It's cast-the-first-stone time in Washington. It happens every time a war or an economic recovery stalls. That's when the most immediate political need is for a scapegoat on whom to blame the country's troubles — economic, military or any other kind. And out come the Rock Chunkers all ready to start throwing.
Those given to assigning blame for the Crisis of the Moment never have a problem nominating an arch-villain. Herbert Hoover fit the bill for almost two decades. Whatever was wrong with the economy was his fault, just as all wars were the result of the munitions manufacturers. Congressional hearings became less like investigations and more like exorcisms. The aim wasn't to identify problems and propose solutions but to root out evil spirits.
For a while there, George W. Bush was to blame for all of America's troubles and, if he wasn't, surely Dick Cheney was. At least till the Surge they proposed worked in Iraq. The Rock Chunkers never did have the grace to admit they'd been wrong. Instead, they just fell silent. Or changed the subject to Hurricane Katrina.
Now, as economic problems linger at home, happy days are clearly not here again — no matter how many jobs have been saved, created or just imagined. And so the financial geniuses in Congress have turned their ire on the secretary of the Treasury, Timothy Geithner, and his senior partner in economic management, Ben Bernanke at the Federal Reserve.
Bankers always did make the best scapegoats when money is scarce. Or for that matter when it's so plentiful that inflation threatens to undermine the value of the currency. Or, as during the Carter Stagflation, both dangers threaten. Whatever the bankers do, have done, or propose to do, it's wrong. Or at least a congressional committee can be found to say so.
In the House, the Financial Services Committee wants to audit the Fed's decisions about which banks to save and which not. So much for the confidentiality that every central bank needs to remain effective, for the surest way to start a run on a bank would be to have the Fed release a list of all the ones it's worried about.
Nor is the committee happy about the way the Federal Reserve sets interest rates. The congressmen seem to think they could do a better job, which would be a dandy way to politicize the whole economy. One of the great advantages of having an independent central bank is that it is independent. And so not subject to political pressure, at least in theory.
Meanwhile, over in the Senate, the Banking Committee would relieve the Federal Reserve of the tedious job of supervising banks, which some of us thought was the Fed's principal purpose. That's almost as good an idea as proposing that the FBI no longer fight crime.
H.L. Mencken is credited with saying it: "For every complex problem, there is an answer that is clear, simple — and wrong." If unhappy with the economy, then just fire everybody responsible for policing it. Or at least haul them before congressional committees for a little abuse.
Secretary Geithner has made his mistakes, all right, and how. His big mistake, from which so many others sprang, was to believe that another Great Depression was upon us rather than just an old-fashioned financial panic. And that in response government needed to take over one industry after another — rather than just stick to stabilizing the country's banking system. That's how we got Government Motors and are about to get Government Medicine. Not to mention a government that wants to micromanage banks, set corporate salaries and bonuses, hire and fire execs, and, oh, yes, re-inflate the housing market. (Isn't that how we got into this mess in the first place?)
Mr. Geithner responded to congressional rants for his scalp by mounting a counter-rant of his own. When a GOP congressman from Texas demanded that he resign, Mr. Geithner fired back: "You gave this president an economy falling off the cliff."
Watching this secretary of the Treasury blame others for the country's economic problems, an innocent observer might never suspect that, for the five years before the Panic of '08 struck, this same Timothy Geithner had been president of the Federal Bank of New York — the outfit that's supposed to keep Wall Street from taking wild risks. Instead, he was cheering on the speculators as they took flyers on ever newer and chancier financial instruments.
Turn the clock back to May of 2007, the year before the ceiling fell in on all those clever hedge funds and their oh-so-ingenious bundles of housing loans that were about to go disastrously bad.
"Changes in financial markets," Mr. Geithner assured a conference on the subject at the time, "have improved the efficiency of financial intermediation and improved our confidence in the ability of markets to absorb stress."
What, Timothy Geithner worry? On the contrary, as he also told the conference, "The larger global financial institutions are generally stronger in terms of capital relative to risk. Technology and innovation in financial instruments have made it easier for institutions to manage risk."
Really? Compared to Timothy Geithner, or at least the one in May of 2007, Pollyanna was a sober realist.
Now he says it was others who drove the economy over a cliff, especially if those others now demand his resignation.
Yet our secretary of the Treasury, for all his gaffes and hasty over-reactions, did not make the worst mistake in the midst of a financial panic, and that would have been to do nothing. At such times, it is important to do [ital]something — [unital]even if it's wrong. So people know the country still has a government and, even more important, one capable of taking action.
In the Panic of 1907, all it took to restore stability was one private citizen with the resources, the influence, the intelligence, the know-how and the willingness to use it: John Pierpont Morgan. He also had the experience for the job, for the same financier had once before saved the U.S. Treasury — during the Panic of 1893.
During the Panic of 2008-09, neither Timothy Geithner nor Ben Bernanke has been a J. P. Morgan, but at least they didn't just stand there, like Herbert Hoover's paralyzed secretary of the Treasury, Andrew Mellon. All he could do was just keep repeating: "Liquidate, liquidate, liquidate!" Stocks, real estate, farms, banks, everything had to go. He seemed to be proposing a fire sale of the whole country. As advice, Mr. Mellon's counsel amounted to a recipe for disaster. And despair.
Let it be said that Secretary Geithner and his ardent critics do share some common ground. Both agree that the economy's problems are the other's fault. Wasn't there a time when leaders tried to solve problems rather than allot blame? Well, maybe Alexander Hamilton's. But that was long ago, and America's first secretary of the Treasury had a country to build rather than divide.
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