nyt ed on obama and economy
November 25, 2008 § Leave a comment
This is more forthright than i expected.
Published: November 24, 2008
In introducing his economic team on Monday, President-elect Barack Obama said that he had chosen leaders who would offer sound judgment and fresh thinking. Was that an order?
In various high-level government positions, Timothy Geithner, Mr. Obama’s choice for Treasury secretary, and Lawrence Summers, his choice for director of the National Economic Council, each have demonstrated a capacity for good judgment and good ideas.
Both served in the Clinton Treasury Department — Mr. Summers as secretary and deputy secretary and Mr. Geithner as a top aide — where they won high marks for helping manage the fallout of that era’s crises, including the Mexican peso devaluation, the Asian financial meltdown, the Russian bond default and the collapse of the hedge fund Long Term Capital Management.
Both men, however, have played central roles in policies that helped provoke today’s financial crisis. Mr. Geithner, currently the president of the Federal Reserve Bank in New York, also has helped shape the Bush administration’s erratic and often inscrutable responses to the current financial meltdown, up to and including this past weekend’s multibillion-dollar bailout of Citigroup.
Given that history, the question that most needs answering is not whether Mr. Geithner and Mr. Summers are men of talent — obviously they are — but whether they have learned from their mistakes, and if so, what.
We are not asking for moral mea culpas. But unless they recognize their past mistakes, there is little hope that they can provide the sound judgment and leadership that the country needs to dig out of this desperate mess.
As treasury secretary in 2000, Mr. Summers championed the law that deregulated derivatives, the financial instruments — a k a toxic assets — that have spread the financial losses from reckless lending around the globe. He refused to heed the critics who warned of dangers to come.
That law, still on the books, reinforced the false belief that markets would self-regulate. And it gave the Bush administration cover to ignore the ever-spiraling risks posed by derivatives and inadequate supervision.
Mr. Summers now will advise a president who has promised to impose rational and essential regulations on chaotic financial markets. What has he learned?
At the New York Fed, Mr. Geithner has been one of the ringmasters of this year’s serial bailouts. His involvement includes the as-yet-unexplained flip-flop in September when a read-my-lips, no-new-bailouts policy allowed Lehman Brothers to go under — only to be followed less than two days later by the even costlier bailout of the American International Group and last weekend by the bailout of Citigroup.
It is still unclear what Mr. Geithner and other policy makers knew or did not know — or what they thought they knew but didn’t — in arriving at those decisions, including who exactly is on the receiving end of the billions of dollars of taxpayer money now flooding the system.
Confidence in the system will not be restored as long as top officials fail or refuse to fully explain their actions.
Mr. Summers does not face Senate confirmation; Mr. Geithner does. The senators should press him for the answers that have been lacking. That is the only way to understand his philosophy and approach going forward.
Congress must play a more active role in crafting, analyzing and continuously monitoring all bailout efforts — current and those to come. Unlike President Bush, who ceded far too much power to his treasury secretary, Mr. Obama must challenge and question his advisers’ recommendations and decisions. He has chosen tough advisers. He must be even tougher than they are.