Learning From Their Mistakes

The New York Times, in an editorial this morning, hopes that Lawrence Summers and Timothy Geithner have learned from their mistakes:

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.

I’m sure they have learned by their experiences. They’ve learned that so long as you’ve got the right stuff on you resume there is no screw-up so bad that you won’t get promoted anyway.

It’s the same thing that CEO’s of financial firms, automobile companies, and, I have no doubt, dozens of other kinds of companies have learned. Moral hazard be damned. We have bigger fish to fry.

They won’t repeat their former mistakes or the mistakes of those who’ve gone before. They’ll make bigger, bolder, more original mistakes of their very own.

And remember, as we used to say years ago, nobody ever got blamed for recommending IBM. If outsiders, not members of the club, had been appointed and failed an opening would have been left for substantial criticism for putting tyros in the job. When these guys fail one can always be surprised at how such capable guys with such intelligence and impeccable resumes could have screwed up so badly. That was Robert Rubin’s reaction the other day about the collapse of Citigroup.