If you're not inside, you're *outside*!

The April Atlantic has a must read profile of Tim Geithner: Inside Man. Here's a taste:

According to insiders, Geithner and Summers faced off last year over whether or not to fire Ken Lewis, then CEO of Bank of America. (Summers denies this.) Lewis led the ill-fated acquisition of Merrill Lynch, which saddled his bank with huge losses and necessitated three separate government bailouts. Ousting him for poor performance, as Summers wanted to do, would have been good politics (shareholder wrath finally drove Lewis out in December). But Geithner opposed this, on the grounds that the stress tests promised Bank of America the opportunity to raise private capital, and that removing Lewis prematurely would likely upset the markets, making it harder for other banks to raise money. Geithner won. “I argued,” he told me, “‘There’s a basic principle, Mr. President, which is that if, at the end of the stress tests, these guys need a huge amount of capital and they can’t raise it in the market, and we have to put it in then we will change management.’” Making an example of Lewis would be premature and indulgent. “In a crisis, you have to choose,” Geithner told me. “Are you going to solve the problem, or are you going to teach people a lesson? They’re in direct conflict.”

There's some other juicy stuff, such as an admission that Paul Volker was marched in front of the cameras with Obama purely for political effect in the aftermath of the Scott Brown victory. The fact that the so-called "financial reform bill" was drafted by Geithner's Treasury (as opposed to the other signature Obama initiatives, which were outsourced to Nancy Pelosi) is also mentioned.

Long, but worth reading - at least, I believe it's worth hearing out "the other side" of any argument.

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One popular idea is that the forecast Depression was always a myth, a scare story told to get us to cough up the bailout in the first place. Obviously this is just my own view, but I believe the crisis in confidence in the global financial system would in fact have dragged down economic growth (globally, and in the US in particular) to a much greater extent than it did, had the crisis not been resolved. (Here's one widely cited paper on the economic impact of financial crisis).

I'm critical of Geithner not because I'm not willing to see things his way, but in spite of the fact that I largely do.

What we are left with is a financial class which can - and most surely will - repeat the risk taking and looting that led up to the crisis, now with the firm assurance that Washington has their back. They have as many free rolls of the dice as they like before they crap out once again.

Our last best chance to wrest control from these people and construct a financial system where - if public guarantees to certain institutions are found necessary for financial stability, there is concomitant public oversight - has been squandered.

And this matters because the next one will be the big one - when the solvency of the United States itself comes into question, there will be nobody to bail us out.

The Federal Reserve has conjured $1.25 Trillion dollars out of thin air to support the mortgage backed securities market. This fact - nowhere mentioned in the soft focus Atlantic piece - is largely responsible for the current illusion of "stability" in the financial markets. Those purchases are ending in less than a week. They will have to be rolled back without causing a collapse of the bond market, or extended without causing a collapse of the dollar. The reality is the crisis isn't over - it's just swept under a very large, very expensive rug.