The 2 page article on Secretary of the Treasury, Timothy Geithner, in the NY Times of April 27 ends with his definition and challenge of financial crises. He is reported as saying: “All crises are a fight over how much losses the government ultimately takes on.” And every decision “requires we balance how to achieve the most benefits in terms of improving confidence and the flow of credit at the least risk to taxpayers.”
A financial crisis and, especially the present one with its global impact, is more than a discussion of how much government funding is needed. It is to be a discussion of causes and consequences and of strategies to overcome the crisis. For him to preempt that discussion by bringing it back to government bailouts is counterproductive and does not inspire confidence. It is improving confidence that he thinks is to be balanced with the “flow of credit at the least risk to taxpayers.”
With his training in international finance, experience in the Clinton Administration, at the IMF and as president of the NY Fed he seems to be captive of a narrow angles on the crisis. He is so much part of the mindset of Wall Street and its big commercial and investment banks that he seems unable to see the crisis for what it is. It is the logical outcome of an industry that since the 1980s was able to become creative in taking enormous risks with other people’s money. This risk-taking was made possible by pushing Congress to relax oversight and to reduce reserve requirements. As a matter of fact, even he himself as president of the NY Fed wanted them further reduced as the article shows. At that time, May 2007, Citigroup and JPMorgan were pushing for these reductions because “they said would make them more competitive.” Mr. Geithner believed that “the standards would make the banks more sensitive.”
Part of resolving the financial crisis in the US and globally is to reevaluate the fractional reserve system all together rather than playing with a few percentage points in raising capital requirements. It was started in the privately owned Bank of England in the 17th century and imported, under duress, to colonial America. As shown in monetary histories of the US such as the one of Murray Rothbard there has been a constant struggle, particularly in the middle and late 1800s to have the money creation function returned to the public sector. However, the large Wall Street banks managed to establish a privately owned central bank which for strategic reasons was a called the US federal reserve. Its twelve privately owned regional banks continued to oversee the small state banks which are not part of their board of governors. It is not only the US monetary structure that has to be changed, but also the central banks of most nations that have the same ownership and fractional reserve banking characteristics. A start with this transformation can be made by having those central banks agree on a non-national reserve currency which, in consideration of the overwhelming importance of the climate crisis, is to be based on a system of reducing GHG emissions. The Tierra Solution and its TIMU Architecture has been presented for several months as a plausible way forward.
Thomas Friedman in today's NY Times called "The Price Is Not Right" makes the excellent point the mispricing and externalization of costs to the economic and Mother Nature are the major reasons of the world's deplorable predicament where millions of humans and other sentient beings suffer and Mother Nature is being afflicted by human-caused degradation of her basic processes, that is the flowing of energy, the cycling of matter and the webbing of life.
Let's hope that the G20 heads of state and their finance ministers and the IFIs consider London and Copenhagen together, If they do this, they may also come to the conclusion that the Tierra Solution and its TIMU architecture make sense. It will finally build the confidence and trust that is needed, particularly if they accept to remove the fractional reserve system from their privately owned commerical banks.
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