Peter Wallison doesn’t toe the line of conventional wisdom when it comes to discussing the cause of the financial crisis. That’s a roundabout way of saying that he speaks truth:
Geithner’s Problem In A Nutshell
Yesterday was his boss’s turn. Today’s it’s Tim Geithner’s.
There are two crises going on, a financial one and an economic one. Yesterday, Obama went to Indiana (a red state that he flipped and needs to suck up to, so they’ll keep going blue), and then to national television, to talk about the economic situation. His message was that the only way to make the economy better is to spend a lot of borrowed money, right now, and it almost doesn’t matter what we spend it on.
The economic crisis is actually rather easy for the President to deal with, on the terms in which he has framed it. He’s not actually interested in returning the US economy to stable, sustainable growth, while repairing the global macro-imbalances which are part of what caused the crisis.
All the President wants to do is to “create or save” 4 million jobs. He already has a disingenuous economic report in hand, published on January 9, which presents a spreadsheet version of an economics-101 case that $800 billion or so in government spending produces 1.5 times that much additional GDP, which by Okun’s law will create or save 4 million jobs. QED.
Whatever happens in the economy, even a return to Great Depression-level unemployment rates, Obama will always be able to say that the situation would have been 4 million jobs worse than it is. His job is all done, except for the PR.
Geithner’s job is just beginning. He has to stabilize the financial system. Success for him is being defined as a return to reasonably-normal levels of private credit formation. He’s going to announce today that he really has no clue how to make that happen.
In a nutshell, Geithner’s problem is that America’s biggest banks aren’t actually dead, they’re just on life support. That constrains his options. Let me explain.
