The Sydney Morning Herald has an absolutely devastating expose of Treasury Secretary Geithner as the former Australian Prime Minister during the Asian financial crisis of the 1990's relates how Geithner's actions destroyed the Indonesian economy - a feat thought impossible at the time:
In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner's record in handling the Asian crisis: "Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis."
In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.
Geithner thought Asia's problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.
The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.
But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans - Thailand, South Korea and Indonesia - all had sound public finances.
The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.
But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.
Keating continued: "Soeharto's government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power.
This is the guy who was so valuable, so necessary to economic recovery that we were supposed to overlook the fact that he is a tax crook? Keating also believes Geithner ruined the reputation of the IMF (although to be fair, there are many reasons why the IMF is feared and hated by many countries):
Worse, Keating argued, Geithner's misjudgment had done terminal damage to the credibility of the IMF, with seismic geoeconomic consequences: "The IMF is the gun that can't shoot straight. They've been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose."
Geithner is not only underperforming, he is not performing at all. He has literally done nothing yet to show that choosing him as Secretary of the Treasury appears now to have been a sop to Wall Street who had a reasonably good impression of him.
But what should frighten all of us is that this bank crisis is building to the point where unless something is done soon, several states in Europe will be forced into some kind of exotic and surreal insolvency with untold consequences for our own banking system. And Geithner has no senior staff because of the incompetence of the administration's vetting procedures, meaning that his "Financial Stability Act" (the completed program having been promised more than a month ago) - a plan with little more than a name and a nebulous outline - hasn't even been fleshed out as yet.
It may be getting close to the point where Geithner will have lost all credibility and should be thrown under the bus.