The Titanic Hubris of Geithner

The rationale for confirming the appointment of Tim Geithner for Treasury Secretary was that he was "uniquely qualified" to handle the financial crisis the US was facing (even though he could not manage to follow the prompts on Turbo Tax).  It's as if they were repeating the mantra the manufacturers of the Titanic coined "Even God Himself could not sink it!"  Well, God didn't have to.  It only required a piece of ice and a thirst for fame.

This article gives me a sense that this is also the hubris demonstrated in the Geithner appointment and confirmation.  Referring to Geithner's involvement in the 1997-98 IMF handling of the Indonesia finacial crisis, Paul Keating, a former Prime Minister of Australia, comments:

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

Geithner thought Asia's problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.

The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.

But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans - Thailand, South Korea and Indonesia - all had sound public finances.

The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.

But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.

Keating continued: "Soeharto's government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power."

Exactly who was the "gigantic fool"? It was, obviously, the man who wrote the program, Geithner, although Keating is prepared to put the then managing director of the IMF, the Frenchman Michel Camdessus, in the same category.

HT: Hot Air