A Bear Too Far

If everyone is entitled to only one truly brilliant insight during his or her career, the New York Fed‘s President Tim Geithner may be pushing his luck.

Geithner is a career civil-servant who took over at the New York Fed in 2003. A few years ago he made banks standardize their credit default swaps. The result was spectacular. The growth of these swaps has allowed banks to diversify, selling their risk to parties who want it, like hedge funds or others.

Some say that the Fed’s arranged takeover of Bear Stearns was Geithner’s idea. Unlike standardizing swap language, it’s pretty controversial. For example, it encourages investors to relax when they do business with a big dealer. After all, if the Fed is the backstop, why worry?

Tim’s rise has been meteoric. The 46-year old Asian Studies major is now one of the Masters of the Universe. Here’s hoping that his big Bear deal doesn’t prove to be a bridge too far.

Douglas R. Tengdin, CFA
Chief Investment Officer
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