Treasury Secretary Tim Geithner came to the Northwest Wednesday to deliver a speech to the Portland City Club. (Fortunately, he didn’t mention Washington wine). Apparently during the Q&A, he made this remark reported by Reuters: “You can’t legislate away stupidity and risk-taking and greed and recklessness. What you can do is make sure when it happens it does not cause too much damage and to do that you have to make sure you have good rules against fraud and abuse, better protections and you force banks to hold more capital against their risk.”
Herein lies the great divide over the behavior that led to the great crash. On the one side are the financial elites, feeling quite persecuted and inadequately appreciated, who essentially say, “Stuff happens.” Geithner has bought into this from the get-go. On the other are people without hundreds of millions in lobbying money, who rightly believe this was the result of widespread criminality by the toffs.
And they got away with it. No major kingpin has been prosecuted or been forced to give back the obscene compensation he received as a direct incentive for ginning up the bubble. The too-big-to-fail banks are bigger than ever.
No, one can’t legislate away stupidity and risk-taking and greed and recklessness. But we can protect the American taxpayers and economy that are ultimately at risk when this behavior is tolerated and enshrined in the business model of the banking industry. This was called the Glass-Steagall Act, which prevented a major banking crisis for more than six decades.
It was repealed in 1999, and operating a bank was no longer a sober, rather dull business. It became all about greed and recklessness, supercharged with derivatives and the crisis-carrying conduits of the shadow banking industry. It became about making money by moving money around, increasingly in dodgy ways. The bank elites became super rich. Now the rest of us are poorer. And the message has gone forth: Do as you wish — Uncle Sam will bail you out.
Geithner epitomizes the Upton Sinclair axiom: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
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Today’s Econ Haiku:
To ‘Total Recall’
Google and mining in space
Give Arnold a stake