Lessons in Sang Froid

Tim Geithner spoke at Dartmouth over the weekend. What did we learn?

For one thing, we learned that he is pretty sanguine about the debt-ceiling negotiations. “You’re going to see political theater,” he noted. “There will be six episodes of failure before people do the right thing.” Considering that a default on the debt would be a disaster, that’s good to here. He noted that no responsible person believes that the US can default its way back to fiscal stability, and that Congressional leaders are responsible.

In fact, several observers noted how calm he seemed. Compared to 2008, the debt-ceiling issues, combined with fears of a European debt rescheduling, seem like small potatoes. Yes, we need to rebuild the banking system, probably with more capital. And yes, we have 14 million unemployed, many of whom have the wrong skills for the jobs that are available. And yes, we’re facing a lot of uncertainty.

But Tim was at Ground Zero during the financial crisis. According to one reporter, there was a daily conference call with him, Ben Bernanke, and two Fed Governors. Seeing Bear Stearns fail, FNMA fail, AIG fail, Lehman fail, and The Reserve Fund fail didn’t help his blood pressure. We really did look into the abyss during those dark days.

So walkouts, speeches, grandstanding—they’re part of the act. We’re three acts into a predictable five-act play. In the end, responsible people act responsibly, he’s saying. Here’s hoping he’s right.

Douglas R. Tengdin, CFA
Chief Investment Officer
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