How Vindicated is Tim Geithner?

David Brooks has a good column today arguing that Timothy Geithner’s approach to the financial crisis has been vindicated and that actually one of the most roundly criticized aspects of the Obama administration’s approach has worked out well.

He makes strong points, but I would have tempered this a bit. Brooks writes that it “now seems clear that nationalization would have been an unnecessary mistake — potentially expensive and dangerously disruptive.” But he also notes:

In the next few months, Geithner will be confronted with a cross-cutting set of pressures. First, the need to reduce the deficits, which is uppermost on his mind. Second, the rising populism in Congress, which has to be battled sometimes and appeased sometimes by an administration that hopes to get things passed. Third, intense public cynicism about government, which means that every debate is washed in negativity.

Most important, there’s the jobs situation. If job growth returns, that will be a sign that the recovery is normal and Geithner and the administration can return to a more moderate path. If employment does not rebound or the economy double dips, that will be a sign of systemic problems. Geithner and his colleagues will probably adopt a much more activist posture and have to throw their lot in with the left.

I think these challenges underscore the fact that even though Geithner’s approach worked a lot better than his critics were inclined to say*, they also haven’t worked all that well. The unemployment rate is much better than people feared it would have been without a financial rescue, but it remains unacceptably high. And the problematic political situation seems to me to be largely a direct result of the government’s failure to capture a larger share of the financial upside associated with post-TARP large financial services firms. The way the Chrysler/GM bailouts were structured, if either firms becomes wildly successful in the future, the US taxpayer will get a very handsome payout. But the services rendered to Goldman Sachs and JP Morgan and the rest were not similarly oriented. The TARP money was “paid back” but the taxpayer hasn’t gotten anything resembling a fair share of the upside. This has created a situation in which it’s very difficult for the government to take further steps in really any direction.

* Also note that one reason Geithnerism has worked out better-than-expected was that he actually wound up abandoning his much-criticized PPIP scheme.