Tim Geithner and the politics of bailouts: The unwinnable war

Posted: May 17, 2014 in economy
Tags: , ,

Tim Geithner didn’t originally plan to write a book. He changed his mind, he tells us in Stress Test, because “our response to the global financial crisis is still wrapped in myth, and haze and misperception.”Mr Geithner’s greatest frustration is his inability to persuade the public that saving the financial system was necessary to saving the economy. He couldn’t ask for better proof than the simultaneous appearance this week of a book by two leading economists taking issue with that central plank of his legacy.In this week’s issue, we both review Stress Test and devote Free Exchange to House of Debt, by Atif Mian and Amir Sufi. Mr Geithner’s book is part personal narrative and part treatise, laying out how he fought financial crises and why. Mr Mian’s and Mr Sufi’s book is an academic work laying out the case for why Mr Geithner’s approach (though they don’t associate it with him personally) was wrong.          Banking crises, by conventional thinking, are damaging because they cut off the flow of credit to business. Mr Mian and Mr Sufi dispute this view: The real cause of the post-crisis slump, they argue, was not the damage to the banks, but the run-up in household debt that came before, which became an anchor on consumption when home prices subsequently collapsed.They compile data and research that shows that economic …

via Economic Crisis http://ift.tt/1nSwvxY

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