Geithner wants to grow the financial services beast even though it is already oversized and sucking up money, which would, arguably, be better spent elsewhere. It has not only failed to provide proportional benefits, it’s very recently seriously damaged the world economy. Here’s what Edward Harrison has to say about it. – Ilene
Courtesy of Edward Harrison at Credit Writedowns
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Excerpt:
This comes via Noam Scheiber at the National Review (emphasis added):
Geithner hunched his shoulders, pressed his knees together, and lifted his heels up off the ground—an almost childlike expression of glee. “We’re going, like, existential,” he said. He told me he subscribes to the view that the world is on the cusp of a major “financial deepening”: As developing economies in the most populous countries mature, they will demand more and increasingly sophisticated financial services, the same way they demand cars for their growing middle classes and information technology for their corporations. If that’s true, then we should want U.S. banks positioned to compete abroad.
“I don’t have any enthusiasm for … trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world,” he said. “It’s the same thing for Microsoft or anything else. We want U.S. firms to benefit from that.” He continued: “Now financial firms are different because of the risk, but you can contain that through regulation.” This was the purpose of the recent financial reform, he said. In effect, Geithner was arguing that we should be as comfortable linking the fate of our economy to Wall Street as to automakers or Silicon Valley.
One can disagree with this substantively. Financial reform is a good start, with its stricter rules and new authority for regulators. But whether Wall Street can be made to behave like a normal industry rather than a source of economy-wide instability remains very much open to debate.
Still, the bigger question may be political. Is this a moment when the country demands a wholesale reimagination? A bet on Geithner going forward is a bet that the financial sector can regain its democratic legitimacy without being shrunk or radically restructured. Perhaps as much as the successes of the past two years, Geithner’s legacy will ultimately depend on how well Wall Street meets that test.
Read the whole thing. It’s a good piece for understanding Geithner’s thinking. He wants American banks to penetrate emerging markets and get even bigger. How this benefits the U.S. economy is unclear, however. It reminds me of the Slate piece from December 2009 when Geithner said the Obama Administration needed to override the popular sentiment against banks and bail them out in order to beat back the economic downturn.
