Timothy Geithner is in full “swan track” mode. Phrase is he’ll hand over his job as secretary of the treasury on the finish of 2012, no matter whether or not President Obama wins or loses in November.

To affect historical past’s judgment of his tenure as president of the New York Fed and as treasury secretary, he’s now aggressively shaping a glowing narrative. This explains his present victory lap within the media highlighting the fourth anniversary of the bailout of Bear Stearns.

He recounts how the CEO of Bear, along with his agency on the point of chapter, got here to him on the lookout for a shoulder to cry on. From his then management perch as president of the New York Fed, the financial institution finally prolonged practically $30 billion for a bailout, the primary in a collection of such interventions.

Though this effort to form a story has begun, the countervailing narrative can be clear. This narrative couches the bailout of Bear Stearns because the “unique sin,” the primary in a collection of short-sighted interventions with destructive penalties and highlights that our system is simply as weak, if no more weak, to comparable crashes within the coming years.

Regulatory breakdowns

Because the inventory market crash in 1987, the Federal Reserve, and specifically the New York Fed, has taken on a wider function as a preventative early warning mechanism, performing because the “fireplace division for the monetary system,” in Geithner’s phrases. Beneath his steering the New York Fed was inept at filling this function. The financial institution was caught utterly off-guard by rising issues at Bear Stearns, AIG, Wachovia, Citibank and others.

Worry-mongering

Greater than every other key participant within the bailouts, Secretary Geithner was notorious for utilizing hyperbolic language to impress intervention. This “Hen Little” method undermined market confidence and sure made the panic amongst buyers even worse.

He began the scary descriptions with testimony in April 2008 recounting his imaginative and prescient of what would have occurred had Bear Stearns been allowed to fail: “A failure to behave would have added to the danger that Individuals would face decrease incomes, decrease house values, larger borrowing prices for housing, schooling, different dwelling bills, decrease retirement financial savings and rising unemployment.”

After all, the bailout of Bear Stearns was no elixir, as we finally did face decrease incomes, decrease house values, decrease retirement financial savings and rising unemployment.

Secrecy

Unwilling to return clear on the what and the why of all of the bailouts, the Federal Reserve, Treasury, FDIC and Federal Housing Finance Company went to nice lengths to maintain their decision-making course of cloaked in secrecy. This led to extra uncertainty as to the logic behind the bailouts.

Even Secretary Geithner has acknowledged the uncertainty from the ever-changing and arbitrary justifications for intervention: “(a)s the disaster intensified and extra dramatic authorities motion was required, the emergency actions meant to offer confidence and reassurance too usually added to public nervousness and to investor uncertainty.”

Bloomberg Information had a excessive profile lawsuit to compel the Federal Reserve to reveal the “what” of the bailouts, finally prevailing on the Supreme Court docket and resulting in the discharge of 1000’s of pages of paperwork.

Not on my watch

Secretary Geithner was additionally the lead proponent of an expansive definition of too large to fail, demanding bailouts even when others within the Federal Reserve System or on the FDIC weren’t so inclined. Consequently, the Wall Avenue Journal’s David Wessel has said that Geithner was “starting to sound like a shill for the banks.”

Extra lately, Secretary Geithner has lauded the Dodd-Frank invoice for its capacity to keep away from future bailouts and accused the regulation’s attackers of affected by “amnesia.” In reality, it takes a extra severe case of amnesia to overlook the truth that megainstitutions akin to Fannie Mae and Freddie Mac and the banks that grew bigger in the course of the disaster had been left in place by Dodd-Frank and pose the identical systemic danger they did again in 2008.

In the end, the ultimate judgment about Secretary Geithner’s bailout methods can be inexorably tied to the political judgment of the disaster. On that rating, the outrage over the bailouts of monetary establishments has helped spur not one, however two political actions.

On the precise, the Tea Occasion noticed the bailouts as an enormous, unjustified intervention in our financial system; and on the left, Occupy Wall Avenue noticed the bailouts as extra proof of how rigged the political and financial system is in favor of the 1%. Each had it proper and can little doubt forcefully take the argument ahead that the judgment of the bailouts can be destructive.