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Notes to myself, possibly of interest to others.
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Monday, May 12, 2014

DeLong Posts Definitive Geithner Day Disquisition


  1. Why was the "Rubin Question" not asked? Why didn't every meeting end with: "What do we need to do today in order to create room to maneuver in case our assessment of the economy is wrong?"? Why was there no contingency plan for what to do if the administration's view of the economy turned out to be wrong, and if the recession was either not relatively shallow nor followed by a strong, rapid recovery? Good question, totally agree.
  2. Why did the Treasury's loans to banks via the TARP come with neither bankruptcy-control rights (i.e., the ability to throw the organization into the courts if the government was displeased) nor shareholder-control rights (i.e., the ability to replace the boards of directors and the top management if the government was displeased)? He who pays the piper should call the tune, right? It was early in the game and everyone (except you and Paul Krugman) was scared of THE DREADED STATE OWNERSHIP. But Geithner ought to be made to say this out loud.
  3. Why was the Treasury's first priority in January 2009 not filling the post of Director of the FHFA with somebody smart who understood the depths of the housing finance crisis, the housing finance crisis's role in causing and maintaining the catastrophe, and the potential macroeconomic benefits to be gained from resolving the housing finance crisis? Nearly all such people wouldn't have gone near the job because of the reputational risk.
  4. Why was the Treasury's second priority in January 2009 not filling the Federal Reserve with Keynesian macroeconomists to balance the austerity-minded regional reserve bank governors, and not thus giving Ben Bernanke and his successor room to maneuver to pursue technocratic dual-mandate policies? An excess of Very Seriousness. I realise this is basically a rhetorical question though, along the lines of "why did this more or less economically illiterate, non-Keynesian administration, consistently fail to appoint Keynesians who knew what they were doing?"
  5. Why was the Treasury's third priority in January 2009 not setting-up the game table to make enacting a second round of fiscal stimulus easy, should the Recovery Act turn out (as it did, and is Christina Romer warned at the time) to be less than half as large as it should have been? See above...
  6. Why did the spring 2009 PPiP program never go much of anywhere? It seemed to me at the time to be a very wise way--albeit a very risky way--to utilize TARP money. Too tricksy and think-tank-wonky. Too many bells and whistles. In a crisis, everyone's mental bandwidth is maxed out and so clever-clever solutions never work.
  7. The Treasury senior-executive team that was assembled seemed to me to be relatively light on all of (a) Wall Street trading and management experience to actually interface with the financial firms to which the TARP money had been committed, (b) Fed-watching experience, (c) macroeconomic policy expertise, and (d) health-care finance expertise. Given that running the TARP, attempting to bring the Federal Reserve's FOMC to a state of understanding of the economy, spurring a strong and rapid recovery, and implementing health-care reform were the administration's top priorities, why were the Treasury's senior executives--excellent people, all--who they were? Don't know. Suspect that the depth of bench in Treasury is not what it was when you worked there.
  8. Former Obama OMB Director Peter Orszag has said if he had properly understood and internalized the lessons of work like Rinehart-Rogoff on the likelihood of slow recovery after financial crises he would have taken a significantly different position in the Obama administration NEC's policy debates in 2009-10--a position closer to Romer-Summers than to Geithner. How many of what clearly were, in retrospect, unforced macroeconomic policy errors by the Obama administration due to this failure to understand the likelihood of a prolonged, slow "jobless recovery"? Lots of them, although Orzag's sincerity can't be taken for granted.
  9. What were the three biggest unforced macroeconomic policy errors of the Obama administration, and why were they made? Inadequate stimulus, three times. Made first time round because Summers thought he was dealing with 1998-replay, and then second and third times round out of timidity with respect to Congress.
  10. The Obama administration began with two among the most-senior policymakers--Lawrence Summers and Christina Romer--having deep understanding of the macroeconomics of full employment and inflation and of the two episodes, the Great Depression and Japan's "lost decades", thought to be relevant to the U.S. situation at the end of the 00 decades. When they left in 2010 that expertise was not replaced at the most senior level. Why not? Why no Blinders or Tysons? Might have given advice that the Obama/Geithner/VSP community didn't want to be given.
  11. What was the thinking behind the decision that Ben Bernanke should--after 2007-9--be offered a second term as Federal Reserve chair? In retrospect, is that thinking still defensible? If not, why was that thinking convincing at the time? TBH, Bernanke didn't do a bad job in the face of total lack of help from the fiscal side. I don't think there's a question to be answered here.
  12. I understand that Neil Barofsky at SIGTARP was regarded by the Treasury as somewhat of a loose cannon, but why was that relationship handled so badly? Because twenty years' worth of regulatory capture isn't undone in a fortnight, even in conditions like 2008-9.
  13. I understand why the Treasury might think that Michael Barr was a better choice to run the CFPB than Elizabeth Warren, but why was that relationship handled so badly? Same answer as 12, with possible additional hints of sexism. OTOH, having run her out of the CFPB, the banking industry then ended up getting Prof. Warren to deal with on the Senate Banking Committee, so heckuva job lobbyists.
  14. Why did the Obama administration in 2011 think that the way to strengthen the economy was to pursue a long run "grand bargain" rather than to pursue short-run expansionary exchange rate, bank regulation, housing finance, and monetary policies? Because he's the management consultancy boss from hell who will always avoid taking a difficult decision if he isn't personally committed to it.
  15. Why was the Obama administration so certain in 2011 that Boehner wanted to come up with a reasonable long-run entitlement reform and tax increase deal, and that its key negotiating strategy should be to make anticipatory concessions in order to make sure the deal was sweet enough for Boehner to be able to convince his troops to take it?Literally no idea, but this is also surely a rhetorical question; if Geithner was capable of giving a sensible answer to it, he would surely not have made the mistake in the first place.
  16. Why was there never any explanation of what would happen in the event of a potential breach of the debt ceiling other than "default is unthinkable"? That line put Obama in a very poor bargaining position. The Republican leaders in the House could then pass what they wanted and adjourn--leaving the Senate with no option but to endorse it or to breach the debt ceiling. Obama would then have no option but to sign the House bill or breach the debt ceiling. Can anybody explain to me this throwing-away of the administration's power to threaten not to sign whatever was on the president's desk when the click ticked down to zero? Good question, agree.
  17. I understand that there was no macroeconomic policy between July 2009 and April 2010 because health-care reform soaked up all the oxygen. But why was there no macroeconomic policy in the Obama administration between April 2010 and November 2010? The facts from 2010 ought to make you consider whether the excuse was valid in 2009 either.
  18. I remember a phone conversation with Tim Geithner about Obama's decisive turn to and endorsement of "austerity"--the passage in Obama's 2010 State of the Union address that went: "Families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I'm proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year.Starting in 2011, we are prepared to freeze government spending for three years..." Geithner told me: "I know that [senior administration official X] and [senior administration official Y] really think that I was an [expletive] for not strongly opposing that, but I did not support it." If the Treasury Secretary did not support it, how did it get approved by the NEC? If it did not get approved by the NEC, how did it get into the State of the Union text? Who did support it? Why did they support it? Very good question, although the possible explanation "Geithner wasn't being wholly candid with you on the phone" comes to mind.
  19. I remember a phone conversation with Tim Geithner in which Geithner said that entrenched and incumbent FHFA head Ed DeMarco would "push the limits of the reasonable envelope" with actions to accelerate and encourage the refinancing of underwater mortgages. Why did Ed DeMarco not do so? Why did Tim Geithner think he would?Institutional impossibility of getting anyone to get anything done in the god damn mortgage industry, IMO.
  20. Why was it not the first priority in deciding on the Federal Reserve chair to pick somebody who had had a substantially-correct understanding in 2007-9 of what was happening to the economy? All such people might have given advice that they didn't want to receive.

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