Geithner Says All Big US Banks Would Have Failed

It may be that Treasury Secretary Tim Geithner needs to take a revisionist’s view of history to support his attacks on the large bonuses Goldman Sachs (NYSE:GS) and other banks are about to pay their top executives.

Geithner tells Bloomberg TV that among the US firms hit by the credit crisis  “none of them would have survived a situation in which we had let that fire try to burn itself out.” Put another way, if his predecessor Mr. Paulson and Fed chief Ben Bernanke had not forced TARP funds on Goldman and every other large financial firm even those that appeared prepared to make it through the credit crisis would not have.

It has become increasingly important for Geithner and many members of Congress to remind Wall St. and the public of the importance of the TARP initiative, even though it is barely a year old. The TARP has become the government’s Sword of Damocles, a constant reminder that the entire financial word was in peril in late 2008.

Would Goldman have made it on its own? No one can answer that and Geithner’s view is driven by his agenda to control Wall St. pay more than it is a clear view of history. Geithner can claim that he had a ring side seat during the Wall St. crisis. He was the president of The Federal Reserve Bank of New York at the time and would have been in almost every meeting between the government and the large banks.

Goldman has a persuasive argument that Geithner’s argument cannot be extended to its situation at the end of 2008. Warren Buffett put $5 billion into Goldman to bolster its capital base in September of last year. It is unlikely that he would have taken that risk if his analysis showed that Goldman was facing a catastrophe. Certainly his action gave Goldman the ability to say that it should not be compared to weaker firms like Bank of American (NYSE:BAC) or Citigroup (NYSE:C).

The fact that Goldman was the most healthy of Wall St.’s firms and the least likely to have failed damages Geithner’s attempt to curtail financial industry compensation. Goldman will pay out the biggest bonuses this year so that the Treasury Secretary’s analysis almost certainly does not apply to it erodes the foundation of his reasoning.

Douglas A. McIntyre