For those who did not see the NYTimes yesterday, below is an excerpt from Ben Stein’s “Everybody’s Business” column:
“I am the world’s most ardent fan of Paul A. Volcker and Lawrence Summers, but I am a bit puzzled by the choice of Timothy F. Geithner to be Treasury secretary. During the presidential campaign, I heard Mr. Obama talk many times about “change you can believe in.” But what does Mr. Geithner have to do with change? He’s the pre-eminent careerist of old-time finance, and a basic part of the team that got us into this mess. He was pro-deregulation for most of his career. He went along with failing to rescue Lehman Brothers, a decision now generally considered a catastrophic mistake. He led the Federal Reserve Bank of New York while money-center banks made lethal mistakes of faulty risk management — and he did zero to stop it, as far as is known.”
My one quibble with Stein and others is Lehman Brothers. In the past, I have agreed with the crowd that letting Lehman fail was a mistake, but for different reasons than most. The screw-up by Geithner et al was inconsistency, not making a bad choice. Lehman going into bankruptcy was the end result of a lot of events beyond anyone’s control — but it was the right decision. But by bailing out Bear and not Lehman, Geithner et al showed that they do not understand the definition of systemic risk — namely, when markets are SURPRISED.
Bear and AIG should have been pushed into bankruptcy as well, but because of the lack of financial skills and values in political economic terms, Geither (and his colleagues at the Board of Governors in Washington) mudded and thereby confused and scared the markets. This lack of a moral compass when it comes to matters of political economy is a major reason why I think Tim Geithner is the wrong man for Treasury. If we want to get this economy back on its feet and avoid hyperinflation, we need more bankruptcy and less bailouts.