The arrogance of financial elites

Geithner’s predisposition toward Wall Street is most apparent when he describes his opposition to bailing out other industries. On the question of whether to bail out over-leveraged homeowners, Geithner suddenly sounds like a moral-hazard fundamentalist: “We had to be careful not to create perverse incentives.” His concern for innocent victims justified letting wrongdoers escape harm on Wall Street; but for homeowners, he took precisely the opposite approach: the government could not be seen “subsidiz[ing] borrowers who splurged on overpriced McMansions,” even if, under the resulting policy, “inevitably, some innocent victims of the crisis would have to move into cheaper homes or rental properties.”

Nor would Geithner consider bailing out the auto industry. At a TARP oversight hearing, Elizabeth Warren pressed him to explain why the government would bail out Wall Street but not Detroit. “The financial industry is very different from the auto industry and every other industry,” he writes, since banks are much more dependent on public trust in their liquidity. But Geithner’s actions demonstrate how he approached the two industries with fundamentally different instincts and sympathies. When the public expressed outrage toward bailed-out bank CEOs, Geithner blanched at what Bill Clinton called their “bloodlust,” agreeing with the former president that the people were “just too angry to be appeased.” Yet just pages later, Geithner takes pleasure in the administration’s effective firing of General Motors CEO Rick Wagoner. “If anything, that move increased my confidence in Team Auto,” he writes, because it reflected “an appropriate disdain for its leadership’s unwillingness to change.”

Geithner admits that after a while, even bankers began stating publicly that Washington was on their side. “We’re all in this together,” Citigroup CEO Vikram Pandit told the press at one White House meeting. Geithner claims that this was “not quite the message the White House wanted,” but the White House made similar statements at this meeting. “The President emphasized that Wall Street needs Main Street, and that Main Street needs Wall Street,” press secretary Robert Gibbs summarized, “that everybody has to pitch in; that we’re all in this together.”