Sunday, April 05, 2009

The Trouble with Geithner

Unlike others in my region, I did not mourn Rick Wagoner’s recent dismissal from GM. On the contrary, I have long believed that all of the CEO’s and boards in the auto industry needed a clean sweep. Wagoner, after all, was the genius behind the Hummer – The vehicle that came to symbolize American automakers disdain for the environment or basic common sense. It also showed the clumsiness of U.S. design. As one critic remarked, it was quite possible the only vehicle that could be larger than most standard highway lanes and yet still feel cramped inside the cabin. That takes a special type of incompetence.

Like many people, though, I also see the decision to target the auto industry as being a poor substitute for taking a hardline stance against the much more corrupt banking industries in the nation. It’s hardly a secret that the Obama administration, after embarrassing revelations that they allowed AIG to issue millions of dollars in “retention bonuses,” decided to try to look tough by kicking the dying horse that is the auto industry.

I am always confused by why Obama gives the banks a free pass while he trashes the auto industry (Who, it must be remembered, is asking for a fraction of the money as a loan that the banks are asking for as a flat-out grant). First, why would we want to retain (through bonuses, nonetheless) the banking executives who destroyed their companies? If bonuses are given because it is imagined that these executives would find a job elsewhere, I say let them try. What would they put on their resume? Somehow I think it will be hard to market yourself by including statements like, “I was a key architect for Bank of America’s financial strategies right up to its unfortunate bankruptcy.” My guess is that they couldn't even get a job at a McDonald's drive-in.

The bonuses became even more egregious when it was revealed that many of those “retentions” went to people who no longer worked for the company at all. So, we are paying to "retain" people who already quit or were fired? There is a sound business plan.

Don’t get me wrong – There is much to trash about the auto industry, too. Unlike the banks, though, at least they produce a real, tangible product at the end of the day. It might not be a product that anybody actually wants to drive, but at least you can put your hands onto it. What have the banks given us other than fees, crushing interest rates, misery, and greed?

Much of the blame for this problem falls to Obama’s obstinate refusal to dismiss his failed economic advisers, especially the creepy and crooked Treasury Secretary, Timothy Geithner. Very few people (except me) objected to his appointment back in the day. What has become abundantly clear, though, is that GayProf was right – as usual. Geithner has no idea what he is doing; is too wiling to get into bed with banking executives; and is just, well, creepy. Even today he had to answer allegations that his office was going to sidestep Congressional imposed restrictions on CEO’s pay.

Nobody seemed to care that Geithner had zero (o) academic degrees in economics. Nor did they seem particularly concerned that he had a history of taking jobs for which he was woefully unqualified. The Financial Times reported that, when he (mysteriously) became the head of the New York Fed back in 2003, Geithner needed to bring in tutors for an hour each day to teach him the basics of macroeconomics.

I had no idea we could do that as a career strategy! Tomorrow I am going to apply for a position as the head of neurosurgery at the university hospital. Okay, so I haven’t had an anatomy class since high school; but I’m sure that I can hire some resident for an hour everyday to bring me up to speed.

Those tutors seem to have done a great job with Geithner. One can only assume that he skipped the lesson on regulation in My First Macroeconomics Workbook.

But Geithner in many ways is just a product of his mentor, the cartoonish Lawrence Summers (currently Obama’s Director of the National Economic Council). You might best remember Summers as the failed president of Harvard who once speculated that most women lacked the ability to do complex math and science. What you might not know, though, is that such sexist statements were just one whistlestop on the crazy train that has been Summers’ career.

Way back when Summers served as the chief economist of the World Bank, he advocated exporting pollution to “less developed countries” of the world. “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable,” Summers wrote in an infamous memo, “I’ve always thought that under-populated countries in Africa are vastly UNDER-polluted.”

Yeah, where do those people in Africa get off not sharing the burden of our pollution? I mean, just because they produce minor amounts in relation to their percentage of the population doesn’t mean that they shouldn’t take their fair share of cancer and birth defects. One can imagine Obama’s distant relations in Kenya getting a surprise package from the U.S. on their doorstep. “What did cousin Obama send us?” they would ask as they tore open the gift wrap, “A box of industrial sludge?!?! Oh, man, we are not inviting him to the next family reunion.”

On Friday, the New York Times reported that Summers had received $5 million last year from the hedge fund D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money. Gee, no conflict of interest there.

Obama claims to enjoy reading history. He might read a bit more about other presidents who obstinately retained unpopular cabinet officials. We can think of LBJ’s tragic presidency and the retention of Robert McNamara as Defense Secretary. JFK appointed McNamara to the position despite his having no experience in defense at all (Coincidentally, he was an executive at Ford Motor Company). McNamara showed that he had no idea at all how to handle the situation in Vietnam, at first advocating a massive escalation in troops and later conceding that the war was basically a failure. In the middle, he constantly claimed near victory through a dehumanizing use of “body count” statistics. He was widely despised by the end of his tenure in 1968. Though he had a strained relationship with LBJ (who wanted an even higher body count), the President retained him despite his unpopularity.

Or we can think even more recently of little Bushie-Junior’s obstinate refusal to dismiss Donald Rumsfeld as Defense Secretary. It was only after a resounding rejection from the U.S. public that Bush finally conceded that his administration needed pragmatic help in the form of Robert Gates rather than an ideologue like Rumsfeld.

Or, thinking again of Bushie, we can remember his staunch defense of Michael Brown, Director or the Federal Emergency Management Agency (FEMA), after Katrina. Does Obama really want to be remembered saying, “You’re doing a heck of a job, Geithnery”?

Obama should take heed at the huge personal costs that these presidents paid for refusing to dump the dead weight in their administrations. The public will ultimately blame the president for keeping the incompetent in office.

But Obama could also learn some valuable lessons from his most favoritist president, Abraham Lincoln. One gets the impression that Obama loves Lincoln so much that he sleeps with a picture of him under his pillow. What Obama seems to have missed, though, is that Lincoln had little problem firing people, sometimes ruthlessly. Lincoln’s first Secretary of War, Simon Cameron, served less than a year in the position. When Cameron became mired in scandal, Mr. Lincoln more-or-less packed his bags for him. He also permitted Caleb Smith, his Secretary of Interior, to depart after a year in office despite their once close relationship.

Perhaps most importantly, Lincoln fired and reorganized the military structure of the Union Army numerous times until it won decisive victories. Lincoln wanted results, plain and simple. If an appointed general didn’t deliver, Lincoln showed him the door. Indeed, he even fired George McClellan despite his astounding popularity with the troops. Given that McClellan later lost the Presidency to Lincoln in 1864, it seems that the latter was vindicated in issuing a pink slip.

I appreciate that Obama decided to clean house at GM. He might, though, take a closer look back at home. That Treasury Department has a layer of dust an inch thick. Obama needs to break out the ol’ Swifter before the whole administration gets asthma.


Frank said...

I don't know why, but I do feel the need to take umbrage with the whole notion that banks don't "produce" anything. Admittedly, the production is more abstract than cars, and the bewildering array of sliced and diced, packaged and repackaged and packaged again financial derivatives and investment "vehicles" that are a large source of our current crisis are really insupportable, but the concept of credit and interest and stock exchanges and the other core parts of modern finance really are indispensable. Anything above feudal bartering really can't exist without it, and I, for one, don't feel like being a villain and trading ass for two cow.

Speaking of feudalism, the current crisis, not without SOME reason, have brought very old anti-banker sentiment that is, literally, positively medieval, and more than a little an extract of antisemitism.

No, what happened isn't that bankers and their ilk stopped being smart people, or even that they're atypically sinister, just that they got over-greedy and abandoned good old-fashioned financial sense. They gave credit cards and mortgages to people any sensible person would know wouldn't be able to pay them, and leveraged their companies at levels beyond any reason, all for bonuses and the next quarterly results. If they got back to basics, I do believe that most of those executives would do just fine, because that's what they were trained to do. What banking needs isn't some totally radical and new model, but very old, traditional ones, with heavy doses of better regulation. The auto industry, on the other hand, DOES need new, radical models; old, traditional ones will and have been killing it, and the current execs have shown absolutely no clue how to do anything but.

All of which isn't to say that the financial execs are inviolate, that many of them might very well have acted criminally, or that their jobs should be spared, but I actually don't think chopping the heads off the auto execs before them is really all that shocking or indefensible as the paroxysms of populism going around might make one think.

Roger Owen Green said...

I agree w Frank that banks do, or did at least create something, for the reason he stated. But you're right that to hold them somehow inviolate is just crazy, and I'm unconvinced by this economic team.

Antonio said...

I agree about Geithner. He can't seem to do anything right. But Lincoln did give his guys a year (or close to one) before he brought the hammer down, so Obama might be biding his time. In truth, I think any Treasury Secretary would have a rough ride, but Geithner's been one epic fail after another.

And wow at that Summers dude. What an ass. Great post all around.

historiann said...

GayProf--from your lips (or fingertips, as it were) to Obama's ears. Per Antonio's point that Lincoln waited a year to cashier the aforementioned cabinet members, I think 2-4 weeks now is the equivalent of a news year back in 1862.

As for Frank's and ROG's points about the banks--from what I understand, retail banking and investment banking used to be much more clearly separated until the past decade, and that that has a lot to do with the kind of unregulated greed that was fed. One of the things about Geithner that's particularly damning is that he refused to regulate said banks as the Chair of the NY Fed. Now, he's the knuckle-rapper-in-chief? Pretty dubious.

I ask again: What do Geither and his Wall Street buddies have on Obama? Why does Obama take orders from them, instead of the other way around?

PhD Tips said...

Your post is too long! I didn't read it. Sorry, buddy!

GayProf said...

Frank and ROG: I take your points. Still, while I was a bit flip about banks, they have created a great deal of misery in people's lives. Seemingly those involved in running them have cared about becoming obnoxiously rich at the expense of both individuals and the entire economy. Now we are supposed to trust them to fix the problem?

Antonio: Let's split the difference and give him six months.

HistoiAnn:I think Obama, for whatever reason, simply likes Geithner as a person. Somebody clearly forgot to tell him that as president he doesn't have the luxury of liking or disliking people.

PhTips: Fortunately, I didn't write this post for you.

historiann said...

GP--I think "PhD Tips" is spam--it left a similar comment on my blog, but if you click on the blog, it looks very spammy.

Likes Geithner? Wev. I thought that Obama was all about competence--maybe that was my fantasy projection onto Obama. My bad!

PhD Tips said...

It's not spam. Although I am trying to promote my blog among the academic types.

Nate said...

You may want to work on your marketing skills.

Good post (as usual), GP.

Tenured Radical said...

What you have neglected, GayProf, is the possibility that Timothy Geithner and Obama are lovers. Otherwise, Geithner's presence in the administration is inexplicable, at least to my sordid little mind.

historiann said... angle my heterosexualist mind hadn't even considered! And yet, it has a curious power to explain the otherwise utterly inexplicable.

In other words, I'd be less surprised to hear that they are boyfriends than I was that "Tim Terrific" got the job in the first place!

tornwordo said...

It really is appalling given that all banks have to do is create money to lend to people who will pay it back. I would have no problem if they were nationalized, all the execs booted and they just got back to what they are supposed to be doing. If the entire financial system depends on it, how on earth were they SOOOOO unregulated?

As for Frank's comment, explain to us again why feudal bartering is such a bad idea.

And PHD guy - here's a hint to successful blogging. Read the posts you are going to comment on.

Patrick said...

I think it's worth acknowledging that the condition-free grant to the Banking industry came from the Bush administration last fall. I know Obama officials keep pointing that out, so I'm almost timid in bringing it up. I wonder if there's some sort of double-speak behind that statement that everyone else already knows and I somehow missed.

Thanks for the details on Geithner's employment history. I haven't been overly impressed with him, it's true, but have felt that the vitriol being spewed about the Obama administrations 'failings' has been a bit premature. I'm not sure an administration that is less than five months old can really be accused of having made any 'epic mistakes' yet, though I agree mistakes have been made. Before reading this stuff about Geithner, I felt most of the noise was a sympton of good old American impatience, along the lines of 'we made a clean sweep in November, Obama should have everything fixed NOW.' I still think that is part of the static out there, but your arguments are more compelling and informative. Thanks.

Dr. No said...

Sorry if this is a bit off topic, but, uh, where in this post is the shaving advice? I heard I could get some good shaving insights here...damn.

susurro said...

@ Patrick - I think Obama became implicated when he let discussion of more money to the banks happen and then started posturing with the auto execs.

@gp - I too was concerned by the difference in approaches.

@tornwordo - if the taxpayers own the banks, doesn't that technically mean that we should be able to boot them now? My question goes back to this contract mumbo jumbo b/c if an outside company raids your company and buys up all the stock as the new primary share holders they can hire and fire regardless of pre-acquisition contracts. So why can't we, as tax payers, or the government acting as proxy for us, fire all of 'em and start again?

Earl Cootie said...

I think Geithner knows exactly what he's doing. It's just not in line with what the rest of us would like to see done.