Treasury Secretary Timothy Geithner discusses the burdens of his position, why he felt it was necessary to bailout the financial system and the paternal role taken by the federal government:

Ultimately, I believe the economy would have been in an awful, terrible state for 6-12 months had insolvent financial institutions been allowed to fail. As former Treasury Secretary Hank Paulson suggested, unemployment may have reached 25%. (1) The Federal Deposit Insurance Corporation (FDIC) would have only been able to repay a portion of lost bank account balances. With a void in the financial system of that magnitude, businesses wouldn’t have received loans to meet short-term obligations, expand or fund start-ups. (But it should be noted that banks were not making loans anyway, even after receiving bailout funds. I would’ve done the same thing if I owned a bank.) Life would have been rough, to say the least.

But when a paternal government wishes to quell the people’s pain, do they simply prolong it? Geithner acknowledges in the video that taxpayers should be outraged by the bailouts, as well as banks pushing the system to collapse, but given all other alternatives, he says it was best for us:

“We looked at all alternatives and there was no alternative, except default and collapse, [a] much greater cost and expense to the taxpayer to the one we chose, and we think we did what was in the best interest of the public and the taxpayer, and have an outcome today which is much less damaging because of what we did there.”

It’s easy to see why Geithner and the brain trust behind the government intervention of Henry Paulson, Ben Bernanke, George Bush, Barack Obama and company, would feel this way. The scenario I painted above speaks for itself. The problem is that the “outcome today” is not that amazing either. Underemployment was at 17.6% in December; unemployment at 10%. Probably more important is the fact that the original problems really haven’t been fixed. Toxic debt is still weighing down the bank’s balance sheets. Housing is still overvalued. The United States consumes, not produces. Entrepreneurs have no certainty of what government action will be moving forward. And all of this with pledges on the taxpayer’s behalf for roughly $11 trillion in bailouts and stimulus. Click the link for a breakdown which includes all of the various programs and initiatives.

The economy is not in a position to thrive. Which, frankly, is what I want, Mr. Geithner. An economy that can grow for the long haul, in a sustainable trajectory free from bubbles. So it’s not only that we have a right to be outraged by the government actions, and inactions prior to the collapse, and the ensuing government response. It is also true that trading 6-12 months of Armageddon for potentially years of an only somewhat crappy situation, is not everyone’s option of choice. Some people actually want a sound economy.

Banks began collapsing in March of 2008. If the banks would have been allowed to fail, toxic home loans, unrecorded derivatives, and credit default swaps would have been liquidated; the system flushed clean. Other banks still standing would have swooped in and taken the fallen bank’s infrastructure: buildings, technology, etc. The government could have assisted in fast-tracking the bankruptcy process. It is possible the financial system could have been fully revamped, and ready to actually start underwriting loans by 2009. Surely they would be back on their feet by now. Had the government not been spending its time propping up overvalued home prices, maybe buyers would be purchasing excess housing inventories by now.

The answer to any dilemma is almost never covering up the real problems. The bailouts are certainly unfair, as Geithner points out. But so is life. The greed and bailout culture reveals a values crisis in this country. Couple that with an economy in no position to thrive for the long-run and it’s difficult to be optimistic about our leadership. The people will survive and figure it out. We have no other choice. But I gave up on the two-party system long ago. It has failed us and we need a greater diversity of options.

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(1) Hank Paulson: Without Bailout, Unemployment Could Have Reached 25% – CBSNews.com, retrieved January 29th, 2010, http://www.cbsnews.com/blogs/2010/01/28/politics/politicalhotsheet/entry6152317.shtml