A WaPo interview with Secretary Geithner ...Obama has made some stumbles and some mistakes. Geither is an outrageous pratfall by Obama. The guy was at the heart of the problem. To give him the keys to the kingdom is incredibly stupid. The above interview confirms it.
WaPo's Lois Romano: "You mentioned that Americans borrowed beyond their means. When you look at the collapse of the housing market, who do you think bears the greatest responsibility? Is it the banks for pushing these loans? Is it the consumer for borrowing over their means? The regulators? Where do you see the fault lines there?"
Geithner: "For something this big and damaging to happen it takes a lot of mistakes over time. And it is that combination of things. Interest rate here and around the world were kept too low for too long. Investors made - took a bunch of risks without understanding the risks. They were betting on the expectation that house prices would continue to go up - to go up forever. Rating agencies failed to rate these products adequately. Supervisors failed to underwrite loans with sufficiently conservative standards. So those basic checks and balances failed. And people borrowed too much. It took all those things for it to happen."
CR Note: (short transcript by CR). Although there were many factors in the housing and credit bubble, the two keys were: 1) rapid innovation in the mortgage industry (securitization, automated underwriting, rapidly expanded wholesale lending, etc), and 2) a complete lack of oversight by regulators. As the late William Seidman wrote in his memoir (published in 1993): "Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid."
Geithner failed to mention the rapid changes in lending and the failure of government oversight as the two critical causes of the bubble. Either Geithner misspoke or he still doesn't understand what happened - and that is deeply troubling.
Sunday, May 24, 2009
The Trouble with Geithner
Here is a blog entry on the Calculated Risk website that points out the incredible obtuseness of Timothy Geithner...
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2 comments:
I am starting to doubt Obama, and this makes me really heart sick. I had more hope than I realized, and after all the power is handed to the Democrats; they still stab us in the back and not much kinder than the neoconservative republicans would have.
I have to agree at this point that Geithner is one of those knives in the back. What next for Mr. Obama?
One facet to the lending is that many loans even in the eighty's were so outrageous that people could not pay the huge lump sum at the end of their creative financing schemes which was called a ballon payment. I wonder if this is such a new problem or if it is just bigger and badder.
Thomas: I too get discouraged and end up sounding more down than I should. I have to keep reminding myself that Obama is a clear improvement over the Bush years.
I get bitter because I know that so much better could be achieved. Politics is like sausage making, you don't want to see it done if you want to enjoy a good sausage. I'm watching Obama try to "reach across the aisle" to Republicans and I watch him do things (like the Geithner appointment) which fall far short of a "fresh start" and the hopes I had. So I get bitter.
But I have to keep in mind, Obama is far better than the other choices. I was a big John Edwards fan because of his concern for the poor, but he was pulling a Clinton with his sexcapades. If he had won, he would have been fatally wounded. I liked Hilary Clinton's social policies but couldn't stomach the idiocy of American politics that was creating political royalty: Bush I, Bush II, Clinton I, Clinton II, etc. So Obama was my favourite. I had high hopes. He has fallen short of them. But I have to remind myself that he was the best of the bunch.
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