The public servant payoff and the new normal

Geithner is not a financial expert, but that was no bar to making him the head of the NY Fed or Treasury. The bankers and their political allies put the Geithners of the world in positions of increasing power not despite their weaknesses and failures but because of their willingness to aid the bankers even when doing so will betray their office. Geithner “has been a public servant” as long as one recalls that in this world this means being made a millionaire to lead a mostly private bank (the NY Fed), owned and run by and for the big banks, into its worst supervisory failures in its history at the (massive) expense of the public – which the bankers and the NYT term as being a “servant” of the “public.” Ryan Grim has a nice piece emphasizing that Geithner, as Treasury Secretary, issued the insipid regulation that was weakened to the point that it would please the private equity industry.

Geithner was a Republican who switched to an independent as a fig leaf to ease Obama’s appointment of him as Treasury Secretary, but firms like Warburg Pincus care little about party. They largely backed Obama in 2008 and largely backed Mitt Romney in 2012. What they want from Geithner, as even the NYT admits, is someone who excites wealthy foreign investors about the prospect of using his political connections on their behalf.

But something else intrigued me as soon as I heard that Geithner was cashing in at Warburg Pincus – I remembered that I had debated a former leader of that firm about Geithner. (Details are here, here, here and here.) “Bo” Cutter was enraged that folks like me were criticizing Treasury Secretary Geithner and Obama’s decision to promote him.

Warburg Pincus has had Geithner’s back for at least four years. The revolving door is powered by reciprocity, and Geithner had had Wall Street’s back for a decade.

Spend any time around monetary officials and one word you’ll hear a lot is “normalization.” Most though not all such officials accept that now is no time to be tightfisted, that for the time being credit must be easy and interest rates low. Still, the men in dark suits look forward eagerly to the day when they can go back to their usual job, snatching away the punch bowl whenever the party gets going.

But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?

You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.