Saturday, December 20, 2014

Geithner doctrine: Why US doesn't bust bad bankers

Says Neil Barofsky, ex-TARP cop

Geithner doctrine: Why US doesn't bust bad bankers

Treasury Secretary Timothy Geithner announced this week that the Obama Administration would lift limits on executive compensation established during the economic crisis, but would push to give shareholders more of a say in how corporate leaders are paid. (AP Photo / J. Scott Applewhite)
Treasury Secretary Timothy Geithner announced this week that the Obama Administration would lift limits on executive compensation established during the economic crisis, but would push to give shareholders more of a say in how corporate leaders are paid. (AP Photo / J. Scott Applewhite)

"Now that Tim Geithner has resigned as US Treasury secretary, it is time to survey the damage wrought from four years of his approach to the financial crisis," writes Neil Barofsky, former inspector general of the government's TARP bank bailout program, in the Financial Times, via NakedCapitalism here.

"The 'Geithner doctrine' made the preservation of the largest banks, no matter the consequences, a top priority of the US government. Aside from moral hazard, it has also meant the perversion of the US criminal justice system. The US faces a two-tiered system of justice that, if left unchecked by the incoming Treasury and regulatory teams, all but assures more excessive risk-taking, more crime and more crises...

"Instead of seeking deterrence and justice, the US government increasingly appears to (be) seeking a result that has a minimal impact on the target bank but will generate the best-looking press release. Some banks today are still too big to fail – and they are still too big to jail...

"And, of course, it is seen in the stunning dearth of criminal prosecutions arising out of the crisis...  The same captured regulators who had blindly advanced bankers’ self-serving calls for a “light touch” before the crisis... unsurprisingly embraced the Geithner doctrine afterwards...

"The Geithner doctrine, perhaps justified by the conditions in 2008-09, has planted deep roots in our system of government...

"The [Department of Justice's] fear of destabilising the global economy through aggressive prosecutions may indeed be well-founded. But that must not be the end of the story.

"To reclaim our system of justice, the global threat posed by the failure of any of our largest financial institutions must be neutralised once and for all. They must be reduced in size, their safety nets must be dramatically constricted and their capital requirements enhanced far beyond the current standards. Then, and only then, can the same set of rules apply to all."

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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