March 18, 2009

Timothy Geithner's Time of Troubles

--“He more than has the president’s complete confidence,” said Rahm Emanuel, the White House chief of staff. As angry as the president is at the news about A.I.G., which he learned Thursday, Mr. Emanuel said, “his main priority is getting the financial system stabilized, and he believes this is a big distraction in that effort.”

--David Axelrod, senior adviser to the president, dismissed such talk, citing the financial mess that Mr. Geithner had inherited. “He has been confronted with a situation and challenges that are unparalleled in modern history, and to put it all on his shoulders is not fair and not right,” Mr. Axelrod said. “He’s a brilliant and committed guy with a great deal of experience in this area, and we’re standing with him.”

--Tim Geithner didn’t draft these contracts with A.I.G.,” Mr. Obama told reporters on the White House lawn as he left for California on Wednesday. “There has never been a secretary of the Treasury, except maybe Alexander Hamilton right after the Revolutionary War, who’s had to deal with the multiplicity of issues that Secretary Geithner is having to deal with — all at the same time. He is making all the right moves in terms of playing a bad hand,” the president continued. “And what we need to be doing is making sure that we are providing him the support that he needs.”

--via the NYT & IHT.

If you'd told me not even sixty days into this Administration each of Emanuel, Axelrod and Obama himself would need to come out in such coordinated matter to support their Treasury Secretary I'd have said no, the transition can't be mucked up quite so badly this early, the Treasury Secretary will be performing pretty decently albeit in the face of course of enormous challenges, at least in the very early innings. Instead, I find myself on occasion hankering nostalgically for Hank Paulson, warts and all, who at least projected a sense of greater urgency in the job (incidentally, when will Mr. Geithner have a Deputy in place, among other key positions still vacant, amidst what is very likely the greatest financial crisis since the Great Depression? A couple more months from now perhaps? Astounding, really).

Meantime, Larry Summers hasn't exactly been awe-inspiring, and the only indisputable adult in the bunch, Paul Volcker, seems to be getting treated like the slightly batty great-uncle no one takes particularly seriously, but rather just gets trotted out for eminence grise photo-ops, and/or mostly Potemkin blue-ribbon commission type gravitas imagery. And yet, he's the only one shooting straight, so far, at least in terms of explicating how dire the situation is without sugar-coating or shoveling broad banalities about.

In short, not an auspicious start. Cunning has more worth reading here, in similar vein. See this as well, and this too is worth a read .We'll doubtless be getting a better sense of the fingerprints surrounding that fiasco in due course given all the 'pitch-fork and torches' like rage increasingly stirring in the land (look at the Fed and Treasury, in the main, I suspect).

Then, related, there is this:

The White House was forced to issue its third public defense of Geithner in as many days, while Obama sought to insulate his team from blame. “I know Washington’s all in a tizzy. Everybody’s pointing fingers at each other and saying, it’s their fault, the Democrats’ fault, the Republicans’ fault,” Obama told a crowd in California. “Listen. I’ll take responsibility. I’m the president.” [my emphasis]

Wait, where have I heard that one before? Next thing, perhaps the President will describe himself as the Decider or such.

As for the orgy of so-called quantitative easing (aka, printing money), the specter of particularly nasty inflation in the not too distant future looms ever more insistently, alas. Would that we had policymakers willing to make the truly difficult decisions up-front now, rather than just try to 'print borrow & spend' us out of our present economic straits. We will see at some point soon (36-48 months, say, as I believe grinding depression-like deflationary pressures will prevail still for a while) an increasingly significant risk that the USD will become something more akin to the American Peso, at least for a painful spell, if and when inflation rears its ugly head, e.g. material fiat currency risk that cannot be ignored.

Meantime, on some elemental level, I think the broader public get this. Growing populist sentiment apart, there is also perhaps a deeper sense policymakers are pursuing something of a desperate grab-bag 'kitchen-sink' approach, with people realizing this crisis is quite profound with possibly far-reaching implications, and so they are not going to readily spend us out of this morass merely on the back of stimulus and money-printing, but rather, I think we will instead be seeing the savings rate in this country go up rather a lot. Put differently, a primordial survival instinct sets in, and the jury is still very much out on whether the current economic team can effectively steer us through this storm effectively enough to restore full faith back into the workings of our economic system, which too often of late appear to have the trappings of something more akin to an oligarchical racket. Thus people will continue to retrench, rather than move to double-down, not to mention too given the impact of the growing unemployment rate, and the 'zombie--bank' issue not yet close to being effectively remedied given incoherent, inchoate policymaking still on that front, causing continued real uncertainty in the credit markets.

All the while, I can't help feeling we are being treated like children, with an undergirding assumption that we can't really handle the grim realities and the consequences that flow from them, thereby effectively pushing this mess off to our kids in turn, as we perilously look to do the short-term 'easy thing' and essentially move to re-inflate the next bubble. Real leadership would be something altogether different, and it's just not emanating from Washington right now, best I can tell, though perhaps I will be surprised in coming months.

Look, one might say the economic team is cognizant of this, and that given the real risk of a depression and the near total cardiac arrest the economy faced (and could face again) in terms of the credit crisis one had and has no choice but to throw the kitchen-sink at it, and then re-calibrate into more of a fiscally responsible 'deficit hawk' type mode going forward post-crisis (or at least at the advent of the next crisis). But beware the haunting specter of unintended consequences born of such expediency, and the difficulty to calibrate, say, the genie of possible inflationary pressures once out of the bottle.

This is all rather a pity, as the stakes could not be higher. We can still remain the world's leading nation going forward if we keep our fiscal wits about us, but if deficits balloon astronomically (remember too the ticking entitlements time-bomb), and while we continue to fight multiple wars of choice overseas, I cannot help fearing the worst, at least in more pessimistic moments, the rapturous change agenda and the President's so evident intelligence and charisma notwithstanding.

Wait, where have I heard that one before?
Well, because it involved the sentence "I’ll take responsibility," you certainly didn't hear it from Bush.

Posted by: Gold Star for Robot Boy at March 19, 2009 07:49 PM | Permalink to this comment

I agree with much of your post:

Volker (my hero) is being ignored. He's said many sensible things about the current situation and what should be done.
The administration is avoiding hard choices (Geithner seems to think that "just a little more money" will do the trick and the situation will stabilize).
Summers is totally unimpressive (or worse).
Geithner bothered me as Treasury Secretary from the get-go.
A lot that Treasury is doing is "short term" (next 2 years) without seriously grappling with the massive imbalances that got us here.

Beyond that, Helicopter Ben's quantitative easing (aka print, print, print) is a huge experiment. It's predicated on the notion that a financial collapse, which is what we are in, can be solved relatively painlessly. Also, hasn't Bernanke already demonstrated a failure to see when things were headed in the wrong direction? (I'm thinking about his silence throughout the housing bubble.)

Posted by: Quiddity at March 19, 2009 09:47 PM | Permalink to this comment

Was anyone surprised to see Summers give Volcker the Full Rumsfeld? Depressingly predictable but prerdictable nonetheless.

Yeah, they pretty much treat us like children, and the shame of it may be that, purely from an electoral viewpoint, they are wise to do so.

Posted by: Will Allen at March 20, 2009 03:42 AM | Permalink to this comment

Greg--would love to get your reaction to Obama Nowruz video from yesterday.

Posted by: heh at March 20, 2009 10:58 AM | Permalink to this comment