“To avert panic, central banks should lend early and freely, to solvent firms, against good collateral, and at ‘high rates.’ ” –Walter Bagehot, Lombard Street
Former U.S. Treasury Secretary Timothy Geithner has been promoting his new book, “Stress Test: Reflections on Financial Crises.” I haven’t read it, and based on what I have heard him say, I won’t. Geithner doesn’t seem to understand how the crisis came about, what alternatives existed to the bank bailouts, or the impact they had. Indeed, Geithner makes multiple claims about the bailouts, none of which survive scrutiny.
Geithner argues that the bailouts were the best response to the financial panic. The financial system needed to be protected from collapse, he says, and there were no true alternatives. If part of the rescue worked to the benefits of the “arsonists who set the original fire,” that was merely an unfortunate side effect.
Those arguments stand in stark contrast to what many critics, me included, have written about the crisis. Rather than talk my own book, “Bailout Nation,” I want to respond directly to the Geithner claims. Continues here
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