.”

— John H. Cochrane, October 26, 2010

Extraordinary admission

Last night on Charlie Rose, Treasury Secretary Tim Geithner made an extraordinary admission. Here’s the exchange:

Rose: “Looking back, what are the mistakes, and what should you have done more of? Where were your instincts right but you didn’t go far enough?”

Geithner: “There were three broad types of errors in policy. One was that monetary policy here and around the world was too loose for too long.  And, that created just this huge boom in asset prices; money chasing risk; people trying to get a higher return; that was just overwhelmingly powerful.” 

Rose: “Money was too easy.”

Geithner: “Money was too easy, yeah . . . . Real interest rates were very low for a long period of time . . . .”

There you have it. Pretty simple. And yet it is the first time I can recall that any U.S. executive branch official, spanning the Bush and Obama Administrations, has admitted monetary policy was even one factor, let alone the central factor, leading to the crash. This is very big stuff. (more…)

“Where Was Geithner?”

Andrew Ross Sorkin asks a good question, and some Wall Streeters answered.

“We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers,” said Christopher Whalen of Institutional Risk Analytics. “Throw in the Bear Stearns/Maiden Lane fiasco for good measure,” he said.

“All of these ‘rescues’ are a disaster for the taxpayer, for the financial markets and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion.”

And perhaps the biggest bungle of them all:

It was Mr. Geithner, not Mr. Paulson, for example, who put together the original rescue plan for the American International Group.

AIG could probably have been saved with a bridge loan. But the government took 80% of the company. AIG set the precedent for wiping out equity shareholders and put other financial firms on the precipice and put a target on their back for short-seller snipers. In combination with a series of other errors — clearly not all Geithner’s fault or doing — this move helped undo Wall Street and continues to wreak havoc among insurance companies. 

It does appear that we are finally getting some much needed action on mortgage rates. Instead of focusing on “foreclosures,” the Treasury should have told Fannie and Freddie to lower their commitment rate, which would have automatically brought down mortgage rates, which have not followed the 10-year Treasury down. Lower mortgage rates could help restart turnover in the housing market and thus relieve much of the worst-case uncertainty in the MBS and larger credit markets. With the 10-year close to 3%, we could get 30-year mortgage rates into the mid-4s. Let’s hope, after lots of bumbling and fumbling, they’re finally moving in this direction.