Geithner’s Town Hall Tells Us to Batten Down the Hatches
Posted by Michael A. Kamperman on September 11, 2009
Treasury Secretary Timothy Geithner was on T.V. twice yesterday. First he testified before the TARP Commission headed by Elizabeth Warren. Then last night he held a Town Hall meeting hosted by CNBC. He is a very good politician and should consider running for public office. But he is not the person we need to lead us out of the economic crisis. When asked by Dr. Warren if we could re-run the stress tests on the banks since unemployment is now higher than the worst case assumptions used in the test, he said banks losses were better than the worst case estimates used in the tests. When asked if we could run the stress tests on the 9,000 banks that weren’t tested, he said it was unnecessary since they only represented one third of total bank assets. When asked if we had Zombie banks that don’t go insolvent but are too weak to lend, he said he didn’t believe any of the largest banks are Zombies. I guess he has been too busy appearing on T.V. to notice that consumer credit dropped by a record $21.6 billion in July. I guess his view is the banks have plenty of money to lend; they just don’t have enough credit worthy borrowers to lend it too. In front of the commission he bobbed and weaved and got out of there relatively unscathed.
It was at the Town Hall meeting that we got to see some real insights into Timothy Geithner’s view point. He believes the U.S. economy and the global economies have returned to growth. He believes the banking system needs to take less risk so that another global financial crisis doesn’t emerge. He doesn’t want to end some of the support programs put in place for financial companies too soon. He believes Americans need to save more. He believes once the economic crisis is over the deficit needs to be reduced substantially with higher taxes on relatively wealthier Americans. When asked if Meredith Whitney’s call for housing prices to drop another 25% was a real possibility, he dismissed it by stating the mortgage modification program has already refinanced 350,000 mortgages over the last year. Perhaps he missed that in the month of August alone 355,000 notices of foreclosure were sent to homeowners mirroring the record pace set in July. He basically believes the federal government has done enough to solve the crisis, but will do more if necessary. He thinks we just need more time and patience to slowly crawl our economy back up the hill.
My take is Treasury Secretary Geithner is a deficit hawk at heart and doesn’t want to spend any more resources or political capital than is necessary to solve the economic crisis. But he doesn’t get it. He doesn’t understand that we are in a prolonged debt-induced deflationary depression. He doesn’t understand that we need shock and awe policies to revive the economy. He is part of the economic team advising the President that a slow recovery has started, and while the next few months will be rocky eventually the economy will heal itself. This means he is advising the President to wait and watch rather than to act. The economy has reached the point where the straw has broken the camel’s back. The weight of the debt is too much for the economy to carry. The U-6 unemployment rate is 16.8% and 1 in 8 mortgages are over 30 days past due. By this time next year the U-6 unemployment rate my pass 20% and most of those mortgages that are delinquent will wind up in foreclosure. He is a nice sharp technocrat. But he has no vision on how to lead the economy to the Promised Land. We need a person of economic vision guiding our President. Where is our modern day John Maynard Keynes?
