The Edmond Sun


May 30, 2014

THE ASTUTE INVESTOR: Revisionary history?

Geithner’s book needs dose of reality

EDMOND — As you may have heard, the financial world is all abuzz about former New York Fed President and Treasury Secretary Tim Geithner’s book titled “Stress Test.”  To be fair, it’s actually quite a fascinating and well-written book about what went on behind the scenes during the financial crisis of late 2008.

Poor little Timmy. To hear him tell it, we were close to blood in the streets, empty ATMs and people hiding money in mattresses. These are the dire things from which Geithner saved us, at least according to him.

All hail hero Tim Geithner! Or not. To me this is a little like giving an arsonist a medal for putting out the fire that he started. Of course, he’s not entirely responsible and he had lots of help from people like former Fed Chairman Alan Greenspan and Ben Bernanke, and former Treasury Secretary Hank Paulson. But, Geithner wants to rewrite history.

You might recall that Greenspan laid the groundwork that made the subprime fiasco possible. And in 2007 Ben Bernanke assured us all the subprime crisis was contained. My favorite was in 2007 when bazooka Hank Paulson asked Congress for permission to purchase about $700 billion in “troubled assets,” but only if necessary. His reasoning, as he described it to Congress, was that if you have a bazooka in your pocket and everyone knows it, you won’t have to use it. Next thing we knew it looked like the shootout at the OK Corral.

While the bailouts and handouts Geithner pushed through the economy are now five to six years in the past, many of us still remember them, and we don’t regard them fondly. (If you’ve read any of my past columns, you know that I’m not a fan.)

But now Geithner is on a mission to sell books and resurrect his image. I guess being thought of as one of the main guys who forked over billions of taxpayer dollars to bankers and corporate mavericks doesn’t feel so good.

So he’s taken to the airwaves and pages to set the record straight — or should I say, adjust the record to his view. There is his view and then there is reality. In The Wall Street Journal on May 13, 2014, Geithner pointed out the possibility of utter collapse that hung over the financial system in late 2008, and how that eventuality was avoided only because of the extraordinary measures he, Paulson and Bernanke took. Without their heroic efforts, we were well on the way to repeat some of the worst parts of the Great Depression: shantytowns, soup lines, and a severe retrenchment in the banking system brought on by bank runs.

However, this ignores just a few things. We did away with soup lines and shantytowns by instituting unemployment insurance, which put the checks in the mail. States handle this system, but it was supplemented by federal laws that extended benefits from 27 weeks up to 99 weeks in the hardest-hit areas.

As for bank runs, that’s what deposit insurance is for, and it works. While there is a conversation to be had about the efficacy of deposit insurance and whether it motivates banks to be as risky as the laws allow, it’s evident that depositors weren’t running for the doors, even as banks went under. Depositors knew their money would be available at the end of the day.

Bailing out poorly managed banks did nothing to address either of these situations, no matter what Geithner claims. His main point in the book is that, in times of crisis, regulators have to do what is wildly unpopular to save the system so the innocent victims can be rescued.

I disagree. The reason the bailouts were so unpopular, and remain so today, is because the efforts didn’t rescue the little guy. Wiping out the stock and bondholders of Citigroup, Bank of America and Bear Stearns would have been painful for some, but certainly not a catastrophe for all. So instead, we not only left the bad companies standing, we left the bad actors in charge and handed them billions of dollars. Now the world knows that if anything happens to shock the financial system in the future, the U.S. government will come running with a bucket of taxpayer cash to put out the fire.

Moral hazard —  where one profits when things are good but doesn’t suffer when things are bad — is alive and well, witnessed by the fact that the worst offenders have some of the lowest borrowing costs when taking on new debt, and their stock prices are dramatically higher.

It’s been said that the financial crisis was a depression headed for Wall Street, not Main Street. That’s not entirely true. While Wall Street would have (and should have) suffered more if the financial institutions had been allowed to implode, there was still a deflating housing and property bubble that swept across the nation.

What’s so frustrating about the way the crisis was handled is they singled out for saving the exact people and firms that had created much of the crisis! We would be much better off today if the main thrust of the downturn had been allowed to take its course, protect depositors in banking institutions, and letting the rest of the chips fall where they may.

The drop would have been deeper, but the rebound would have been on more solid footing, with lending institutions and investment banks clear on what the word “risk” actually means and who takes it. Let’s hope next time it will be the people taking the risk who get the rewards and the losses, not the taxpayers.  Thanks for reading.

NICK MASSEY is a financial adviser and president of Householder Group Financial Advisors in Edmond. Massey can be reached at Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment adviser.

Text Only
  • City spends $1.7 million on ITS

    Public safety will benefit by the Intelligent Transportation System with its implementation by the City of Edmond, said Steve Commons, assistant city manager.
    More vehicles are added to traffic volume as Edmond’s population grows. ITS connects all of the city’s traffic signals in order to improve traffic flow in present time with greater efficiency, Commons said Wednesday.
    “Some of that can be done through computer automation that tracks how traffic is changing,” Commons said.

    July 30, 2014

  • Downtown Master Plan accepted by council

    The 2014 Downtown Master Plan Study was accepted by a 3-0 vote Tuesday evening by the Edmond City Council.
    Fort Worth-based consulting group Freese and Nichols presented their final update to the 1998 Downtown Master Plan. The city hired the group at a cost of $300,000 to make recommendations for future development of Broadway in the central business district.
    “There are clearly some short-term (parking) options that we feel should move forward,” said Cody Richardson, of Freese and Nichols consultants of Fort Worth. “Better signage at existing parking lots.”

    July 29, 2014

  • Lambrecht Construction to build office

    The commercial site plan of a physician’s office was approved recently by the Edmond Planning Commission by a vote of 4-0.
    Lambrecht Construction plans to build the office at 3917  E. Covell Road in the Fairfax Business Office, north of Covell and west of Sooner Road, said Bob Schiermeyer, city planner.

    July 29, 2014

  • jc_ITS map.jpg City to improve traffic flow

    The Edmond City Council this week approved a services agreement with Electronic Technology, Inc. For the  installation of Intelligent Transportation Systems’ video wall system at a cost of $314,620. The vote was 3-0.
    ITS is a fiber optic, wireless or hybrid communication system of monitoring road events and equipment in the field, data archiving and predicting traffic volume, said Kent Kacir, an engineer with Kimley-Horn and Associates Inc.

    July 29, 2014 1 Photo

  • sales tax holiday.jpg Oklahoma sales tax takes a holiday

    Beginning at 12:01 a.m. on Friday, Aug. 1 and ending at midnight Aug. 3, Oklahomans will be able to participate in a sales tax holiday giving shoppers the opportunity to purchase certain clothing and shoes free of sales tax.
    Yes, retailers may not charge tax, including state and local sales taxes on items that are tax-exempt during the sales tax holiday weekend. The sales of clothing and shoes priced at less than $100 are exempted from sales taxes.

    July 28, 2014 1 Photo

  • Karan & Rwanda.jpg Peace through Business empowering women entrepreneurs

    Peace Through Business is part of the Institute for Economic Empowerment of Women (IEEW) based in Oklahoma City. It is a program that connects small business entrepreneurs in Afghanistan and Rwanda with business owners in Oklahoma. One such entrepreneur found out about the program from a friend, applied, and was accepted to take part in this year’s session.
    Upon earning a master’s degree in Civil Engineering from the Universite de Sciences et Technique de Lille in Belgium, Lyliose Nduhungirehe began her career working for a construction company in Brussels, but she quickly switched paths to Information Technology.

    July 28, 2014 1 Photo

  • Anderson Properties continues to grow

    Berkshire Hathaway HomeServices Anderson Properties recently announced the acquisition of Tulsa-based Prudential Alliance Realty, an eight-office, 150-agent brokerage operating in Tulsa and Oklahoma City and Edmond.
    The transaction gives Anderson Properties, a full-service real estate agency a total of 38 offices and more than 600 agents.

    July 28, 2014

  • Logan County pays off jail tax early, seeks new one

    Logan County is paying off a sales tax ahead of schedule and needs a new one to be able to afford funding jail operation and maintenance, officials said.
    Citizens vote on the county sales tax which is split for redistribution by state law. The tax is collected by the Oklahoma Tax Commission and redistributed back to the county as specified by voters.
    In 2005, citizens passed a 10-year sales tax, scheduled to end next month, to fund the building, operation and maintenance of the county jail, which operates on a $1.3 million budget. Jail capacity is 188 without anyone in a holding cell or a temporary bunk. Thursday it was holding 130 inmates, said Logan County Chief Deputy Richard Stephens.

    July 26, 2014

  • Edmond School District’s change orders anticipated

    When building new schools and classrooms there may be additional costs, but when renovating older buildings those costs can more than double, according to a Edmond School District official.
    “When remodeling, you have unknown and hidden costs and you need to include in your budgeted funds for the built-in items you can not see,” said Bret Towne, Edmond’s associate superintendent of general administration.

    July 25, 2014

  • Planning Commission approves rezoning

    The Edmond Planning Commission this week voted 4-0 in favor of rezoning from a single family district.  Peter and Kimberly Roberts made the request to allow a planned unit development on the southeast corner of Jackson and Lincoln Avenue, said Bob Schiermeyer, city planner.
    “They would like to have D-2 family (neighborhood commercial) zoning for duplexes, 14,000 square feet,” Schiermeyer said. “They can put four units on the property.”

    July 25, 2014