Tim Geithner

Recession Over? Don’t Hold Your Breath

by Daniel Compton on November 2, 2009 · 2 comments

in Economy, Employment, Odds & Ends, Stimulus to Nowhere, Trade, Zeitgeist

The recent announcement that the GDP grew in the third quarter at an annualized rate of 3.5 percent was referred to by Treasury Secretary Tim Geithner as proof that the economy is finally improving.  But a quick glance at history demonstrates that this is not the case.

Between 1934 and 1937—during the heart of the Great Depression—GDP grew at by an average of 9.5 percent annually.  In 1934, GDP grew by nearly 11 percent, but it would be six more years until the depression finally ended.  Clearly, GDP growth alone cannot be taken as an indicator that the economy is on the upswing.

It is also disheartening that the two major contributors to GDP growth in the third quarter were housing construction and auto sales, both of which were propped up by government subsidies.  Auto sales were boosted by the Cash for Clunkers program, and housing construction was driven by the $8,000 first time home buyer tax credit.

Combine this with other spurious accounting maneuvers used to calculate third quarter GDP, and it begins to appear that GDP might actually have decreased during this period.

In addition to phony GDP growth, there are other signs that the recession is not yet over.  Employment during the third quarter fell by over 750,000, and it is expected to fall further still.  Employment has been called a lagging indicator of economic health, but when economic health is measured in terms of the financial well-being of the population, employment is not a lagging indicator, it is the indicator.

The recent bankruptcy of CIT Group is another sign that our economic woes are far from over.  A recipient of $2.3 billion in TARP funds—deemed likely unrecoverable—CIT Group Inc. filed for Chapter 11 today, seeking protection from $10 billion in debt.  CIT finances close to one million businesses, and conducts business with over 80 percent of all Fortune 1000 companies, so there is enormous potential for negative secondary effects stemming from the bankruptcy.

The CIT Group bankruptcy comes on the heels of nine more bank failures on Friday, which brings this year’s total to 115.  These bank failures came at a cost of $2.5 billion to the FDIC deposit insurance fund.

There is a clear political incentive for Geithner and others to make efforts to convince us that this economic slump is over.  It is unfortunate that these efforts include no actual facts.

Stop Thief! NYT steals Examiner’s AIG scoop with no attribution

by John Berlau on April 17, 2009 · 1 comment

in Bailout Watch, Culture, Politics as Usual, Sanctimony

One week after Washington Examiner ace investigative reporter Timothy P. Carney broke the blockbuster story reporting that American International Group’s post-bailout CEO Edward Liddy owned a large stake in Goldman Sachs. a top recipient of the AIG bailout, the New York Times has decided that this is news “fit to print.” But for some reason, the so-called paper of record didn’t think it was “fit” to give any credit to the original source of this story.

Almost all of the significant details in the Times story  by Mary Williams Walsh, posted last night on its web site, were reported in Carney’s column in the Examiner a week ago (and elaborated on in my post in Open Market): The fact that Liddy — who was installed in his position by former Treasury Secretary Hank Paulson (and with the approval of  then-Federal Reserve Bank of New York President Tim Geithner, a detail not in the Times story!) — still owns more than 27,000 shares of Goldman Sachs that its valued at more than $3 million; and that this represented a potential conflict of interest because Goldman was a counterparty of AIG that got $13 billion from the taxpyer-funded bailout.

The Times even talks to the same AIG spokeswoman, Christina Pretto, who originally confirmed these details for Carney. But the story doesn’t once reveal to Times readers that all this information had already been broken by the Examiner.

It is highly doubtful the Times hadn’t known of the Examiner piece. Earlier, at the prominent financial blog site Ritholtz.com, prominet risk analyst Chris Whalen wrote a commentary on the issue citing both Carney’s piece and my analysis in Open Market.

The Times’ appropriation in its covering of what I had described to Carney as a “looting” of taxpayers and AIG shareholders can, in a sense, be called thievery on top of thievery.

LibertyWeek 38: Pirate Warriors on Deck

by Richard Morrison on April 13, 2009

in CEI Projects, Podcast

Your hosts Richard Morrison and Cord Blomquist are joined by special guest co-host Jeremy Lott for a very swashbuckling Episode 38 of LibertyWeek. We start with the rescue of Capt. Richard Phillips from Somali pirates by the U.S. Navy and Special Forces, look into the murky finances of AIG CEO Edward Liddy in Scandal Watch, and figure out what ISPs are up to in Technology News. We also get an update on how West Virginia is about to become even more Wild and Wonderful, and finally we answer the call for wealthy, multilingual volunteers in Olympic News.

AIG CEO Liddy owns millions in stock in bailout beneficiary Goldman — Tim Carney blockbuster in DC Examiner

by John Berlau on April 10, 2009

in Bailout Watch, Features, Odds & Ends, Politics as Usual

Everyone should read the blockbuster exclusive in today’s Washington Examiner in which Timothy P. Carney confirms that American International Group CEO Edward Liddy — appointed to his position at the behest of Hank Paulson and Tim Geithner after the government takeover of AIG in September — still owns more than $3 million in stock in Goldman Sachs, one of the biggest beneficiaries of the AIG bailout.

I am privileged to be quoted in this article that both breaks news and puts it into an informative policy context. The dogged investigative reporting conducted for this piece by Carney, a former Warren T. Brookes Journalism Fellow at CEI, should be enough to garner him several awards, and in my opinion this piece and likely follow-ups may be Pulitzer Prize-worthy material.

A couple weeks ago, after the brouhaha about the “retention” bonuses paid to the AIG Financial Products employees, Liddy’s calm demeanor before Congress and the media helped diffuse the situation. He emphasized that he was making a nominal $1-a-year salary and argued he was doing the CEO stint merely as a public service. Liddy wrote in a recent Washington Post op-ed that “my annual salary is $1. My only stake is my reputation.”

But Carney found that Liddy was not telling the whole story about his real stake in the AIG bailout. Namely that Liddy, as Carney notes, has “an acute financial stake in one of AIG’s counterparties—namely, his $3.2 million personal investment in Goldman Sachs.” And under Liddy’s direction, AIG disbursed nearly $13 billion from the taxpayer bailout money to Goldman, in a move many say is more disturbing than the employee bonuses that were the source of the recent controversey.

Everyone from former AIG CEO Maurice “Hank” Greenberg to liberal Rep. Brad Sherman, D-Calif., have expressed outrage that Goldman and other banks were compensated at full value for their derivative contracts. Goldman had bought billions in credit deafalt swaps from AIG. Had AIG gone into bankruptcy, Goldman and other counterparties would have almost certainly had to take a “haircut” on the contracts due to declining market conditions.

In the article, Carney generously writes that “there is no reason to believe Liddy is influencing AIG actions to unfairly benefit Goldman.” Yet Liddy had to be aware that many were saying Goldman may not have survived the hit if AIG substantially reduced payment. He resigned his position from Goldman’s board of directors when he became CEO of AIG, ostensibly to avoid conflict of interest, but has not seen fit yet to sell his more than 27,000 shares in Goldman stock, which he is listed as holding in the firm’s 2008 proxy statement. Carney reports that “an AIG spokeswoman confirmed for the Examiner that Liddy still owns all these shares.”

Carney points out the paradox of “strange public-private chimeras like AIG spawned in this age of bailouts.” When it bailed out the firm, the government took an 79.9 percent stake in AIG, making AIG in one sense a government entity. Yet, as Carney points out, this “situation represents a potential conflict of interest that would never be allowed in a government agency.”

It also likely wouldn’t fly in a purely private company, where directors and shareholders are on guard against executives’ “related party transactions” that aren’t in the company’s best interest. Yet, because he is running a public-private hybrid, Liddy lacks accountability to both to private shareholders and government ethics rules

Former Treasury Secretary Paulson, himself a former Goldman Sachs CEO, has a lot to answer for in forcing out AIG CEO Robert Willumstad and bringing on Liddy to replace him. So does Geithner, who was heavily involved in the AIG bailout as president of the Federal Reserve Bank of New York. Why did they not insist that Liddy divest his holdings or find someone who didn’t have this conflict?

Above all, this shatters the illusion that the government can magaically take over a company, fire the CEO, and run it more efficiently for the taxpayers. I have written before on Open Market that Obama’s firing of Rick Wagoner was not the first time the government forced out a CEO. Even before Paulson ousted Willumstad after the bailout, then- New York Attorney General Eliot Spitzer effectively forced out longtime AIG CEO Greenberg on baseless charges that have almost all been dropped. Greenberg built up AIG successful 35-year tenure, and has testified that the issuance housing-related credit defaut swaps at the center of the firm’s problem exploded in the months after he left.

As I tell Carney in concluding paragraph of the story, “The whole AIG experience demonstrates the fallacy that the government can efficiently sack CEOs and replace them.”

Markets Rally on Hopes of Regulatory Relief

by Hans Bader on April 2, 2009

in Bailout Watch, Deregulate to Stimulate, Economy, Energy, Environment, Global Warming, Precaution & Risk, Regulation, Stimulus to Nowhere

The stock market has gone up by 280 points so far today, fueled by FASB’s vote to relax rigid mark-to-market accounting rules, which require financial institutions to value assets at their current fire-sale prices, and magnify boom-bust economic cycles.

The market may also be getting a boost from the Senate’s earlier vote undercutting the Obama Administration’s proposed $2 trillion cap-and-trade carbon tax, which would impose burdens on the economy akin to Herbert Hoover‘s disastrous 1932 Revenue Act at the beginning of the Great Depression.

The market’s rise contrasts with its fall in the weeks after passage of Obama’s $800 billion stimulus package, which Obama falsely claimed was needed to avert “disaster” and “irreversible decline.” Obama made that claim even though the Congressional Budget Office, controlled by his own Congressional allies, admitted that the stimulus package would shrink the economy over “the long run.”

Many commentators have called for relaxation or repeal of mark-to-market accounting rules to stem the financial crisis, including former FDIC Chairman William Isaac, Congressmen Ed Perlmutter (D-CO) and Paul Kanjorski (D-PA), the Wall Street Journal, John Berlau, Jeff Miller, Holman Jenkins, Newt Gingrich, and the Republican Study Committee.

While pushing through $8 trillion in bailouts, and trillions more in debt from massive budget increases, the Obama administration has until recently ignored inexpensive possible ways of mitigating the financial crisis like reform of “mark-to-market” accounting rules.

The Obama administration’s footdragging on accounting-regulation reform is inconsistent with the rationale for its trillion-dollar toxic-asset buy-up program, which defies mark-to-market concepts in a much more extreme way than a mere relaxation of mark-to-market accounting rules. The Treasury Secretary claims taxpayers won’t lose a full trillion under Obama’s toxic-asset program, because the assets aren’t as worthless as their current market prices suggest. But if that’s true, why did he continue to insist on federal accounting rules that force banks to value their assets at the current depressed market prices? Either the accounting rules were right — in which case taxpayers will end up losing a trillion dollars — or they were wrong, amplifying financial panics — in which case the rules should be repealed, so that banks, not taxpayers, will be able to take the risk of holding the assets. (If these accounting rules, known as “mark-to-market” accounting, had been in place in the late 1980s, “every major commercial bank would have collapsed,” wiping out the economy).

It’s not even clear that all these bailouts are needed. As William Seidman, the banking official who helped clean up the S&L Crisis as head of the RTC, notes, the government’s $170 billion AIG bailout was absurdly expensive and wasteful. “We paid off huge debts that AIG had in the swaps market, which we probably did not have to do. We bought a number of assets from AIG at high prices, which we probably did not have to do.”

That includes a huge unneeded windfall for the investment bank formerly headed by Treasury Secretary Paulson, Goldman Sachs, a major donor to liberal politicians, which received billions of dollars from taxpayers that it did not even need, through the AIG bailout.

Obama’s record-breaking tax and spending increases violate his campaign promises to enact a “net spending cut” and not to raise taxes “in any form” on anyone making less than $250,000 a year.

Ironically, Obama’s “cap-and-trade” carbon tax might have the perverse effect of increasing, rather than reducing, greenhouse gas emissions. Cap-and-trade is a pernicious “form of tax farming.”

Billions More for Failed Bailouts

by Hans Bader on March 30, 2009 · 3 comments

in Bailout Watch, Economy, Legal, Politics as Usual, Stimulus to Nowhere

Ironically, by getting rid of General Motors CEO Rick Wagoner, the Obama Administration has made it even harder for it to demand the painful changes needed to make the company competitive — meaning that the billions of additional dollars the Administration plans to dump on GM will likely be wasted (the way that England’s attempt to bail out its automakers failed, wasting billions). As Mickey Kaus notes,

“After visibly defenestrating GM CEO Rick Wagoner, and moving to replace the board of directors, won’t Obama now ‘own’ the GM problem? If the company shuts down in the near future, costing tens of thousands of blue collar jobs, it will be under executives implicitly or explicitly chosen by Obama. It will be Obama’s failure, not simply GM’s failure, no? . . . Doesn’t that make it harder, not easier, for the administration to walk away and force the company into bankruptcy? And doesn’t that, in turn, make extracting the necessary concessions (by threatening bankruptcy) more difficult as well?”

Moreover, only bankruptcy — not a bailout — can save the automakers from having to pay billions of dollars in payoffs to redundant, politically-connected, car dealers. Those payoffs are mandated by exploitative state laws that ought to have been preempted long ago.

While getting rid of Wagoner, the Obama Administration has stuck by incompetent Treasury Secretary Tim Geithner, even though Geithner played a key role in the disastrous $170 billion AIG bailout, and previously shaped economic policies that helped destroy the economy of Indonesia, an important oil-producing nation of 200 million people, in the 1990s.

Meanwhile, the Obama Administration has been using AIG to artificially juice up banks’ profits, and indirectly the stock market, in order to give Obama the political capital needed to pass his deficit-exploding budget, which will increase projected deficits by $4.8 trillion to $9.3 trillion, breaking his campaign promise of a “net spending cut” in a big way. (The AIG bailout has also been used to shower money on Goldman Sachs, which does not need the money, and which has given millions to liberal politicians like Obama).

The automakers were bailed out using money from the bank bailout, which was written so broadly that its supporters say it can be used for almost anything. George Will argues that such a standardless law violates the Constitution‘s non-delegation doctrine. We earlier argued the same thing.

AIG employees gave hundreds of thousands of dollars to ethically-challenged Connecticut Senator Chris Dodd, who helped draft the stimulus and bank-bailout bills (and inserted the language that protected their bonuses). That includes $160,000 from employees in the division that later drove AIG into insolvency.

In the Wall Street Journal, scholars debate the principal causes of the mortgage bubble and subsequent financial crisis. Economics professor David Henderson says “the main fed culprits are the beefed up Community Reinvestment Act and the run-amok Fannie Mae and Freddie Mac.” An investment banker cites “mortgage fraud, the Bush administration’s weak-dollar policy and Lehman bankruptcy decisions, and Congress’s reckless housing policies through Fannie Mae and Freddie Mac and the Community Reinvestment Act.” Economists Judy Shelton and Gerald O’Driscoll and law professor Todd Zywicki say that the Fed’s monetary policy was the single biggest factor. Historian Clayton Cramer previously argued that regulations adopted under the Community Reinvestment Act spawned the mortgage crisis.

Congressional leaders blocked Senator Judd Gregg’s modest measure to limit the explosion of the national debt. Meanwhile, House Speaker Nancy Pelosi (D-Cal.) has been busy quarantining harmless library books in the name of child safety.

In other news, PETA, which claims to care about animals, has been busy killing pets.

Feds Make Freddie Mac Even Worse, Ripping Off Taxpayers

by Hans Bader on March 27, 2009 · 3 comments

in Bailout Watch, Economy, Politics as Usual, Precaution & Risk, Regulation

After federal regulators took over failing mortgage giant Freddie Mac, they didn’t stop its risky lending practices. Instead, they ramped up its risk-taking, making it run up even bigger debts at taxpayer expense to try to artificially pump up the economy. They made Freddie buy countless risky mortgage loans. Recently, the Obama Administration forced it to incur $30 billion in losses as part of the administration’s bailout for irresponsible mortgage borrowers, which caps mortgage payments for even high-income borrowers at a ridiculously low level. The Obama Administration tried to prevent Freddie Mac from even disclosing these losses in the financial disclosures it must make to investors under the securities laws.

Given the government’s ability to take even a badly-managed company and run it even worse, why should anyone support Treasury Secretary Geithner’s demand yesterday for vast new powers to take over companies that he thinks pose risks to the economy, or risks of failing? Especially given Geithner’s history of bungling responses to past economic crises, such as his role in the destruction of Indonesia’s economy in the Asian Financial Crisis of the 1990s.

I was a huge critic of GSEs like Fannie Mae and Freddie Mac and their practices. CEI President Fred Smith has been publicly criticizing their ability to gamble at the taxpayers’ expense for years. Congress ignored his prophetic warnings about the risk they posed to taxpayers.

But federal regulators have been so reckless that they have managed to make matters even worse.

Geithner Seeks More Power to Ruin Our Economy

by Hans Bader on March 26, 2009 · 6 comments

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

Treasury Secretary Tim Geithner wants a “vast expansion” of his power over the financial system. This is the same guy whose bungled $170 billion AIG bailout gave billions of dollars to wealthy AIG clients like Goldman Sachs, which admits it neither needed nor expected the money it got from taxpayers.

Back in the 1990′s, Geithner, working with the IMF, destroyed Indonesia’s economy, by prescribing disastrous economic policies. The result was massive increases in child malnutrition, riots, and mushrooming poverty, in a major country that once boasted annual economic growth rates of 7 percent. Australia’s long-time Prime Minister Paul Keating has chronicled Geithner’s central role in this disaster repeatedly, but to no avail (Keating was the leader of his country’s Labor Party, so he’s not exactly a doctrinaire conservative. And his rule was marked by economic growth.).

Now, Geithner wants more regulatory power in his own hands, even though unregulated financial institutions (like hedge funds) are doing better than regulated ones, so much so that unregulated financial institutions are being relied upon to bail out regulated financial institutions in Geithner’s toxic-asset buy-up program!

Geithner sent the dollar tumbling yesterday by foolishly suggesting that the dollar might be losing its role as the world’s reserve currency. The head of the European Union yesterday called the Obama Administration’s policy of unprecedentedly massive deficit spending the “road to hell.” The prominent liberal economist Jeffrey Sachs says that the Administration’s toxic-asset buy-up program will “rob the taxpayer” by “buying up toxic assets from the banks at far above their market value.”

Historian and engineer Clayton Cramer has a fascinating analysis of how the mortgage crisis was spawned by regulations adopted under the Community Reinvestment Act, and special interest groups that learned how to game those regulations, like ACORN (a group Obama long worked with). ACORN, a beneficiary of the stimulus package, helped spawn the mortgage crisis by promoting “liar loans.” It has also engaged in extensive financial fraud and vote fraud. The Obama Administration has chosen ACORN to help conduct the 2010 census, which will be used to reallocate seats in Congress.

Obama Chief of Staff Rahm Emanuel received $320,000 while asleep at the switch as a director of the mortgage giant Freddie Mac, a fraud-ridden GSE that helped spawn the mortgage crisis and ended up being bailed out by taxpayers at a cost of over $100 billion.

James Piereson has insightful comments about Geithner’s demand for new regulatory powers (and unnecessary bailouts) here. He also notes that Fed Chairman Ben Bernanke has been essentially refighting the last war, applying remedies that might have been helpful in the Great Depression but are positively harmful now.

Perhaps Bernanke’s most controversial policy has been to print vast sums of money to buy up government bonds, under the rubric of “quantitative easing.” Congressman Ron Paul says this policy, and the massive bailouts, are an inflationary disaster, and that it would have been better for the government to do what it did in response to the sharp 1921 recession — nothing. “He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. ‘No one remembers that one. They’ll remember this one, because it will last’” much longer, because the “government just won’t allow the correction the economy needs.”

The 1921 recession speedily ended, without any bailouts or government intervention, although it started out as a very nasty recession, with suffering much worse than in the early days of the Great Depression. The 1921 recession was followed by an economic boom, including 6 percent annual growth rates in the 1920s.

The Obama administration has never explained why such vast powers should be bestowed on Geithner, who cheated on his taxes, lacks expertise in economics, and receives a failing grade from economists. Yet it has relied on him to sell its economic policies, such as its proposed budget (which will add $4.8 trillion in additional debt), $8 trillion in bailouts, a trillion dollar toxic-asset buy-up program, and an $800 billion, economy-shrinking “stimulus” package, all of which contradict Obama’s campaign pledge of a “net spending cut.”

Geithner’s “bad bank” is a big bad idea: fix bad mark-to-market accounting instead

by John Berlau on February 10, 2009 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Politics as Usual, Precaution & Risk, Stimulus to Nowhere

The Obama’s administration $1 trillion plus bank bailout plan — on top of the $800 billion stimulus that just passed the Senate — will explode the national debt and rob from future generations while doing little about the tightening of credit and valuation of toxic assets. Like the Bush administration, the Obama team balked at doing anything substantial to provide relief from the mark-to-market accounting mandates that prominent liberals and conservatives agree are spreading the credit contagion.

Despite my hopes that Treasury Secretary Geithner ‘s plan would offer a change to mark-to-market rules we can believe in, as rumored in the financial press last week, the plan turns out to be “more of the same” Bush-Paulson big spending and big government bailout. As knowledgeable observers from conservative Steve Forbes to Democrat stimulus proponent Mark Zandi agree, mark-to-market relief is essential to unclogging the arteries of the credit system. As I wrote in the Wall Street Journal last fall, it is one of the major reasons for the credit contagion despite the fact that mortgage delinquency rate are still only 6 percent.

After soaring late last week on rumors of mark-to market relief late last week (and TheStreet.com directly attributed this rise to hopes of action on mark-to-market), the Dow fell down nearly 500 points, or 5 percent today. The markets anticipate that any government money will be weighted with the strings of overregulation and de facto nationalization.

By contrast, mark-to-market suspension or relief, which would cost taxpayers virtually nothing, would let the market value these assets with private money at what the government is now planning to pay for them. Financial institutions could buy these discounted securites at a true “market” price without worrying about a future mark-to-market paper loss eating away at their regulatory capital.

Without mark-to-market reform from the SEC and the bank regulatory agencies, the buying initiatives Secretary Geithner outlines today could actually make the problem worse. As I wrote last fall in Open Market of Paulson’s original plan to buy mortgage asset (which he abandoned in favor of buying bank stock, an equally bad idea), if the government sets the price of asset securities too low, it could spread the contagion mark-to-market losses even further. If it sets the price too high, taxpayers will lose out.

It’s not too late for the Obama adminstration to use its political capital push to reform mark-to-market rules such as Financial Accounting Standard 157 that are acting as a stranglehold on the financial system. Changing accounting rules to allow banks to price assets more rationally during a liquidity crisis would indeed be a change we could believe in.

Geithner confirmed — but with bipartisan “nays”

by John Berlau on January 26, 2009

in Bailout Watch, Politics as Usual, Stimulus to Nowhere

The U.S. Senate voted to confirm Timothy F. Geithner tonight, but the vote was closer than expected with more “nays” than any previous nominee of President Barack Obama. The 60-34 confirmation was also the first nomination vote of the Obama administration with any Democrat voting no.

Because of the nagging questions remaining about Geithner’s failure to pay four years worth of self-employment taxes and his role in designing the Troubled Asset Relief Program, four members of the Democratic caucus joined with 30 Republicans in opposing Geithner’s nomination. (10 Republicans unfortunately voted for him). Those four are Tom Harkin of Iowa, Russ Feingold of Wisconsin, Robert Byrd of West Virginia and Bernie Sanders of Vermont, the independent self-proclaimed socialist who usually caucuses with Democrats.

“Had he not been nominated for treasury secretary, it’s doubtful that he would have ever paid these taxes,” Byrd said, according to the Associated Press report. Harkin asked during the Senate floor debate how someone of Geithner’s supposed “financial sophistication” could have made such careless mistakes, and not corrected them for all the years he made the errors until Obama nominated him. “How can Mr. Geithner speak with any credibility or authority?” Harkin said.

A Rasmussen poll late last week found that 41 percent of Americans oppose Geitner’s nomination and two-thirds think that his confirmation would show that different standards and rules apply to powerful people. This impression was confirmed by statements such as that of Sen. Kent Conrad, D-N.D., that “in normal times, that would be enough to cause me to oppose his nomination, but these are not normal times.” The perception that both corporations and individuals can be “too big to fail” because of their supposed importance undermines the very credibility needed to restore confidence in our financial system.

While his serious tax infractions should have still disqualified him from heading a department that enforces the nation’s tax laws, there are steps Geithner can take to assuage these concerns. He can call for an end to government policies that prop up failing institutions with taxpayer dollars. The failures could be orderly and arranged to minimize damage to the financial systems, but big corporations must be allowed to fail, just as small businesses do every day. That would send a message that no business or individual plays by a different set of rules.

And given his own serious breach of the tax laws, which he only corrected completely after being chosen as Treasury Secretary nominee, Geithner should show sympathy with the difficulties of individuals and small businesses in dealing with the complexities of taxes and regulations. New financial regulations from the Treasury Department should be carefully thought out so that they don’t hinder small investors and entrepreneurs. If Geithner reflects on and learns from his personal and policy errors, he can be a more effective Treasury Secretary.

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