Treasury Secretary Tim Geitner Should Go

He has had his hand in every major government-orchestrated bailout in the last 17 years...of which Wall Street Banks have been the main beneficiary.

Geithner's lifelong love of bailouts

By MARK A. CALABRIA

Treasury Secretary Timothy Geithner faces tough hearings next week before the House Oversight and Government Reform Committee. But will any of the Congress members take him to task for his own role in creating last year's financial crisis?

Geithner refuses to take responsibility for "the legacy of crises you've [that is, the Republicans] bequeathed this country," as he told Rep. Kevin Brady (R-Texas) before the Joint Economic Committee in November. He apparently believes that the long string of Wall Street bailouts with which he's been associated -- starting with the Mexican "peso crisis" in 1994 -- had nothing to do with our financial institutions' widespread expectation that Washington would bail them out when they screwed up big-time.

Indeed, Geithner's consistent support for big-bank rescues dooms any real efforts to end "too big to fail." That's why, for the nation to truly move past the crisis, Geithner needs to go.

Although Geithner first came to Treasury in 1988, he didn't hold any leadership positions until 1995. But it was during those early years that he developed his apparent contempt for Congress and representative government.

In 1994, Mexico found itself unable to repay loans to a host of Wall Street investment banks. The Clinton administration pushed legislation to lend Mexico the cash -- but the new Congress voted it down. Geithner, then deputy assistant secretary for international monetary and financial policy, orchestrated back-door assistance to Mexico via Treasury's Exchange Stabilization Fund.

There was a national-interest case for helping out our southern neighbor. But it remains true that Wall Street was a huge beneficiary of that rescue -- it escaped paying a price for tens of billions in foolish lending.

Geithner, meanwhile, soon found himself in the middle of another round of bailouts -- as Treasury Secretary Robert Rubin's point man with the International Monetary Fund on the Asian financial crisis. The claim was that IMF "rescue packages" were needed to stabilize Asian economies -- but US banks again saw their losses reduced as a result.

On leaving Treasury, Geithner soon ended up at the IMF, an organization whose primary purpose seems to be to bail out US and European banks when they suffer losses on their developing-world investments -- a mission Geithner evidently shares.

From 2003 until his 2009 appointment as Treasury secretary, Geithner served as president of the Federal Reserve Bank of New York. The New York Fed's role as the top Wall Street watchdog can't be overstated -- so if regulatory failure contributed to the recent financial crisis, then few regulators contributed more than the New York Fed and its chief, Tim Geithner.

Plus, the New York Fed chief is a permanent member of the Federal Open Market Committee -- the Fed body that determines monetary policy. And Geithner strongly supported the Fed policies of that era -- particularly the overly expansionary monetary policy that directly contributed to the housing bubble.

Yes, the chief blame falls on former Fed Chairman Alan Greenspan (and to a lesser degree with then-Fed governor Ben Bernanke), but Geithner had plenty of chances to voice concerns about the growing housing bubble. He didn't.

Thankfully, Secretary Geithner's efforts to move his financial-regulatory "reforms" through Congress have so far failed. The core of his plan involves giving the Fed permanent bailout authority, which would be an unmitigated disaster: We need to end the cycle of bailouts, not double down on it.

If there's a common thread to almost every bank bailout over the last 15 years, it's that Timothy Geithner was always somewhere in the room. Each of these "rescues" brought short-term stability to our financial markets -- but only at the cost of long-term instability.

Only a handful of individuals could truly be called architects of our financial-regulatory system. Geithner, without a doubt, is one. To pretend he just now arrived on the scene is not only dishonest, it's dangerous. Without an honest assessment of how the long string of bailouts contributed to the current crisis -- an assessment that involves admitting Geithner's role -- we have little hope of avoiding future crises.

Mark A. Calabria is the Cato Institute's director of financial-regulation studies.

Advice for President Obama?

Pay attention to Ronald Reagan? And this is coming from a center-left publication...Time Magazine.


Reagan's Charm Could Teach Obama some Lessons

Back in January 2008, while meeting with the editorial board of the Reno Gazette-Journal right before the Democratic Nevada caucuses, Barack Obama offered some approving commentary on the legacy and influence of the 40th President. Ronald Reagan, he said, "changed the trajectory of America in a way that, you know, Richard Nixon did not and in a way that Bill Clinton did not." Not surprisingly, Obama's remark riled up both Hillary Clinton and her husband, who viewed it as demeaning to the achievements of the Clinton Administration, as well as a cheap tactic to win favor with some of the Silver State's more conservative Democrats.

(See pictures of people around the world watching Obama's Inauguration.)

In reality, Obama (and, for that matter, the Clintons) has a long history of paying public homage to the leadership and political skills of President Reagan, even while disagreeing with his policies.

Now, just as Reagan struggled to find his footing at the start of his own first term, Obama is straining to revive his political mojo. And so, as the President prepares for his second State of the Union address, here are the elements of the Gipper's arsenal that his latest successor would be smart to follow:

1. Stand for a few big things
Obama rode to his party's nomination as the anti-Clinton and won the general election as the anti-Bush without ever having to define his political persona. Reagan's policies didn't always live up to his mantra (lower taxes, stronger defense, family values), but he was able to fit most of his major initiatives and high-profile events under that simple tripartite rubric.

2. Be bigger than life
Obama is in many ways an ordinary guy (not unlike brush-clearing Bush and shorts-wearing Clinton). Scenes of him rhapsodizing about ESPN or headed out for burgers serve to humanize Obama and are certainly an appealing window into his real-life self. But through stagecraft and style, Reagan was able to be both an accessible and a towering figure. The Democrat in the White House now needs to be more imposing and less familiar, in order to wow his friends and strike fear into the hearts of his enemies. Plainspoken speeches, richly symbolic events and well-timed humor are Reagan tools that Obama could employ.

3. Create more Obama Republicans
Candidate Obama had broad appeal for Republicans and conservative-leaning independents. Now, his image and agenda have left him without any calling card to widen his support (essential for winning policy fights and elections). The Gipper wooed so-called Reagan Democrats by finding common cause with them on key issues such as national security and lower taxes while still keeping his political base solidly on board. Education, spending cuts, and maybe even health care are all ripe areas where Obama can make another effort to reach out - to voters, if not to intransigent Republicans in Washington.

4. Don't let the media get you down
By the time Reagan reached the White House, he had been trapped in the glare of press scrutiny from his days in Hollywood through his time in the California governor's mansion. Obama, meanwhile, glided into his Illinois Senate seat and into the White House with very little negative attention from the press (beyond brief isolated incidents such as the Rev. Wright dustup). Now, hammered nonstop by both the conservative and mainstream media, Obama has to thicken his skin. Reagan wasn't crazy about the coverage he got either, but he sloughed it off and followed the actor's credo: Never let them see you sweat.

5. Use national security to strengthen your hand at home
Obama needs to frame future foreign policy successes in way that gives him leverage with voters and Congress. Reagan deployed his standing as a successful Cold War President to rally the public around him, and then used higher approval ratings to advance his agenda. Obama is governing in a more partisan era, but he can break the bonds of a divided Washington to turn his domestic agenda into a patriotic one - by pushing for energy independence, for example - rather than one side of a left-right slugfest.

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Disaster Strikes Haiti

Over 100,000 presumed and many more are trapped. Please reach into your pockets and help

A Debate About Healthcare

First and foremost, sorry for the light posting in recent weeks. Hopefully this topic will spice things up a bit.

Its time for Justin Dantonio and I to step into the ring again. Followers of this blog will recall that he and I discussed the evolutions of the music business and concert ticket industry, primarily in response to an extremely insightful article about Ticketmaster in the New Yorker. He and were primarily in agreement on several occasions---even though I felt, at times, he elided over some of the economic theories explaining the decline of the four major record labels and the enormous pricing power of Ticketmaster and LiveNation, he is generally more knowledgeable on the subject then me and his responses were very thoughtful.

But now, the gloves come off....




Once again, the impetus for this discussion is an article in the New Yorker about John Mackey, the enterprising CEO and founder of Whole Foods Market. With the debate over health care reform swirling, John Mackey wrote an op-ed in the Wall Street Journal (a quick note, the editorial page of the Wall Street Journal is considered the conservative intelligentsia of print media--low taxes, free trade, sensible regulations, and limited government)back in august briefly discussing Whole Foods's employer-based plan and then proceeded to highlight 8 reforms he thought would be crucial to controlling the escalating costs of health care. I will copy and paste them below:

• Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs). The combination of high-deductible health insurance and HSAs is one solution that could solve many of our health-care problems. For example, Whole Foods Market pays 100% of the premiums for all our team members who work 30 hours or more per week (about 89% of all team members) for our high-deductible health-insurance plan. We also provide up to $1,800 per year in additional health-care dollars through deposits into employees' Personal Wellness Accounts to spend as they choose on their own health and wellness.

Money not spent in one year rolls over to the next and grows over time. Our team members therefore spend their own health-care dollars until the annual deductible is covered (about $2,500) and the insurance plan kicks in. This creates incentives to spend the first $2,500 more carefully. Our plan's costs are much lower than typical health insurance, while providing a very high degree of worker satisfaction.

• Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair.

• Repeal all state laws which prevent insurance companies from competing across state lines. We should all have the legal right to purchase health insurance from any insurance company in any state and we should be able use that insurance wherever we live. Health insurance should be portable.

• Repeal government mandates regarding what insurance companies must cover. These mandates have increased the cost of health insurance by billions of dollars. What is insured and what is not insured should be determined by individual customer preferences and not through special-interest lobbying.

• Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year. These costs are passed back to us through much higher prices for health care.

• Make costs transparent so that consumers understand what health-care treatments cost. How many people know the total cost of their last doctor's visit and how that total breaks down? What other goods or services do we buy without knowing how much they will cost us?

• Enact Medicare reform. We need to face up to the actuarial fact that Medicare is heading towards bankruptcy and enact reforms that create greater patient empowerment, choice and responsibility.

• Finally, revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren't covered by Medicare, Medicaid or the State Children's Health Insurance Program.

These reforms perfectly echo the market-oriented ideas pushed by conservatives and classical liberals alike, and is therefore 100% endorsed by the Passing Scene Cafe. To my knowledge, the current reform efforts in both the House and the Senate do NOTHING to advance any of these ideas, let alone control costs or improve care.

For writing this article, John Mackey was absolutely savaged by the jack-booted left-wing shock troops and practically drowned in the fever swamp of the Left. Liberals all off a sudden discovered their hatred for organic foods and fruits sans pesticides and called for mass boycotts of all the Whole Foods stores. This particular piece of advice by Bill Clinton's counsel Lanny Davis is both illustrative and comical:

"Before submitting the op-ed, he showed it to Lanny Davis, the former Clinton White House special counsel, who represented Whole Foods in its antitrust battle. Davis told me that he “prodded John a little to think like a liberal,” and he reckons that the Thatcher quote was ill-advised. Still, he blames “left-wing McCarthyism” for the outrage that greeted the piece."

The overture by Lanny Davis is especially touching, isn't it? Can't you just hear him him saying, "Listen, John, I know you are doing a good job...but can't you just try and see the world like the rest of us??? Puhhhlleeaassee!!???"

Enter Justin Dantonio--Bob Dylan fanatic, North Carolina hoops enthusiast, and committed dyed-in-the-wool liberal---who has this to say about the aforementioned articles. I will comments in between his articles:

"Liked the article and like whole foods, specifically the way they treat their employees. I do think Mackey is right that a company can pursue profits and still better the lives of their employees & consumers and it is ultimately better for everyone than if the gvt steps in. Very Ayn Randian.

Wow. Score that one for the Cafe!!! The relationship between profit-seeking and the maximization of social/consumer welfare is often lost on large swaths of the Left and increasingly more on the Right. High five to Justin for acknowledging the connection. On on a side note, I bought Ayn Rand's Atlas Shrugged over Thanksgiving and I am not looking forward to reading 1000 pages of fiction.


"That said, I guess my question would be 'What should happen when the overwhelming majority of consumers do not feel like an entire industry is looking out for them?" I have no problem with megacoporations with what I feel is fair pricing and a product I want/need. If i don't want to shop there, i wont; freedom of choice. But insurance companies don't give you that choice to a large extent."


I took issue his contention that an "overwhelming majority of consumers do not feel like an entire industry is looking out for them." Polling by the Kaiser Foundation consistently shows that satisfaction with one's own health care is north of 80 %---and that includes two thirds of women. Even Ezra Klein, a liberal blogger over at the American Prospec, acknowledges this, and correctly highlights that the prospects for reform are quite dim as long as people generally regard their insurance coverage as sufficient.

After asking Justin to substantiate his claim, he pointed me to another poll which claims that 3 out of 4 people are dissatisfied with the overall cost of health care in this country. In fact, the poll results are slightly nuanced :

More than eight in 10 Americans questioned in a CNN/Opinion Research Corp. survey released Thursday said they're satisfied with the quality of health care they receive.

And nearly three out of four said they're happy with their overall health care coverage.

But satisfaction drops to 52 percent when it comes to the amount people pay for their health care, and more than three out of four are dissatisfied with the total cost of health care in the United States.

Note that over half of poll responders say that they are satisfied with what they pay for health. That 48% of people who are either dissatisfied or unsure. Furthermore, I hypothesized that that particular question polls highly because many folks are being fed a narrative by politicians and the mainstream media that there is a looming crisis when it comes to health care costs and the time for reform is now. He responded that an increased level of attention to the issue cannot account for all 75 % of that poll result. This might be a case where he and I are both right.

Look i don't think the health care thing has gone well AT ALL. Its a mess and its going to create more problems than solutions (my premiums will surely be going up quite a bit).

What he says is spot on. Little does he know that he would get vilified by his fellow travellers for acknowledging such an observation.

All I am saying is that in all the research I have done on insurance for my own personal benefit, I cant get what I feel is a fair shake and it doesn't seem like there are other companies I can turn to. The status quo was not adequate and hasn't been for some time (Nixon gave a big speech in the 70s about the problems w/ the insurance industry so its been on the radar for decades). That said, the proposed solution will not be adequate either (and yes, potentially worse)

I think all of John Mackey's reform ideas would help. The only phenomena that throughout history, has helped to lower costs and put downward pressure on prices over time are free markets, competition, and innovation. Despite what many people think, the private insurance market in this country is NOT an unfettered free market. It is a highly regulated market with price controls, 50 different sets of rules for each state, and numerous barriers to enter the market. The solutions seem obvious to me and to those endangered species of liberals who mistrust government.

To sum it up: We need outside the box thinkers. The things Republicans want and Democrats want are so by-the-book Republican and Democrat that this mess almost seemed inevitable in a depressing sort of way. Unfortunately outside the box thinkers have a tough time getting into and/or wanting to be in the government. So very Plato via Philosopher-Kings.

I'm not entirely sure I agree with all of this. Most of the reforms posted above are reforms that the right-wing intelligentsia has been touting for years. I consider them to be 'by-the-book Republican.' I don't know of any ideas that are MORE 'Republican' than these. Also, there exists some variation within the Democratic party about what the future of the health care industry should look like. Some Democrats want a single-payer system. The Clintons wanted "managed competition" between four big insurers. Others want a private market but highly regulated and micromanaged to suit their ideals--a market replete with individual mandates and compulsory enrollment.

As usual, Justin went over my head very quickly with the Greek philosophy reference.

Thoughts please....