I suspect that Treasury Secretary Tim Geithner is not exactly feeling the love right about now. Just in the last day or so Paul Krugman’s accused him of dithering, Henry Blodgett says it’s time for him to go:
We don’t mean to sound impatient, but we’ve seen enough. The country is in the middle of the worst financial crisis in 75 years, and the second-most-important person in charge clearly isn’t the right man for the job.
[…]
Before taking office at the end of January, Tim Geithner had many months to develop a solid plan for what to do. He had the opportunity to see what was working and what wasn’t and to consult with dozens of experts, many of whom had no stake in the matter (unlike the Wall Street kingpins who seem to have shaped Geithner’s inaccurate view of the situation). He had the opportunity to see and understand that what America needs most right now is clarity and decisiveness.
Then he took office.
(hat tip: Megan McArdle). What follows is a bill of indictment. And former Australian PM Paul Keating demolishes Geithner’s handling of the Asian monetary crisis:
“Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”
In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.
Geithner thought Asia’s problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.
The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.
But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans – Thailand, South Korea and Indonesia – all had sound public finances.
The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.
But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.
(hat tip: Yves Smith).
The picture that’s emerging is less one of the indispensable man who breezed through his Senate confirmation hearings than of somebody who’s lurched from catastrophe to catastrophe, staying just one step ahead of the consequences of his own poor judgment.
