The Wall Street Credibility Problem

by: Matt Stoller

Fri Nov 21, 2008 at 19:29


Hank Paulson is an idiot.  People on Wall Street quietly think he's one of the worst cabinet picks of Bush's entire term, and while there are no standards for whether the bailout is working, there's no way that you're going to hear honest opinions about his performance because Very Serious People believe that saying what everyone knows is obvious will rattle confidence in the market.  

The new Treasury Secretary, Tim Geithner, is embroiled in the last twenty years of monetary mismanagement without the tarnish of being in the private sector (and thus profiting from it).  He helped construct the bailout and he was part of the decision to let Lehman fail, Paulson and/or Bernanke's single worst decision so far.  I'm slightly more positive towards Geithner since he's younger and more technocratic than ideologically oriented, but not that much.

The appointment of Larry Summers as senior advisor in the White House, despite his ridiculous work in the 1990s pushing through financial deregulation and his utter failure to even admit Enron's manipulation of California's energy market, is evidence that the same people who got us into this mess are in charge of getting us out.  But you're not going to hear honest evaluations from anyone, even the very kickass AFL-CIO lawyer Damon Silvers who should be screaming bloody murder as part of the newly appointed oversight board, because they are all being quiet.

Lest they spook the markets.  So get ready for more awesome confidence.

Matt Stoller :: The Wall Street Credibility Problem

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Who were FDR's advisers? (4.00 / 4)
Seriously. Who were the architects of the New Deal.

Were they people who had been lone voices in the wilderness for decades? Were they people who were seen as major challengers to the status quo?

Please challenge me if I'm wrong, but FDR had a fairly tepid record of real reform prior to getting elected president, and he ran on a vague, milquetoast platform of deficit reduction and attacks on Hoover's government interventions.

FDR's first treasury secretary was a Wall Street Republican. His second, Morgenthau, was a conservative, "sound money" Democrat, again with close ties to Wall Street.

His Agriculture Secretary (Henry Wallace) was a Republican, as was Harold Ickes, his Interior Secretary and close adviser. Granted, both were progressive Republicans, but even Hoover had been considered a Progressive Republican.

My point is not to suggest that some skepticism isn't warranted, but rather this: events often drive policy far more than the personal or ideological histories of the people in charge. Moreover, it seems to me that most major periods of reform in the U.S. have been lead, not be outsider-revolutionaries, but by people who were very much "in the system" and intimately connected with the earlier crimes of the system.

Most of the radical legislation and amendments coming out of the Civil War came with the support of people who had long-opposed many of those same moves. The Progressive Era saw major reforms pushed by the same people who were intimately tied with the structures they were trying to reform (T. Roosevelt, Wilson, etc.). The New Deal, as described above. The Great Society was pushed by Johnson, about as much of an insider with a crooked past as you could get.  


From the Department of Shooting Fish in a Barrel (0.00 / 0)
Insiders with crooked pasts? Say no more! Say no more!

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

[ Parent ]
Absolutely Right (4.00 / 1)
and Geithner is getting an excellent reception from people like Paul Krugman who know economics and won a Nobel Prize.  This seems like a good move to me.

[ Parent ]
Matt, who would be your alternative (0.00 / 0)
and what makes you sure that person would inspire confidence in the markets?

I've no opinion on this, but (0.00 / 0)
what's the story with Volkner? If that's even the right spelling of his name.

[ Parent ]
likely Senior Advisor (0.00 / 0)
I think he's seen as too old (over 80) to take on Treasury Sec.  

[ Parent ]
Paul Volcker, I believe (4.00 / 1)


"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

[ Parent ]
geithner and lehman (0.00 / 0)
It looks like he mounted a PR campaign to convince those in power that he had nothing to do with that decision and wanted to save them, but the truth is far from clear.

http://www.newyorker.com/onlin...

Insert shameless blog promotion here.


They. Don't. Get. It. (0.00 / 0)
Or at least are in such massive denial that it doesn't matter if they do. And the people who do get it--Krugman, Kuttner, Bernstein, Reich, Bair, etc.--are still seen as too liberal and leftist, or too inexperienced as managers, to be put in charge. And Obama appears to be in some sort of denial himself, with pick after pick validating his embrace of the center.

No one in charge appears to want to take the sorts of risks, and make the sorts of moves, that are likely to turn things around. In a deep hole, they continue to dig. It's beyond surreal. I guess that no one wants to be the one to be blamed for making things even worse, so everyone's allowing things to actually get worse, by default, to avoid blame.

These days, change means doing a 360.

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton


Krugman approved of Geithner (4.00 / 2)
And Kuttner has written quite favorably about Geithner.

Bair is likely to get a major position in an Obama Admin., likely as "mortgage czar."

Bernstein is one of Obama's advisers, as is Robert Reich.

I'd like to wait and see what policies these people pursue.  


[ Parent ]
To expect people to patiently and calmly wait (0.00 / 0)
under these circumstances is unrealistic. There will be lots of second-guessing, griping, hair-pulling and screaming. And even if it just serves to help people vent their anxieties, it's useful. Obama will do what Obama will do. The rest of us are just trying to hang in there, and these online bull sessions are part of how we do it. Plus, I've got to believe that policy people or their staff do read these things, so perhaps it's not all for naught.

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

[ Parent ]
Well, what do you say about those that DO approve of Geithner? (0.00 / 0)
I mean, having read a big profile of him on Portfolio, there do seem to be some red flags. So I'm cautious.

But I find it odd that you cite Kuttner and Krugman as being in some way in opposition to Geithner. There isn't any evidence that's the case. In fact, Krugman immediately posted a blog entry praising the team as a team of "grownups" and a "ministry of all the talents."  


[ Parent ]
It's not so much that I'm against Geithner (0.00 / 0)
about whom I know very little, as that I'm concerned that neoliberals like him aren't being balanced out by progressives in the still-forming Obama administration. Sure, he's taking "advice" from people more to the left of the neolibs, such as some of the people that I cited. But none of them appear poised to be players in his administration. What's an "advisor" supposed to do when they believe that something's wrong--advise louder?

I'm sure that, being a smart and open-minded person, Obama wants to hear advice from all sides. But he appears to be handing over all actual policymaking and implementing power--as opposed to advisory power--to centrists and neolibs, and it's foolish, I think.

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton


[ Parent ]
kovie, what really frightens me (0.00 / 0)
is that I now agree with at least 80 percent of your blog comments.

The problem isn't the "team of rivals" concept, it's that there don't seem to be any progressive voices on the team of rivals.

Join the Iowa progressive community at Bleeding Heartland.


[ Parent ]
Well, to be fair, you've certainly helped shift (0.00 / 0)
my take on things during the past few months. The blogosphere (at least the reality-based part of it) is like one big huge differential equation or statistical model, with lots of feedback loops that both change things and are themselves subject to dynamic change. Perhaps what Obama really needs is a "Team of Bloggers". :-)

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

[ Parent ]
So Did Bob Reich (0.00 / 0)
He called Geithner an excellent choice on Rachel Maddow tonight.

[ Parent ]
OK seriously, (0.00 / 0)
he's an idiot.  Didn't the man make millions on Wall Street.  Now you can say a lot of things about people on Wall Street that I would embrace.  Call them greedy, shady, corrupt, devoid of morals and blood sucking leaches.  I could believe that these descriptions might be true.  However, I find it very difficult to believe that they are truely stupid.  Not really trying to defend Paulson here, but I don't really believe that anyone has rock solid answers to the financial mess we are in.  



These people were "smart" the way that BushCo were "smart" (0.00 / 0)
I.e. clever enough to know how to game the system, and devious enough to actually do it. That is not "smart", except perhaps in a Sopranos sort of way. They are thieves. I can't put it any simpler than that. They gamed the economy to profit off of it, while producing absolutely nothing of real value in return. I call that theft, even if it was technically "legal" (and only so because they changed the laws to make these things legal).

I've worked for various financial firms, some of the biggest ones. Lots of very smart people in them. Lots of very stupid people in them. More than a few sociopaths. It's a casino mentality. The high-rolling sociopathic morons have been in charge these past 10 years or so.

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton


[ Parent ]
Most of what you have stated (0.00 / 0)
I can agree with.  However, I don't agree with the 'high rolling sociopathic morons' statement.  You are attributing blame to a very small group of people that are easy targets.  I am sure that there are some real crooks that should face prosecution and serve jail time for what they have done to help create this mess.  To lump all of them into this category is reaching for the easy answer to a very large and very complicated mess.    

Why don't we just deal with the HRSMs... (0.00 / 0)
... see how that goes, and then take it from there?

Shooting at easy targets? What could go wrong?

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
Geithner As A Technocrat (0.00 / 0)
The new Treasury Secretary, Tim Geithner, is embroiled in the last twenty years of monetary mismanagement without the tarnish of being in the private sector (and thus profiting from it).  He helped construct the bailout and he was part of the decision to let Lehman fail, Paulson and/or Bernanke's single worst decision so far.  I'm slightly more positive towards Geithner since he's younger and more technocratic than ideologically oriented, but not that much.

The problem has not been one of "competence" but instead of, in fact, ideology.  Technocrats are not themselves the solutions to our economic problems.  A fundamentally different approach to economics through the relationships of markets to government and to people is what is needed.


Lehman (0.00 / 0)
part of the decision to let Lehman fail

My understanding is he was very much against letting Lehman fall.  He may have been "part of the decision", but only in sense that he tried to convince others not to let that happen and failed.

At least, that is what I've read (somewhere, I honestly don't remember).  Do you have any links claiming the opposite?

My ideal scenario would have someone like this who has similar executive expertise in charge -- so no complaint from me so far -- but then someone like Krugman or Roubini as the economic adviser.


another way to look at it (0.00 / 0)
A more positive spin on Obama's financial advisers is that to enact relatively radical solutions to the financial mess you need the cover of insiders to do so. If people who are generally thought of as center or center-right advocate for serious, structural change in the financial system it may be easier for Congress & Wall Street to swallow. Easier than if these changes were proposed by figures thought to be too liberal or too left-ish by Wall Street.

I know, sounds a bit crazy, but I'm trying to be positive before Obama takes office.


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