Calls for Treasury Secretary Timothy Geithner’s resignation have gone nowhere, but if he ever has to be replaced, I recommend George Zimmer.
Zimmer, 61, is the dapper guy in those Men’s Wearhouse commercials who says, “I guarantee it.”
This has become the Treasury Secretary’s primary role.
But Zimmer delivers this line with much more zest and conviction, even though Geithner gets in a lot more practice.
The U.S. government, at the peak of its bailout efforts, made $4.3 trillion worth of guarantees, said Elizabeth Warren, chair of the Congressional Oversight Panel. (Um. This is equal to more than one-third of the national debt.)
“It was not a guarantee situation that anyone would want to walk into,” she said. “The American taxpayer stood behind guarantees of high-risk assets held by institutions that in some case were potentially insolvent.”
She made these comments in a video accompanying Wednesday’s release of an assessment of TARP. (Check it out at )
I always thought a tarp was something you put over a 1978 Trans Am when it’s up on blocks, but apparently you can use it to cover most of the auto industry and anything else that looks like it’s overdue for a bankruptcy filing.
The $700 billion Troubled Asset Relief Program has backed auto makers, banks, Wall Street investment firms, homeowners, small businesses and, to some extent, consumers. But don’t be fooled by its tiny price tag because it was leveraged to make trillions of dollars worth of “I guarantee it.”
“That’s more than six times the total TARP allocation,” Warren emphasized. “We were very, very unlikely to lose most of that money, but the exposure was huge.”
You see, no matter how big a failure, or cheat, a corporate executive team turned out to be when the whole thing blew, the Treasury was amply willing to say “I guarantee it,” and dress them up in new suits.
Just like Zimmer.
“You may have noticed that CEOs aren’t guaranteeing much of anything these days,” the smartly bearded Zimmer says in a recent television commercial, as his camera pans to a newspaper headline that reads “Corporate Integrity in Question.”
“Well, I’ve been saying that for years. When you buy one designer suit, you’ll get one free. You’re gonna like the way you look. I guarantee it.”
This is why Zimmer is well-suited for the job.
“Guarantees have formed the single-largest plank of the government’s response to the financial crisis,” Warren said. “The effort may have signaled an implicit guarantee that the American taxpayer would bear any price and absorb any loss to avert a financial meltdown.”
The largest TARP guarantee was a $300 billion promise to back Citigroup Inc., a consortium of overpriced mergers and acquisitions with an imponderable pile of debt-backed securities that only a vote-grubbing politician would guarantee with other people’s money.
On another front, the Federal Deposit Insurance Corp. raised its insurance on bank depositors’ accounts to $250,000 from $100,000 to help prevent runs on the banks. The FDIC, however, has run its fund deep into the red and may soon run to the Treasury for a loan.
Our government also stepped in to guarantee money-market funds when some of them threatened to slide below the dollar invested. This guarantee expired on Sept. 18 – or did it?
Nobody is paying the government to guarantee money-market funds, but now there’s a free, implicit guarantee, Warren said. So the next time money-market funds are in trouble, people will expect the government to step up.
Implicit, but not actual, guarantees forced the U.S. government to take over mortgage lenders Freddie Mac and Fannie Mae at taxpayer expense. And now that implicit guarantees loom everywhere, guess what happens the next time we’re in trouble?
“The magnitude of the intervention in the market has rewritten the basic rules of our financial system,” Warren said.
“If they (companies) win, they keep the benefits. And if they lose, the taxpayer will back up their bad bets,” Warren said. “By putting taxpayer money on the line to cover a private company’s bad decisions, Treasury has crossed a threshold and left us in unknown territory.”
TARP and the government’s many other expensive responses prevented an economic calamity on par with the Great Depression, the Congressional Oversight Panel concluded.
But the home foreclosure crisis that started this mess continues. Commercial real estate is slowly following suit. Toxic debts still pollute balance sheets. Credit remains tight. Banks are failing at a rate not seen in more than 25 years. And unemployment has reached double digits.
OK. So the nation’s gross domestic product is growing again. But not much has really changed except for all those trillions worth of “I guarantee it.”
Men’s Wearhouse Inc., Houston, meanwhile, has been taking a beating on the stock market this week after forecasting a loss for the fourth quarter. It’s the usual softness endemic to any prolonged recession: Unemployed people don’t really need two suits.
Like Geithner, Zimmer can’t guarantee a profit. He can only guarantee the way you look.
Al Lewis: al.lewis@dowjones.com or 212-416-2617; blog:
