Stockholm Syndrome

The following position by Geithner is an example of “Stockholm Syndrome”. Who do you suppose per chance has been presenting these arguments to him?

“Treasury Secretary Timothy Geithner has been adamant that creating a standing fund would enhance moral hazard and be viewed by the financial industry as an insurance fund that would insulate it from risky bets.”

To the contrary, a standing fund would provide funding that would allow the government to shut down a bad bank and shift its assets and liabilities to another entity, just as the FDIC does today. A banker who knows the government has the ability to take away their job will be more cautious than a banker who knows that his firm is TBTF.

Geithner could draw this same conclusion, but it would not be in his best long-term interests or future career prospects to oppose the investment banking community. Therefore whether consciously or unconsciously he will follow, he perceives that he must follow, their script.

It is simply not possible for people with conflicts of interest (such as a future lucrative employment opportunity) to effectively regulate an industry.

You know that it must be in the back of Geithner’s mind that he will land a nice job at a prominent financial institution so long as he does not anger them while in public service.

You also know that Summers remembers that $5 million part-time hedge fund gig that he got just before moving to Washington and he must think that future opportunities are certainly in store.

Wall Street bankers are masters at instilling their brand of callous greed in others.

I doubt many of us in Geithner’s position would have the courage to risk everything in order to do what is absolutely right. His attempt to find a way to please the industry while appeasing the public is pretty much human nature given the circumstances he is placed in.

There are very few Sheila Bairs in this world who will stand up for what is right as opposed to looking out first for their personal prospects.