It's Home to Mama for Timmy G

Reprinted from National Journal

No one should begrudge Timothy Geithner his new job. It was inevitable that a man who had been spiritually captured by Wall Street would someday join it in the flesh. In truth the former Treasury secretary held out far longer than the band of Rubinites he sprang from. And by joining a respectable private-equity firm, Warburg Pincus—rather than one of the banks he bailed out—at least Geithner is avoiding the path to reputational ruin followed by his mentor, Robert Rubin, who while he was in Washington freed up Citigroup to become an economy-destroying monster and then went to Wall Street to join it, standing by in befuddlement while the bank nearly imploded.

Geithner has a family to feed after all; he has every right to cash in with the vast industry he saved and protected. It seems a bit overripe for Dennis Kelleher, head of the Better Markets advocacy group, to suggest that Geithner's "spin through the revolving door" will "further erode public confidence in government," when such confidence is all but undetectable today.

But neither should Geithner get a full pass, as CNBC's Ben White seems all too eager to give him in a Web piece today.

CNBC, of course, tends to cover Wall Street in somewhat the way Pravda once covered the Soviet Union, with a lot of boosterism and without asking too many fundamental questions. But White, who also writes for Politico, is a respectable financial reporter and should know better. White argues that the criticism of Geithner "neglects to mention" that the former Treasury chief  "inherited the Wall Street bailout" and "fails to ask the fundamental question of what, exactly, the administration was supposed to do with the banking sector, let it fail and turn a crushing recession into a lasting depression?"

This is an egregious misrepresentation of history. No knowledgeable observer doubts that the Obama administration inherited the crisis (though Geithner, as head of the New York Fed, did not), and that the new president was faced with a stark choice of bailing out the banking sector in the nerve-wracking months of early 2009 or sending the economy into a Depression.

But by the time Congress began debating serious reform in late 2009, the banks were much healthier. The panic had passed. Yet even then Geithner refused to tamper with their structure and balance sheets—to the point where even senior Fed officials like Governor Dan Tarullo today think that Dodd-Frank doesn't have enough restraints on the banks. Geithner's fellow Cabinet member, Attorney General Eric Holder, has publicly questioned whether the banks are not only too big to fail, but also too big to prosecute.  As Harvard University's Kenneth Rogoff, a former adviser to John McCain, said of Geithner in a 2011interview with me, echoing the views of many financial experts: "He was too generous to the financial system. He followed a set of policies aimed at preserving the status quo."

White also credits Geithner with the best of the Dodd-Frank financial-reform law, saying, "It's a big stretch to suggest Geithner stood in the way of stronger reform in order to win a place for himself on Wall Street."

A truer history of that law would record that Geithner resisted many of its toughest provisions, including the "Volcker Rule," which he avoideduntil the president insisted on it. As former Federal Deposit Insurance Corp. chief Sheila Bair wrote in her frank memoir this year about her major battles with Geithner, Bull by the Horns: "I couldn't think of one Dodd-Frank reform that Tim strongly supported. Resolution authority, derivatives reform, the Volcker and Collins amendments—he had worked to weaken or oppose them all."

Geithner, in truth, often seemed in denial of the deeper systemic dangers on Wall Street that he, as a member of Rubin's team back in the 1990s, had helped to create. Their signature policy, the 1999 repeal of Glass-Steagall, ensured there would longer be any strong firewalls and capital buffers between Wall Street institutions and their affiliates, and between banks and nonbanks and insurance companies. A year later, in 2000, then-Treasury Secretary Lawrence Summers and Geithner pushed for the Commodity Futures Modernization Act, which created a global laissez-faire market worth trillions in unmonitored trades. With the repeal of Glass-Steagall, systemic failure was largely forgotten while at the same time, with the passage of the CFMA, huge new systemic risks were being created.

Yet Geithner, throughout his tenure, did not acknowledge these mistakes and resisted more fundamental reforms like the Volcker Rule, which harked back to the spirit of Glass-Steagall by seeking to bar federally insured banks from the riskiest trading.

Personally, I don't believe that Geithner took the positions he did "in order to win a place for himself on Wall Street." He's not that kind of fellow. I think he did it because he believed in Wall Street. Welcome home, Tim

You Gotta Love Elizabeth Warren, But .... for President???

Reprinted from National Journal

Gutsy, smart, and hyper-articulate, Elizabeth Warren is quickly becoming the voice of progressivism in Washington. Along with departing regulator Gary Gensler, Warren probably did more than anyone in Washington to bulk up Dodd-Frank from its rather flimsy beginnings and turn it into a financial-reform law with some weight. She also speaks out eloquently for the beleaguered middle class and on the deeper problem of income inequality.

But the idea that somehow this growing reputation translates into a competitive bid for the 2016 presidential nomination—The New Republic recently suggested on its cover that Warren represents the "soul" of the Democratic Party more than Hillary Clinton—is pretty over the top.

Here's why. As impressive and quotable as she is as a senator—"I'm really concerned 'too big to fail' has become 'too big for trial,' " Warren memorably declared at her very first Banking Committee hearing—she is basically a one-issue political figure. And that doesn't get you into the White House in this era. (OK, fine, Barack Obama first came to national attention by declaring Iraq a "dumb" war, but more on that later.) Warren's punditocratic boosters, like Jonathan Chait of New York magazine, have tried to compensate for her one-issueness by suggesting that the issue that Warren became famous for is still, as Chait put it, "the most potent, untapped issue in American politics." 

And what might Chait be talking about? Get ready: financial reform. That's right. An issue almost no one talks about anymore and far fewer people understand. I ought to know because I've spent tens of thousands of words trying to get people to talk about it since I published a 2010 book called Capital Offense: How Washington's Wise Men Turned America's Future Over to Wall Street. I fully agree that Obama failed miserably to exploit a potential populist issue that, once upon a time, might have made him the second coming of FDR. "Surveys show that both Left and Right, liberals and conservatives, were united in wanting to see fundamental change to Wall Street and big finance," I wrote in 2011. "Yet rather than seizing the chance at the kind of leadership that might have unified a good part of the country, Obama threw himself into an issue that divided Left and Right as never before, and which was not directly related to the historic crisis at hand—health care."

But that moment has long passed. Warren has consistently been a powerful, positive voice on financial reform, and it got her the party nomination in Massachusetts. But that's Massachusetts. A Harvard Law professor who became an expert in mortgage fraud and bankruptcy and later conceived of one of Dodd-Frank's most significant reforms, the Consumer Financial Protection Bureau, she's never done much of anything else in public life, other than chair the TARP oversight committee. And her "issue" has faded in popular imagination. Remember the Occupy Wall Street movement? You're forgiven if you don't. It petered out without a trace (while the tea-party movement doesn't seem to go away, demonstrating that you can have a successful movement these days; OWS just wasn't it).

And with each passing year the causal connection between Wall Street's unprosecuted perpetrators and the terrible recession and national PTSD they set in motion has grown more distant, draining the issue of its populist potential. In 2012 when Mitt Romney promised, and then failed, to propose an alternative to Dodd-Frank, almost no one cared. Polls consistently show that while the U.S. public is still mainly concerned about the economy (although the numbers have been steadily falling), Wall Street is way down the list, behind health care, immigration, education, guns, and a host of social issues. By the time the 2016 race rolls around, nearly eight years will have passed since the financial crisis.  

But that's not even the main point. Chait finds it "odd" that financial reform hasn't become a bigger issue despite surveys showing that large numbers of people are still angry about Wall Street (when they're asked about it: big difference). Here's why: It's booorrring. And incredibly esoteric. Yes, the banks are huger than ever and over-the-counter derivatives are being traded again in the hundreds of trillions—one reason why Gensler, the outgoing head of the Commodity Futures Trading Commission, may be one of the great unsung heroes in Washington thanks to his lonely fight to regulate derivatives internationally. But only a handful of people in the entire world truly understand derivatives regulation. "Bash the Bankers" works as a slogan, but when you get down to what really must be done about them you would have to talk about capital and liquidity ratios on the stump.

"Too big to fail?" Again, it's a vital issue. But it comes down to the scintillating debate over whether "resolution authority" will really work to liquidate (rather than bail out) a bank in trouble, or whether, as progressive Federal Reserve Gov. Dan Tarullo has argued, "a set of complementary policy measures" is needed to go with Dodd-Frank that would limit banks' sources of short-term funding.

Never heard of Dan Tarullo? That's my point.

OK, though, let's say for the sake of argument that the issue does play. Recall that Hillary entirely sat out the Dodd-Frank debate, and with good reason: She was secretary of State. She can basically write her own platform, make it as progressive as she wants, without worrying much about baggage. If Warren gets the big cheers at AFL-CIO rallies, Hillary can move left in a way she could never do on Iraq, where Obama easily outflanked her on an issue that had become truly toxic by the time 2008 rolled around and her vote for the Iraq War resolution looked very unpresidential. I mean, if even Larry Summers, the Great Deregulator, can reinvent himself as a champion of the middle class, Hillary Clinton can make a better case. Remember, she was pushing Hillarycare on the national agenda back when Warren was still teaching in obscurity in Cambridge, Mass. Other potential Democratic big names, like Governors Andrew Cuomo and Martin O'Malley, are also pretty credentialed up.  

And now let's get to the heart of the question: What is the soul of the Democratic Party? Is it really that leftward and progressive, or is that simply an agenda that old warriors like John Lewis talk about with nostalgia? The last two Democratic presidents both had populist inclinations but went straight to the center in order to win two terms. For both Bill Clinton and Barack Obama, that apparently also meant going easy on Wall Street. And Bill Clinton, at least, later publicly expressed regret for permitting the Alan Greenspanization of his views on financial reform. No doubt his wife has taken that particular lesson on board.