Geithner’s Foot in Mouth Problem

Tim, did you just say what I thought you said?

Did you just say that the government stands by to step in when banks get into the trouble in the future?

If so, then what of that great reform last year? The Frank-Dodd reform. The one that was sold to the public as the solution to the banking problem.

If Frank-Dodd solved the problem, then there will be no future crises. More to the point: there is no need for the government to stand by the banks. They’re on safe ground now. Right?

Maybe not.

Or is it simply that Frank-Dood was an enormous – literally, the legalese made the law into an epic pile of paper – fudge?

I have said from the beginning that the only way to solve the great “too-big-to-fail” conundrum is to cut the banks down in size. All else leaves them to blunder on trampling all of us as before. Gutless bureaucrats didn’t want to do that. Nor did politicians beholden to the flow of cash from the banking industry. Yes, Frank-Dodd was a fudge. It didn’t attack the disease at it roots. It dealt with symptoms. It didn’t cure. It wasn’t meant to. The system, we were told, was too fragile. It only needed tweaking. Leave it to the big people who knew banking. They would fix it for us. The taxpayers could rest assured that the banks would never again be in a position to destroy the economy and the lives of millions of people around the world.

Except now we are told that the government stands ready to plunge right back in if needed.

The question, Tim, occurs to me. Exactly why, in view of all that reform, is future government help needed?

Don’t bother to answer. I already know why.

You caved in. The moment I realized that Obama had no intention of fighting the big banks was the moment I realized he was not a true reformer. Instead he, and his people like you Tim, are simply bureaucrats incapable of formulating an alternative world and then fighting to put it in place. You are the ultimate tweaker. Lost in the details and the finer points you have spent years mastering you are incapable of seeing that radical change is needed. Indeed you despise the word radical.

As a result we have binary banking system. The small banks struggle to keep a foothold, while the government tilts the playing field in favor of the behemoths who have managed to make themselves indispensable. The big players have co-opted policy making to the extent that only what they approve ever gets done. Meanwhile their income statements are fattened by the ongoing subsidy. Your statement that the government is standing by lowers the risk profile and thus the cost of funds for the behemoths. They then can be less smart because you have widened their degrees of freedom of action. They don’t need to be clever to survive. Just big. So they blunder on.

Maybe you’re just cynical. Maybe it’s because you decided that bankers are irreparably stupid that you see the need to keep them on life support. Or maybe you just don’t understand the system you are supposed to nurture.

In either case you sold the taxpayers out. And those banker bonuses will flow once more, safely protected from harm by the largesse of the public still digging out from the storm unleashed by those self same bankers.

The only ethical thing in all this mess is your simplicity Tim. At least you are upfront about the extent of the capture. At least you can tell us, with a straight face, that the problem is not solved.

And before you tell me that I am making this up: why is it that Standard and Poors, an accomplice in the last heist, incorporates an element in its analysis of bak risk to take into account the extent of government support? They figured you out Tim. So have I.

Thanks for nothing.

Now take your foot out of your mouth.