The name Tim Geithner has mercifully disappeared from the front pages, and instead has receded into the far more lucrative and circumspect confines of private equity behemoth Warburg Pincus. That doesn't mean that he is forgotten, and as the FT's Brussels Blog reveals [12], having "gotten its hands on... raw transcripts of discussions with Timothy Geithner, who was US treasury secretary at the time, about the eurozone crisis", Geithner was intimately involved in both the collapse and subsequent impromtpu "bailout" of Europe, which hinged on the biggest bluff of all time: Draghi's "whatever it takes."
Here is what the former Treasury Secretary had to say about that:
Geithner: [T]hings deteriorated again dramatically in the summer which ultimately led to him saying in August, these things I would never write, but he off-the-cuff – he was in London at a meeting with a bunch of hedge funds and bankers. He was troubled by how direct they were in Europe, because at that point all the hedge fund community thought that Europe was coming to an end. I remember him telling me [about] this afterwards, he was just, he was alarmed by that and decided to add to his remarks, and off-the-cuff basically made a bunch of statements like ‘we’ll do whatever it takes’. Ridiculous.
Interviewer: This was just impromptu?
Geithner: Totally impromptu…. I went to see Draghi and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.
Which of course explains why almost three years later, the OMT which was conceived as part of Draghi's consummate bluff, still doesn't exist and never will. It also explains why the central banks can never take their foot off the gas pedal ever again, as it would mean the ECB would finally have to make good on three years of promises, which as we all now know, were nothing but bluffs. In fact, the next time the ECB is taken to task and is forced to follow through with action, may be the last days of the Eurozone because by now it should be clear to everyone that Draghi is the paperst tiger in existence.
Then there is the US intervening in European politics and determining the fate of Berlusconi:
In his book, Geithner recounts that he told Obama: “We can’t have blood on our hands,” and pushed him to reject the Italian plan – something he did during a tense late-night meeting with eurozone leaders the FT recounted in a recent series on the crisis. Those events appear to have been blackened out in the transcript we have (the words “potential privilege” are stamped over the black-outs), but Geithner still provides some colour that was not in his book:
Geithner: [T]o be sympathetic to them, the Germans’ experience has been every time they buy a little bit of calm [on the] markets and the Italian spreads start to come down, Berlusconi reneges on anything he committed to do. So they were just paranoid that every act of generosity was met by sort of a “fuck you” from the establishment of the weaker countries in Europe, political establishment of those weaker countries in Europe, and so the Germans were just apoplectic. Sarkozy, who is trying to navigate between the Germans’ view of the crisis and the fact that France was suffering a fair amount of collateral damage, too, because Europe’s getting somewhat weak, he’s in election [campaigning]. He’s trying to figure out how to bridge this difference….
There’s a G20 meeting in France that Sarkozy hosts which was really incredibly interesting, fascinating thing for us and for the president and I’ll tell you just a few quick things in passing so we can come back to those things. The Europeans actually approach us softly, indirectly before the thing saying: “We basically want you to join us in forcing Berlusconi out.” They wanted us to basically say that we wouldn’t support IMF money or any further escalation for Italy if they needed it if Berlusconi was prime minister. It was cool, interesting. I said no….
But I really actually felt, I thought what Sarkozy and Merkel were doing was basically right which is: this wasn’t going to work. Germany, the German public were not going to support, like, a bigger financial firewall, more money for Europe, if Berlusconi was presiding over that country.
And finally, Geithner's candid take on Europe:
Geithner: I remember coming to the dinner and I’m looking at my Blackberry. It was a fucking disaster in Europe. French bank stocks were down 7 or 8 per cent. That was a big deal. For me it was like, you know, you were having a classic complete carnage because of people [who] were saying: crisis in Greece, who’s exposed to Greece?….
I said at that dinner, that meeting, you know, because the Europeans came into that meeting basically saying: “We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them,” was their basic attitude, all of them….
But the main thing is I remember saying to these guys: “You can put your foot on the neck of those guys if that’s what you want to do. But you’ve got to make sure that you send a countervailing signal of reassurance to Europe and the world that you’re going to hold the thing together and not let it go. [You’re] going to protect the rest of the place.” I just made very clear to them right then. You hear this blood-curdling moral hazard-y stuff from them, and I said: “Well, that’s fine. If you want to be tough on them, that’s fine, but you have to make sure you counteract that with a bit more credible reassurance that you’re going to not allow the crisis to spread beyond Greece and that’s going to require, you’ve got to make sure you’re putting enough care and effort into building that capacity to make that commitment credible as you are to teaching the Greeks a lesson….”
Interviewer: I mean was that, did you have this kind of foreboding like: oh my god, these guys are just going to…?
Geithner: Yeah. I had like a definite, and of course I, as I think I’ve said separately, I completely underweighted the possibility they would flail around for three years. I thought it was just inconceivable to me they would let it get as bad as they ultimately did. But the early premonitions of that were in that initial debate. They were lied to by the Greeks. It was embarrassing to them because the Greeks had ended up like borrowing all this money and they were mad and angry and hey were like: “Definitely get out the bats.” They just wanted to take a bat to them. But in taking a bat to them, they were feeding a fare that was in its early stages. There were a lot of dry tinders.
Which explains why Greece now has all the leverage to do nothing and to demand infinite bailouts from Europe.
And incidentally, where Geithner says "It was a fucking disaster in Europe", he was right. What's worse is that nothing at all has changed in the doomed Europe with an excess of "political capital [13]" which it turns out is a synonmic for "improvisation."
