Geithner on the Hot Seat

Treasury Secretary Tim Geithner appeared before the Joint Economic Committee today. One striking feature of Geithner’s testimony was how partisan it was. In keeping with the Obama administration’s mantra, he repeatedly tried to cast blame on the Bush administration while failing to acknowledge that when the financial crisis developed, he was the head of the Federal Reserve Bank of New York, and as such one of the most influential figures in our financial system. If he saw the crisis coming, or thought that the administration’s policies were badly misguided, he had every opportunity to speak up, and his words would have been highly influential. But he did no such thing.
I had lunch with Geithner a couple of years ago, when he headed the New York Fed and before the crisis developed. It was an odd encounter: he seemed to want to convey the impression that he was in the know and privy to deep secrets, and that he was wiser than the other leading figures responsible for economic policy. But he did this without ever saying anything substantive or even, frankly, very coherent. If he had any disagreement with the policies of the Fed or of the Bush Treasury Department, he never hinted at what they might be.
Fireworks broke out on several occasions in today’s hearing, as when Kevin Brady of Texas called on Geithner to resign. I thought this exchange with Congressman Michael Burgess was actually more interesting; I’ve bolded some of Burgess’s key observations:

BURGESS: Secretary Geithner, you were referencing in your answer to an earlier question about when the financial catastrophe started in September, October of last year, if I understood you correctly, you said that this country did not have the tools to manage that panic. But the inference that I took from that was that there were countries overseas that did have such tools.
Now, I recall a phone call with your predecessor in late October of 2008, when it became public that the United States was pumping monies into the central bank in Europe, and other places. And I suggested that was not the correct thing to be doing. And he said, if the United States is not helping these countries, then they will collapse.
So, which is it?
Were we the savior of those countries that, according to the current president, didn’t even like us that much until he took office? Were we the savior of those banks and those countries? Or were we, in fact, incapable of dealing with the problem?
And was that money, in fact, going to foreign banks at that time, in October of last year? This was widely reported in the press.
GEITHNER: Congressman, there is no country that came into this crisis with the tools to manage it effectively. And the basic failure I described here was a common failure.
One thing you saw around the world was…
BURGESS: Well, let me ask you a question. Then how did George Bush cause those countries to be unprepared for a financial crisis?
Glass-Steagall has come up this morning. If I recall, Glass- Steagall was repealed — that bill was signed by Bill Clinton…
GEITHNER: You’re right about that.
BURGESS: … not George Bush.
GEITHNER: You’re absolutely… BURGESS: And I frankly don’t understand. If that’s such a good protection, this president’s been in office for 10 months. Where’s the signed legislation reinstating Glass-Steagall? What…
GEITHNER: Actually, I would not support reinstating Glass-Steagall. And I don’t actually believe that the end of Glass-Steagall played a significant role in the cause of this crisis.
But…
BURGESS: Well, that’s not being stated to this committee. Let me move on, because my time is going to be limited. I do hope we’ll be able to submit some of our questions in writing… because this is a critical hearing, and time is limited.
All right. We’ve got the TARP. It’s supposed to expire. Why won’t we let it die a natural death, rather than letting it painfully linger and absorbing tax dollars?
GEITHNER: We are working to put the TARP out of its misery. And no one will be happier than I am…
BURGESS: Well, according to my figures…
GEITHNER: .. to see that program terminated and unwound. And I want to point out that, we are moving very aggressively to close down and terminate the programs that defined TARP at the beginning of the crisis. Now…
BURGESS: Well, it looks like the money is going out with little or no oversight…
GEITHNER: No, that’s absolutely not true.
BURGESS: Well…
GEITHNER: The Congress established three separate oversight committees…
BURGESS: Your own special inspector general for the Troubled Asset Relief Program has got several concerns about it. Why not just stop spending on the TARP funds? And why not repeal the program? We don’t need it anymore. The American people never liked it. Let’s just do away with it.
GEITHNER: Let me just point out the disagreement between what your colleague said and I think what most people across the country understand and believe, which is that, if you look at what’s happening in housing, if you look at what’s happening to small businesses, this economy still faces tremendous financial challenges.
BURGESS: What’s happening in small businesses is people are frightened to add jobs, because they don’t know what we’re going to do to them in health care. They don’t know what we’re going to do to them in financial regulation. They’re scared of what we might do with energy prices in the future with cap and trade. Small business — medium sized business is frightened at jobs right now.
I could help the president and his panel. He doesn’t need another program. We don’t need another stimulus. We need to provide some tax relief and then get the heck out of the way, and the American economy will recover as it has always done.

GEITHNER: That broad philosophy helped produce the worst financial crisis and the worst recession we’d seen in generations. We had a pretty good test of that philosophy — a pretty good test of those policies that did not serve the country well. Now…
BURGESS: Mr. Geithner, when I came here in 2003, we were in a jobless recovery. Tax relief was passed in May of 2003, and as a consequence by July of that year, we were adding jobs at a significant rate. It seems to have worked fairly well.

Note how dishonest Geithner’s response to Burgess is. The recent financial crisis arose largely out of, and was fueled largely by, government policies and programs–the Community Reinvestment Act; other regulatory policies that pressured banks to make bad loans to underqualified borrowers; Fannie Mae; Freddie Mac; the multiple bailouts of the 1990s that convinced Wall Street that the government would come to its rescue if risk-taking didn’t pan out. For the details, read Architects of Ruin. It is telling that our Secretary of the Treasury is not able to rise above such crude and misleading partisanship.

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