Timothy Geithner Saved Wall Street, not the Economy

[VV note: For in-depth info on this subject, read Neil Barofsky's Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street and Sheila Bair's Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself.]

Dean Baker, HuffPost, Posted: 01/28/2013 2:55 pm

The accolades for Timothy Geithner came on so thick and heavy in the last week that it's necessary for those of us in the reality-based community to bring the discussion back to earth. The basic facts of the matter are very straightforward. Timothy Geithner and the bailout he helped engineer saved the Wall Street banks. He did not save the economy.

We can't know exactly what would have happened if we did not have the TARP in October of 2008. We do know there was a major effort at the time to exaggerate the dangers to the financial system in order to pressure Congress to pass the TARP.

For example, Federal Reserve Board Chairman Ben Bernacke highlighted the claim that the commercial paper market was shutting down. Since most major companies finance their ongoing operations by issuing commercial paper, this raised the threat of a full-fledged economic collapse because even healthy companies would not be able to get the cash needed to pay their bills.

What Bernanke neglected to mention was that he personally had the ability to sustain the commercial paper market through direct lending from the Fed. He opted to go this route by announcing the creation of a Fed special lending facility to support the commercial paper market the weekend after Congress voted to approve the TARP.

(More here.)