The Geithner Doctrine Not Only Puts Banks Above the Law

December 20th, 2012

… It Also Serves to Excuse Their Bad Behavior … Quelle Surprise! – Published on naked capitalism, by Yves Smith, Dec. 19, 2012.

Our Treasury Secretary, also known as the Bailouter in Chief and “Foamy,” has a default explanation for why ordinary citizens must bend over every time banking interests are threatened. The more formal statement of this policy is the Geithner Doctrine, which is “nothing must be done that will destablize the banking system.” 

However, Geithner also subscribes to the Humpty Dumpty School of Language, in which words mean what he chooses them to mean, nothing more or less. So “destabilize” means “hurts the profits or reputation of” and “banking system” means “any bank that is pretty big and/or well connected” … //

… It’s important to recognize the timeframe. After the Bear Stearns rescue, the officialdom went into “Mission Accomplished” mode. The stock and bond markets rallied and business reporting was generally chipper. Even though Fannie and Freddie were a lingering worry (and the Lehman melodrama kept rattling on), Hank Paulson made his famous bazooka quote in July as he set forth the Administration plan to stabilize the mortgage giants. Even though this period now looks like a brief hiatus, the consensus was that the market upheavals were pretty much over and only some cleanup remained. So the warnings about market manipulation would have been seen as more serious given the then-current prevailing belief that the worst of the crisis was past than they appear given what followed.

The New York Fed contends it did address these issues, even thought its Congressional testimony indicated otherwise:

–A New York Fed spokeswoman said it had determined by “early 2008” that Libor was unreliable, and briefed officials in the US and UK in an effort to address the flawed rate-setting process in London and possible “conflicts of interest” at the banks.

–“The New York Fed developed tough reform proposals including plans for independent audit of Libor submissions to prevent Libor misreporting, whatever the reason, and pressed the UK authorities to adopt them.”

But let’s consider the related issue. Geithner’s focus in his previous remarks on Libor manipulation focused on bank trying to pretend they were healthier than they were. Geithner’s failure to acknowledge publicly that the banks were also gaming Libor for fun and profit, whether or not he discussed this with the Bank of England, is yet another cover-up for them.

And it’s an even more pernicious manifestation of the Geithner Doctrine. Not only does it entail refusing to mete out fitting punishment to banks and their executives, it also apparently entails hiding their misdeeds to avoid the annoying game of having to discipline them. After all, if you’re not going to do anything about bad behavior, why do you need to acknowledge that it exists? It’s so much more convenient to maintain the fiction that banks can be relied upon to do the right thing because they’d never want to suffer the reputational damage of being caught out. But with enablers like him, bank criminality would never come to light, by design, ending the fear of reputational harm.

I had assumed the insufferable arrogance of top bankers, which was a pronounced shift from their fearful state in late 2008 and early 2009, was the result of the Administration’s body language that it was fully committed to throwing its weight behind boosting their profit and their asset prices. But it may have had at least as much to do with their recognition that Geithner would make sure that none of their bad deeds would be punished.
(full longer text).

Links:

Constitution will not heal polarised Egypt, by Linda S. Heard, December 19, 2012;

Video: Civil Rights in the Shadow of Slavery, 4.53 min, uploaded by UVALawSchool, Dec 17, 2012: University of Virginia law professor George Rutherglen discusses his new book, “Civil Rights in the Shadow of Slavery: The Constitution, Common Law, and the Civil Rights Act of 1866,” which explores an important piece of legislation that played a role in nearly every subsequent civil rights law for more than a century.

Comments are closed.