As Crisis Loomed, Geithner Pressed But Fell Short

[cwo_ghwebb]

Before Timothy Geithner became Treasury chief, he regulated major U.S. banks. Now he says: "We're having a major financial crisis in part because of failures of supervision."

In September 2005, Timothy Geithner made one of his most visible moves as a supervisor of the U.S. banking system. He summoned the nation's top financial firms and their regulators to streamline an antiquated system that threatened Wall Street's boom.


Billions of dollars worth of financial instruments known as credit derivatives were being traded daily, as banks and investors worldwide tried to protect against losses on increasingly complex and risky financial bets. But the buying and selling of these exotic instruments was stuck in a pencil-and-paper era. Geithner, then head of the Federal Reserve Bank of New York, pressed 14 major financial firms to build an electronic network that would cut backlogs and make the market easier to monitor.


Geithner's summit, held at the New York Fed's fortress-like headquarters near Wall Street, was a success. By fall 2006, the new system had all but eliminated the logjam, helping derivatives trade more efficiently. One financial industry newsletter honored Geithner as part of a "Dream Team" for his leadership of the effort.


Yet as Geithner and the New York Fed worked to solve narrow mechanical issues in the derivatives market, they missed clear signs of a catastrophe in the making. When the housing market collapsed, derivatives stoked the fires that ignited inside some of the biggest banking companies. The firms' failure to assess an array of risks they were taking has emerged as a key element in the multitrillion-dollar meltdown of the global financial system.


Although Geithner repeatedly raised concerns about the failure of banks to understand their risks, including those taken through derivatives, he and the Federal Reserve system did not act with enough force to blunt the troubles that ensued. That was largely because he and other regulators relied too much on assurances from senior banking executives that their firms were safe and sound, according to interviews and a review of documents by The Washington Post and the nonprofit journalism organization ProPublica.


A confidential review ordered by Geithner in 2006 found that banking companies could not properly assess their exposure to a severe economic downturn and were relying on the "intuition" of banking executives rather than hard quantitative analysis, according to interviews with Fed officials and a little-noticed audit by the Government Accountability Office. The Fed did not use key enforcement tools until later, after the credit crisis erupted, according to its records and interviews.


Geithner defended his tenure as New York Fed president in an interview last week. He said he had been "deeply concerned about risk in the system" and worked assiduously behind the scenes to cajole banking institutions to do more to identify weaknesses and protect the financial system. But he also took some responsibility for falling short.


"These efforts to improve risk management did change behavior, but they did not achieve enough traction," Geithner said. "We're having a major financial crisis in part because of failures of supervision."


Even as critics have questioned how he used existing power before the crisis, Geithner, as Treasury secretary, now leads the push for the biggest expansion of financial regulation since the Great Depression. His sweeping plan to overhaul the U.S. financial system would empower regulators to broadly analyze risk and would grant more authority to the Fed and its 12 reserve banks.

As Crisis Loomed, Geithner Pressed But Fell Short

Generally, when someone screws up they're fired, not promoted. But, then again, we are talking about the Socialist Federal Government the Donks are implementing.

[aps45819 (Premo)]

Originally Posted by cwo_ghwebb

Generally, when someone screws up they're fired, not promoted. But, then again, we are talking about the Socialist Federal Government the Donks are implementing.

How did he screw up
His actions paved the way for Pelosi/Obama to seize control of all commerce in the country

[Lenny]

Originally Posted by aps45819

How did he screw up
His actions paved the way for Pelosi/Obama to seize control of all commerce in the country

....and conveniently ignore that he, Barney Fwank and Chris Dodd facilitated the entire house-of-cards economy that was becoming impossible to maintain.