Geithner rehabilitation seems to be in full swing. David posted last week on an article in The Atlantic. Last week's New Yorker had a similar piece arguing that Geithner's course of action favoring a bailout over nationalization has proven largely correct.
The New Yorker article includes a gem hidden towards the end that provides an insight into politics post-bailout, that suggests there might be more than just reflexive populism at work:
The hardest part of his job, Geithner often says, is getting people to comprehend the inner logic of a financial-rescue operation, and the unpopular actions it entails. In fact, his problem may be not economic illiteracy but its opposite: Americans understand all too well what has happened. Financial crises have a way of revealing aspects of our economic system that otherwise remain obscured, such as the symbiotic relationship between Wall Street and Washington, the hidden subsidies that financial firms sometimes receive from the Fed and other government agencies, and the fact that the vast profits that firms like JPMorgan Chase and Goldman generate depend in part on an implicit guarantee from the taxpayer. When ordinary Americans are confronted with these realities, they get angry.
That point notwithstanding, I do have a few bones to pick with this article. It is fair enough to point out the problems with nationalizing banks in the midst of a crisis. But,
(1) are we confident the crisis is really over?;
(2) one of the criticisms of nationalization -- that it would not have given creditors of banks a haircut -- applies to the Paulson/Geithner/Bernanke bailout in spades; practically the only pain shareholders and management of financial institutions receiving bailout money felt was through some dilution; and
(3) the real problem with the bailouts is not at the crisis management stage, but at preventing future crises. Whether you are concerned about moral hazard or just re-imposing some distinctions in the regulation of financial institutions (the art formerly known as "banking law"), we've broken a lot of eggs to make the omelet. Now it isn't so easy to re-form Humpty Dumpty or to stop being a short order cook.
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