I wish people would stop asking me for insight into what Tim Geithner has been thinking since June 2009. I think I understand the President–you work 90 hours a week, 30 of which are ceremonial, 30 of which are coalition maintenance, and 30 of which are policy, of which macroeconomic and financial policy are only one of ten important issue areas. Thus if you are a president you spend three hours a week on macroeconomic and financial policy–about 30% of what we expect freshman taking “Principles of Economics” to spend. You can’t master any of the technical issues. You have to trust advisors.
But Geithner? The current theory is that he really did not understand and did not want to understand the difference between 1993 and 2009–that there is a big difference between a situation in which there is a threatened run from and one in which there is an active run to Treasuries, and a situation in which the clean-up of the financial mess is already well in hand and one in which it needs to be undertaken.