Geithner's view from the top of the bubble

Darren Wamboldt

Article Highlights

  • What a careful, informed, balanced & intelligent discussion of risk management tells us about the price of extreme risk.

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  • Geithner’s Feb. 2006 speech seemed plausible at the time, but reflects an obliviousness to looming disaster.

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  • Geithner’s view from the top of the bubble shows how difficult it is to anticipate how big the price of risk will be.

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On February 28, 2006, Timothy Geithner —  then president of the Federal Reserve Bank of New York and now secretary of the Treasury — addressed the topic of risk management in the U.S. financial system, in a speech to the Global Association of Risk Professionals in New York. It was a few months before the very top of the massive housing bubble. How did things seem when viewed from the top?

“We are now in the midst of another wave of innovation in finance,” he observed. “These developments provide substantial benefits to the financial system. Financial institutions are able to measure and manage risk much more effectively.”

“These changes,” he continued, “have contributed to a substantial improvement in the financial strength of the core financial intermediaries and in the overall flexibility and resilience of the financial system in the United States. And these improvements in the stability of the system … have probably contributed to the acceleration in productivity growth in the United States and in the increased stability in growth outcomes.”

Read the full text of the article on The American.

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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