He also pushed back — hard — against then-FDIC Chairman Sheila Bair’s plan to create a council of regulators to keep tabs on the country’s biggest financial institutions, preferring to leave this task to the Federal Reserve. But Bair, a longtime adversary, maneuvered to make the Financial Stability Oversight Council happen. And because of some unusually public campaigning by CFTC Chairman Gary Gensler, Geithner also had little choice but to accept tougher regulations than he intended for derivatives, the financial instrument that toppled AIG.
4. On taxing and spending, Geithner was a defender of the 1 percent.
To hear liberals tell it, Geithner was a crypto-Republican on fiscal policy: He didn’t believe in economic stimulus and was bent on cutting programs such as Medicare to rein in the deficit. The truth is that Geithner supported stimulus in principle and did not dig in against the administration’s massive package of tax cuts and spending.
He did support trims to Medicare, but he was the only consistent public voice for ending the upper-income George W. Bush-era tax cuts back in 2010, when Democrats in Congress and the White House largely ducked the fight. In negotiations at the end of that year, he argued that the administration should reject a deal to continue the cuts unless Republicans extended a series of low-income tax credits worth tens of billions of dollars. Republicans reluctantly came around.
5. He leaves behind a financial system that’s far safer than before the 2008 collapse.
If you look hard enough, you’ll find pieces of Dodd-Frank, the landmark financial reform bill Geithner steered through Congress, that have improved Americans’ financial security. But at the broadest level, the law’s premise is flawed. Before 2008, massive institutions dominated the U.S. financial system, and the government was overly dependent on outgunned regulators to police them. The results were of course catastrophic. We now have a financial system dominated by even bigger institutions, and the burden of policing them has fallen even more heavily on overmatched regulators.
More than anyone else, this is Geithner’s doing. As New York Fed president in 2008, he arranged a series of shotgun marriages between major banks. The following year, Obama made him the intellectual architect of financial reform. The alternative to creating hundreds of new rules for regulators to enforce would have been to make the banks smaller and simpler, but Geithner eschewed this approach.
The danger of the new arrangement was on full display last spring, when JPMorgan Chase announced that it had lost $2 billion on a derivatives transaction. (The size of the loss has since grown to roughly $6 billion.) The bank is so large and complex that even its famously fastidious chief executive, Jamie Dimon, had no idea how much risk his traders were taking. After the financial crisis, Geithner believed that you could rein in the banks just by giving regulators more power. JPMorgan proved otherwise.
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