#timothy geithner

[dadsinsuits]

Timothy Geithner

[dontmeantobepoliticalbut]

Trump, Musk actions put America at risk of 'a form of default,' former Treasury chiefs warn

Elon Musk and his DOGE team are tasked by President Donald Trump to find government spending inefficiency and cut federal spending.

Five former Treasury secretaries warned Monday that recent actions at the Treasury Department by Trump administration officials and Elon Musk’s DOGE team raise “substantial cause for concern” that the United States’ financial commitments are being “unlawfully” undermined.

“We have during our service in the Treasury Department faced moments of crisis, when the specter of an American default loomed,” the former secretaries wrote in a New York Times op-ed.

“Any hint of the selective suspension of congressionally authorized payments will be a breach of trust and ultimately, a form of default. And our credibility, once lost, will prove difficult to regain,” they wrote.

“No Treasury secretary in his or her first weeks in office should be put in the position where it is necessary to reassure the nation and the world of the integrity of our payments system or our commitment to make good on our financial obligations.”

But Kevin Hassett, a top economic advisor to President Donald Trump, dismissed the former secretaries’ concerns during an interview on CNBC’s “Squawk Box.”

Treasury Secretary Scott Bessent, he said, “has found that controls for spending of the previous [Biden] administration were unacceptable. They were sending money out without knowing where the money was going.”

Hassett also said the idea that Musk was acting as, in his words, “a puppet master” at the Treasury Department was “poppycock.”

“Elon Musk is in the office next to me,” Hassett said. “He’s not in control.”

The ex-secretaries who wrote the op-ed were Robert Rubin, Lawrence Summers, Timothy Geithner, Jacob Lew and Janet Yellen, all of whom served under Democratic presidents: Bill Clinton, Barack Obama and Joe Biden, respectively.

The dueling narratives come amid escalating legal battles over access to the Treasury Department’s highly sensitive payment systems, which members of Musk’s Department of Government Efficiency team have sought and been granted.

As DOGE and other elements of the Trump administration move to slash federal spending and employee headcount, the government’s payment disbursement system, run by the Treasury’s Fiscal Service, has drawn their attention.

Their op-ed cites reporting last week by the Times that the Treasury Department’s chief of staff originally pushed for a member of Musk’s DOGE team, Tom Krause, “to receive access to the closely held payment system so that the Treasury could freeze disbursements to the U.S. Agency for International Development.”

Emails seen by the Times “undercut Treasury’s explanation” for why Krause and other members of Musk’s team were granted access to the payments system, which disburses more than $5 trillion in federal funding, the newspaper noted.

The Treasury Department has said Krause and his team “are conducting an ‘operational efficiency assessment’ that does not involve blocking agency payments,” the Times reported.

In their op-ed, the former secretaries said the access “upended” the long-standing practice of payment systems operated by a “very small group of nonpartisan career civil servants.”

“The roles of these nonpartisan officials have been compromised by political actors from the so-called Department of Government Efficiency,” the op-ed said.

“We take the extraordinary step of writing this piece because we are alarmed about the risks of arbitrary and capricious political control of federal payments, which would be unlawful and corrosive to our democracy,” the former secretaries wrote.

Hassett, who leads the National Economic Council, argued strenuously against the op-ed’s premise and claims Monday.

“Can we talk about the Treasury letter first?” Hassett asked the “Squawk Box” hosts. “There’s so much misinformation in it.”

Hassett continued, “Let’s just make it clear the Treasury secretary, Scott Bessent, is in charge of the Treasury.”

Bessent, said Hassett, “has found that controls for spending of the previous [Biden] administration were unacceptable.”

“They were sending money out without knowing where the money was going. They were sending money out without flagging, you know, ‘what it was for?’ They didn’t check before they sent the money out, whether it was appropriated,” Hassett said. “And as we go in and look, we’re finding lots of things that shouldn’t have been sent.”

Hassett said, “There’s a lot of work to be done to clear that up.”

“This idea that there’s a puppet master telling the Treasury secretary what to do, and therefore all the Treasury secretaries need to be, like, alarmed, that’s just left-wing media, you know, poppycock.”

“Why are we making up fake things about what Elon is doing, because we’re trying to just see where the money’s going,” Hassett said.

“And I think it’s probably, in the end, we’re going to find that a lot of money went to bad places.”

[mostlysignssomeportents]

Biden set to appoint mass foreclosure cheerleader to the Fed

Personnel are policy, something that the Biden administration has proved again and again since the 2020 election. Biden himself is a kind of empty vessel into which different wings of the Democratic party pour their will, yielding a strange brew of appointments both great and terrible.

If you’d like an essay-formatted version of this post to read or share, here’s a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/03/06/personnel-are-policy/#janice-eberly

On the one hand, you have progressive appointments like Jonathan Kanter at the DoJ and Lina Khan at the FTC, leaders who are determined to challenge and curb corporate power:

https://pluralistic.net/2022/01/10/see-you-in-the-funny-papers/#bidens-legacy

On the other hand, you have deferential leaders like Pete Buttigieg, who fill their own staff with status quo counsel, and then let those timid corporate apologists run the show, leaving the substantial enforcement powers of a powerful agency to gather dust:

https://pluralistic.net/2023/01/10/the-courage-to-govern/#whos-in-charge

While the Democrats’ anti-corporate wing got to drive the administration’s competition agencies, the corporate wing has enjoyed near-total dominance over finance regulations (with notable exceptions, e.g. Rohit Chopra), starting with Trump’s Jerome Powell, a bloodletting monster happy to shovel workers into their bosses’ crushers all day long:

https://pluralistic.net/2023/01/19/creditors-vs-workers/#finance-colored-glasses

Corporate Dems continue to flex their muscle. A seat has just opened up on the Federal Reserve Board, and the WSJ is pretty sure the seat is going to Janice Eberly, a corporate ghoul who helped Obama Treasury Secretary Timothy Geithner steal Americans’ houses on behalf of the bankers who destroyed the world economy in 2008:

https://www.wsj.com/articles/white-house-considers-two-economists-for-fed-vice-chair-58f13344

A quick refresher: Obama inherited the Great Financial Crisis, a massive global asset crash that followed from a decade of real-estate and derivatives deregulation that saw the world’s largest banks issuing mortgages they knew would fail, and then placing massive bets on “collateralized debt obligations” that were supposed to offset the risk.

The banks gambled trillions, nearly destroyed the world’s economy, and then blamed it all on reckless borrowers — mortgage holders who had been mis-sold predatory mortgages that were designed to trigger defaults thanks to low “teaser rates” that later “ballooned” into monthly payments the banks knew the borrowers couldn’t afford.

Geithner was Obama’s go-to guy for the GFC. It was under his leadership that billions were handed out to the banks to bail them out and keep them solvent during the crisis — and it was also under his leadership that bank execs were able to pay themselves millions in bonuses using that public money.

When the banks were in trouble, Geithner leapt into action. When the banks’ customers faced crises, he was MIA — especially during the foreclosure epidemic that followed, as the banks stole our homes out from under us, often forging the paperwork. No bank was seriously punished for this policy.

Back to Janice Eberly, who served as Geithner’s assistant secretary of the Treasury for economic policy — his hatchet-woman, in other words. Now, sometimes people in senior government roles stick around because they disagree with their bosses and want to mitigate the harm of their bosses’ policies.

That’s not why Eberly took the job. In 2014, she and Arvind Krishnamurthy co-wrote a Brookings Institute paper called “Efficient Credit Policies in a Housing Debt Crisis,” that explained why Geithner had it right all along — bailing out the banks and leaving homeowners in foreclosure is “efficient”:

https://www.brookings.edu/wp-content/uploads/2016/07/fall2014bpea_eberly_krishnamurthy.pdf

Writing in The American Prospect, Max Moran from the Revolving Door Project breaks down “Efficient Credit Policies,” explaining how Eberly’s stated views should disqualify her from sitting on the Fed board, especially as we teeter on the brink of a deep financial crisis:

https://prospect.org/economy/2023-03-06-janice-eberly-fed-nominee-mortgage-crisis/

The first thing you need to understand here is HAMP, the Home Affordable Modification Program, which received the $100b Congress allocated to help homeowners whose mortgages were “underwater” — that is, whose houses were worth less than they owed for them.

That money could have gone to “principal reduction” — that is, to paying off part of your loan. If you owned $350,000 on a house that was now worth $300,000, the Feds could give the bank $50k and you wouldn’t be underwater anymore. The FDIC proposed just this, in a plan that would have required homeowners to pay back the US government if the price of their homes rebounded.

If you want to keep Americans from losing their homes, principal reduction is a straightforward and reliable approach. But the banks hated this — and that meant Geithner wouldn’t do it. Banks don’t like principal reduction because it means that they’ll lose out on future payments: reducing your principal by $50k now means that the banks won’t get hundreds of thousands of dollars over the 30 years of your mortgage.

Using the money for principal reduction would have meant the banks’ balance sheets would have looked a little worse — which, as Moran points out, is a perfectly fair outcome for banks that had just come close to destroying the world economy, especially since many of these underwater borrowers were destined to lose their houses and would never make those payments.

But Geithner didn’t do principal reduction. Instead, he did HAMP, which was just a way to temporarily lower borrowers’ monthly payments so they could stay in their homes. Geithner sold Obama on this plan, convincing him to renege on his election promise to support a “cramdown” on the banks, which would have saved homeowners:

https://www.propublica.org/article/dems-obama-broke-pledge-to-force-banks-to-help-homeowners

HAMP was full of the kinds of complex requirements and paperwork that the professional managerial class love, rules that made it almost impossible for homeowners to invoke HAMP and improve their payments. Meanwhile, the banks got “investor incentive payments” that let them take in public money even as they foreclosed on the public:

https://www.irs.gov/newsroom/principal-reduction-alternative-under-the-home-affordable-modification-program

HAMP was a disaster. Almost no one managed to use it, and even among the lucky few who did manage to do so, many were tricked into foreclosure.

https://www.theguardian.com/money/2014/mar/30/government-program-save-homes-mortgages-failure-banks

This is the policy that Eberly and Krishnamurthy defend in their paper: rather than reducing debt, just temporarily restructure mortgage payments. One reason they defend this: it’s cheaper, and Congress didn’t allocate enough money to help everyone who needed principal reduction. But, as Moran points out, Geithner’s anemic response to the crisis caused Congress to claw back $225b of the money allocated to deal with it — enough to do $50k principal reductions for 4.5m households. Under Geithner, HAMP only spent $10b.

But of course, the US government didn’t need to pay the banks off to do principal reduction. They could simply order the banks to take a loss. That’s how lending usually works: lenders who originate bad loans have to eat them — they don’t get made whole by Uncle Sucker.

But when Eberly was working for Geithner, “federal officials convinced themselves this was impossible.” Rather than hold banks to account for their reckless speculation, Geithner announced that he was going to “foam the runway” for the banks, pureeing Americans’ homes to make the foam.

But Eberly’s tenure coincided with the banks’ rebound — by the time she went to work for Geithner, they were rolling in dough, posting massive profits. As @[email protected] put it, “If you force them to eat a bunch of foreclosure losses, maybe a few hundred billion over several years, it probably wouldn’t have been that bad.”

https://www.youtube.com/watch?v=pPLbnr1mxBs

Moran nails it here: “When a bad loan is made, it is both prudent and fair for the lender to bear the most responsibility. They are supposed to be wise stewards of their own capital. Instead, ordinary homeowners who did the least of any actor to cause the financial crisis ended up eating the losses.”

Eberly and Krishnamurthy claimed that Geithner’s policy would be efficient, and that it wouldn’t lead to mass foreclosures. As neoclassical economists love to do, they “proved” this using elaborate mathematical models. And, also in the grand neoclassical tradition, they didn’t bother to check whether their model was correct.

To quote Ely Devons: “If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?’”

https://pluralistic.net/2022/10/27/economism/#what-would-i-do-if-i-were-a-horse

Here’s what Eberly and Krishnamurthy missed: the choice to foreclose wasn’t being made by the lenders, they were being made by the mortgage servicer, a kind of consequence-free middleman who made more money by foreclosing on homeowners, even if the lenders lost more money over the long term:

https://www.researchgate.net/publication/228125783_Why_Servicers_Foreclose_When_They_Should_Modify_and_Other_Puzzles_of_Servicer_Behavior_Servicer_Compensation_and_its_Consequences

Eberly and Krishnamurthy barely mention the existence of servicers, but another researcher was keenly aware of them: a law prof named Katie Porter, who delved into the servicers’ role in foreclosure in a report for the California AG:

https://oag.ca.gov/sites/all/files/agweb/pdfs/mortgage_settlement/01-report-waiting-for-change.pdf

Porter identified the servicers’ “dual track” approach to distressed mortgage borrowers: on the one hand, they slow-walked HARP-based changes to payments, and on the other hand, they raced to foreclose on those borrowers who were waiting for their payments to reset.

The servicers’ hunger to throw people out of their homes knew no bounds: they set up massive robo-signing boiler-rooms where low-waged employees forged deeds to plug the paperwork holes created by the high-speed, unregulated speculation on mortgages that precipitated the Great Financial Crisis:

https://www.reuters.com/article/robosigning-plea/ex-mortgage-document-exec-pleads-guilty-in-robo-signing-case-idUSL1E8ML0C120121121

Eberly knew about robo-signing, she knew about servicers, she knew about foreclosures. It was her job to know. But she still wrote her paper defending Geithner’s runway-foaming and all those ruined lives:

Principal reduction can be helpful, but it is a less efficient use of government resources, since it back-loads payments to households that cannot borrow against these future resources to support consumption today, and also because it is most helpful in reducing strategic default, rather than payment-distress-induced default,

This is just means-testing by another name, a fetish for separating the “deserving poor” from “moochers” (AKA “strategic defaulters”). The PMC loves means-testing, but only for poor people. As Moran points out, rich people like Trump use strategic defaults all the time:

https://www.nytimes.com/2016/06/12/nyregion/donald-trump-atlantic-city.html

Elite economists and finance ghouls convinced themselves that helping people stay in their homes would enable waves of crooked “strategic defaulting” but there’s no evidence this was ever widespread — rather, it was a fairy tale that justified mass foreclosure:

https://www.nber.org/system/files/working_papers/w27585/w27585.pdf

Eberly helped throw millions of Americans into the street in order to reward reckless banks, already wildly profitable banks, with even more profit. And far from regretting this, she went on to write elaborate justifications for the cruel policies she helped administer.

The historian Michael Hudson describes debt and debt cancellation as a key determinant of whether a given civilization survives. In every venture, producers have to borrow capital from lenders — farmers, for example, must borrow to pay for seed and fertilizer and labor. When the ventures are successful, the borrowers pay back the lenders.

But not every venture can succeed. There will always be blights, droughts, fires and other risks that can’t be fully mitigated. When failure occurs, borrowers can’t pay back creditors. If you farm long enough, you’ll eventually lose a crop, and have to roll over your debts next year. Eventually, you’ll owe so much that you can’t even make the interest payments.

In the absence of some structured, periodic debt cancellation — such as the Bronze Age tradition of Jubilee — creditors eventually end up controlling the work of the entire productive sector. When that happens, your society stops producing what everyone needs, and instead just makes the things that rich people want:

https://pluralistic.net/2022/07/08/jubilant/#construire-des-passerelles

A civilization can’t survive if all of its farmers are growing ornamental flowers for rich creditors’ villas instead of staple crops. It can’t survive if every productive worker is stuck in a dead-end job or a dead-end place because of medical or student debt.

Personnel are policy. Eberly has explained, in excruciating detail, exactly what policy she favors — policy that rewards reckless speculation by incinerating the life chances of everyday Americans. Appointing her to the Federal Reserve board would be a giant Fuck You from the Biden admin to every person who got their home stolen by a bank.

Tomorrow (Mar 7), I’m doing a remote talk for TU Wien.

On Mar 9, you can catch me in person in Austin at the UT School of Design and Creative Technologies, and remotely at U Manitoba’s Ethics of Emerging Tech Lecture.

On Mar 10, Rebecca Giblin and I kick off the SXSW reading series.

Image: Medill DC (modified) https://commons.wikimedia.org/wiki/File:Timothy_Geithner_in_2011.jpg

CC BY 2.0 https://creativecommons.org/licenses/by/2.0/deed.en

[Image ID: A bombed out neighborhood. Over the crumbling houses is the 'HOPE' wordmark from Shepard Fairey's Obama campaign posters. On the right is the grinning face of Obama Treasury Secretary Timothy Geithner, colorized to match the Fairey posters. On the left is an ogrish, top-hatted capitalist figure, chomping a cigar and disdainfully holding aloft a single-family home between a gloved forefinger and thumb. He stands before a podium bearing the Citibank logo. The podium has a lever in the shape of a golden dollar-sign, which he is yanking with his free hand. He, too, has been colorized in the mode of the Fairey poster.]

[politicaldilfs]

Timothy Geithner and Robert Rubin

[ml-pnp]

Warren: Obama's Bailout of Wall Street Was a Failure, Paved Way for Trump's Election

Sen. Elizabeth Warren (D., Mass.) said the Obama administration's Wall Street bailout was not a success in a new interview, saying banks thrived and it paved the way for a populist like Donald Trump to win in 2016.

[icymirss]

Former Obama Officials Are Riding Out The Trump Years By Cashing In

The revolving door takes a spin.

...for all the damage the Trump administration is doing to American democracy, several prominent Obama alums seem to have quietly made their peace with a subtler attack on the legitimacy of U.S. institutions. Today, many are lending the prestige of their White House resumes to scandal-fraught organizations in return for large sums of money. Some are even doing business with the Trump administration.... These days, [former Department of Homeland Security Secretary Jeh] Johnson receives $290,000 a year to serve on the board of directors at Lockheed Martin, the largest American defense contractor and the world's biggest weapons manufacturer. It has been fined over $767 million for various forms of misconduct since forming in 1995, according to the Project on Government Oversight.... All told, the company does $35 billion a year in business with the federal government, much of it contracted with the very department Johnson recently headed. The company’s sales are rising along with Trump's defense budgets.... [Former Domestic Policy Council director Melody] Barnes is also working at a defense contractor, earning upwards of $210,000 a year serving on the board at Booz Allen Hamilton, which held eight meetings in 2017.... According to the Center for Responsive Politics, in 2016 and 2017 alone, the company received $63 million in contracts to work with Immigration and Customs Enforcement -- the militarized deportation agency at the heart of the Trump administration's family separation scandal. Booz Allen Hamilton revenues are up almost 15 percent since Trump came to town. Ride-sharing titan Uber also hired Barnes in May 2016 in an apparent effort to clean up its image as a stream of Uber scandals began to dominate headlines.... Uber seems to have been a preferred landing pad for Obama officials. Former Transportation Secretary Ray LaHood joined Barnes on the policy advisory board, and Obama's 2008 campaign manager David Plouffe worked as a senior vice president at the company from August 2014 until January 2017. He was fined $90,000 by the city of Chicago for illegally lobbying the city's mayor, Rahm Emanuel, while working for Uber. Emanuel, who served as Obama's first White House Chief of Staff, has distinguished himself as mayor by covering up the police shooting of Laquan McDonald. Uber has also paid [former Attorney General Eric] Holder for various legal work.... As attorney general, Holder refused to prosecute Wall Street crime related to the 2008 financial crisis, even as banks agreed to pay billions upon billions of dollars in settlement after settlement with the federal government. Even in cases where major banking institutions pleaded guilty to felony charges, Holder and the DOJ declined to prosecute any actual bankers for crimes. So it makes a perverse kind of sense that Holder is now a partner at the law firm of Covington and Burling, a D.C.-based outfit that specializes in work on behalf of the banking industry.... [Former Assistant AG Lanny] Breuer, who was in charge of DOJ's criminal division during the Obama years, is also a partner at Covington and Burling.... Obama's first Securities and Exchange Commission Chair Mary Schapiro has also found her way into Wall Street's good graces. She now advises financial firms for the consulting firm Promontory Financial Group, and serves on the board of Morgan Stanley -- an investment banking behemoth that has settled 24 separate allegations of misconduct with the federal government since her departure from the SEC. This includes a multibillion-dollar case for defrauding investors with toxic securities during the financial crisis.... Former Treasury Secretary Timothy Geithner, meanwhile, is now president of the private equity firm Warburg Pincus, which owns Mariner Finance, an installment lender that targets poor families with high-interest loans.... Former Agriculture Secretary Tom Vilsack is now advocating for some of the country's biggest dairy interests, including Schreiber Foods, Sargento, Hershey and YUM! Restaurants (better known as KFC, Taco Bell and Pizza Hut), as president of the U.S. Dairy Export Council. Ex-White House Chief of Staff Pete Rouse is now chair of the Public and Strategic Affairs Group at the law firm of Perkins Coie, where he, "provides policy analysis and offers strategic advice on navigating Congress and the executive branch" and "counsels senior level executives on federal and state policy issues and related public communication challenges." Such activity is known to the general public as "lobbying"... And then there's Carney. Prior to Trump's election, perhaps no American in the 21st century had displayed greater ingenuity when attempting to discredit legitimate journalism than the former White House spokesman. Carney worked for Time magazine as a political editor before joining the White House, and he joined Amazon as a senior vice president in March 2015 after leaving the administration in the summer of 2014.... And elite Washington is comfortable with what it calls "the revolving door" -- the movement of government officials into lobbying, contracting or consulting jobs where they can exploit government connections for profit.... But much of what passes for normal in Washington is considered grotesque in the rest of the country.

[sataniccapitalist]

Obama Officials Are Living Large in Trump’s America

New reporting finds that Jeh Johnson, Timothy Geithner and others are making a fortune in lobbying and consulting deals.

[textsfromwestminsterredux]