I posted yesterday on Ron Suskind’s assertions that Treasury Secretary Timothy Geithner killed bank nationalization plans with bureaucratic foot dragging, so it’s only fair to note that Geithner addressed this on CNBC yesterday:
SECRETARY TIMOTHY GEITHNER: There is no truth to that, and I have not read that book. But I lived that reality. I lived the original for that period of time. And based on the reports I’ve seen, it bears no resemblance, those stories in that book bear on resemblance to the reality we lived– to the debates we had, to the choice that the president made.
And I think if you look at what we did in that early moment of crisis, this president did– he acted with enormous political courage at a very difficult moment and did very effective things to help pull us back from the edge of the abyss and help stabilize the financial system at very, very low cost much more effectively than anybody thought we could. And if you look carefully around the world now, you’re seeing people, somewhat late, try to replicate that initial success.
My understanding of the administration’s reasons for ultimately coming down on Geithner’s side are essentially what he alludes to here. Rather than some concern about FDIC leaks, the concern was that an approach based on the Swedish model would be extremely expensive requiring a new “bailout” that would have dominated all of 2009. The center-right Swedish government that oversaw bank nationalization in the early 1990s was dealing with fewer veto points and didn’t have an ambitious policy agenda involving a substantial expansion of the welfare state. Suskind, meanwhile, doesn’t particular address the policy issue here — did the administration’s approach work? The Treasury view is that it did work, and that though the American economy has some serious problems, those problems don’t include an undercapitalized banking system.