Simon Johnson: Geithner so in thrall to big banks that he gambles US future economy

[brentspeak]

http://www.slate.com/id/2286919/

The Most Dangerous Man in Washington

By Simon Johnson
Posted Tuesday, March 1, 2011, at 2:41 PM ET

Treasury Secretary Timothy Geithner has a deeply disturbing vision of the nature of world economic growth and the role of the U.S. financial sector. His view amounts to a huge, uninformed gamble with the future of the American economy—and suggests that Geithner is the senior public official worldwide most in thrall to the self-serving ideology of big banks.

snip

There are three serious problems with this. First, Geithner ignores everything that we know about the pattern of financial development around the world. It is very rare for financial systems to develop without major crises. In fact, experience in recent decades confirms what should have been obvious from previous centuries: As countries grow and accumulate savings, they become increasingly prone to financial collapse. Given Geithner's extensive international crisis-fighting experience at the Treasury Department, the International Monetary Fund, and the New York Federal Reserve, his naiveté on this point is simply stunning.
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Second, Geithner assumes that risks at the largest U.S. firms can be contained through regulation, when all our knowledge points directly to the contrary. Even the strongest supporters of the Dodd-Frank reform legislation emphasize that it went only part of the way toward reducing the incentives for major financial institutions to take big risks. Looking at the combined effect of the new law, plus the weak additional capital requirements agreed under Basel III and the hands-off approach already signaled by the Financial Stability Oversight Council (which Geithner chairs), it is hard to believe that anything has really improved.

snip

The U.S. financial sector went mad for high-risk loans to emerging markets during the 1970s, arguing that this was the new frontier. This loan portfolio blew up in the debt crisis of 1982. A version of the same thoughtless cross-border lending is again underway, extolled by leading financial-sector executives (such as Jamie Dimon from JPMorgan Chase). They have apparently persuaded Geithner to tag along intellectually.

[kenny blankenship]

1. Geithner wants the US to double down on the business model that sank Ireland, Iceland & almost

took down the Swiss. The man is clearly "a smart and experienced public servant."