Anyway, a week or two ago, Tim let fly with this one: “The central paradox of financial crises is that what feels just and fair is the opposite of what’s required for a just and fair outcome.”
Really, Tim? Is that how it works? When there’s a financial crisis, you just find out what the common folk think should be done and do the opposite?
Felix Salmon did a rather testy unpacking of this apothegm, not at all to Tim’s advantage, focusing on TARP and insisting that Tim and the other folks at the Fed and at the Treasury should have made the banks pay us big time for saving their asses. Brad DeLong did a nice unpacking of Felix’s unpacking, and came up with this:
“If you would ask me to guess at what Geithner’s position was, I think it is the following:
• The economy cannot withstand a finance strike.
• High finance knows that the economy cannot withstand a finance strike, and thus believes it has immense bargaining power.
• Moreover, financiers are not sharp-eyed cold-hearted calculators: if they believe that the Treasury is no treating them well–that the Treasury seeks an outcome that they would call ‘socialistic’—they may call a finance strike anyway.”
I would say that that is basically the experience that Geithner had with Lehman. Geithner and Treasury Secretary Paulson warned Lehman CEO Richard Fuld that they would let Lehman fail. Fuld, whose whole career on Wall Street was based on forcing the other guy to back down, was sure that the government had no option but to save Lehman, on Fuld’s terms. It wasn’t “like a game of chicken,” as some have said. It was a game of chicken. Geithner and Paulson called Fuld’s bluff, wanting to believe “the Market” had anticipated this event. As it turned out, the Market hadn’t.
I don’t really understand DeLong’s last bullet. Financiers don’t really “call a finance strike.” Rather, they’ve honed their jungle fighter instincts to the point that they can’t shut them off. When a guy is begging you to be reasonable, that’s when you really unload on him.
What’s seriously depressing about Geithner is that, having gone through all this, his only “remedy” is to make it easier for us to “save” the banks the next time around. Trying to control these mud-daubed, spear-chucking thugs who juggle trillions for their personal profit, that would be wrong. They’re the stars, we’re the little people. It’s our job to make them feel good about themselves, so they can deliver the kind of performances that make them the stars they are. If they want a stainless-steel, $10,000 refrigerator in their dressing room stocked with Cristal, set at 37.5° F, and a second stainless-steel, $10,000 refrigerator stocked with Gray Goose set at 25° F, well, goddamn it, that’s what they get! Because they’re stars!
Tim, he’s not a star. He’s a servant to the stars. But he does get to live in the palace. Well, not in the palace, but on the palace grounds. He’s inside the gates, and that’s what counts. He’s not one of the great unwashed. And when the great unwashed jeer and sneer at him, well, that just proves that he’s right, and they’re wrong. Which is a great comfort to him.
