Although Geithner repeatedly raised concerns about the failure of banks to understand their risks, including those taken through derivatives, he and the Federal Reserve system did not act with enough force to blunt the troubles that ensued . That was largely because he and other regulators relied too much on assurances from senior banking executives that their firms were safe and sound, according to interviews and a review of documents by The Washington Post and the nonprofit journalism organization ProPublica.While I don't know enough about Geithner's time at the Fed to provide a judgement as to his overall performance, there is nothing in this particular conclusion that would make me think anything less of the Secretary. But what about the notion that Geithner was too close to the big financial firms he was supposed to be watching? I believe this notion, and the conclusion of the ProPublica/Washington Post report, makes the mistake of confusing cause and symptom.
The root cause of Geithner's ineffectiveness as regulator, and the general ineffectiveness of the entire US regulatory regime, was the lack of political will to develop, maintain, and enforce effective regulation.
When I say political will, I am not talking about the 500 some odd people that make up the Congress and hold the office of the President. The real source of political will in a representative democracy is, of course, the voters.
An uninformed and uninterested electorate will always result in bad governance, regardless of the talents (or lack thereof) of specific officeholders.
What about the pernicious influence of special interests and money in politics? Both of these are corrosive to a healthy democracy, but both require a hothouse of voter apathy and ignorance in order to thrive.
What about the fact that the Fed is such an undemocratic institution? Again, this is a result, not a cause, of voter indifference. The Fed is a creation of our government and we are not powerless against it like some natural disaster. The Fed may be notionally insulated from political influence, but ultimate power still resides with the voters.
The fact of the matter is that neither Barack Obama nor Rush Limbaugh, Barney Frank nor Paul Ryan, Harry Reid nor Jim Demint, is going to come up with the one great idea that saves us from a repeat of the current crisis. Instituting an effective regulatory system that still allows for the kind of innovation and growth that powers the American economy is a necessary and difficult task that falls to the citizenry, not just those who happen to be in power at the time.
This is not meant to relieve Tim Geithner, or any other appointee or officeholder, from personal responsibility.
This is meant to note that the personal responsibility for good governance extends far beyond a few particular individuals to all those that hold the title of citizen. This is a responsibility that we neglect at our own peril.