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J P Morgan Would Disagree With You, Mr. Geithner

Timothy Geithner suggested that the key to financial stabilty was "capital, capital, capital." In other words, throw money at the problem and it will go away. 

J.P. Morgan, America's de facto central banker around the turn of the nineteeth and twentieth centuries, put it rather differently. His priorities were character, capacity (income), and collateral (capital).

Get this: Character FIRST. Capital THIRD.

Banking isn't utlimately about money; it is ultimately about trust. That's why character came first for Mr. Morgan. Money (capital) was only the medium through which that trust was expressed. That's why it came third. (Capacity, or income, was the means of payment, and came second.) If there is no underlying trust, there is no good reason to spend money.

The proverb, "A fool and his money are soon parted," means that someone of bad (financial) character will soon lose his capital. On the other hand, capital accrues to the individual/institution, with a sterling reputation.

Mr. Geithner doesn't seem to understand this. And it is easy to see why. He was someone that didn't have the character to do his taxes properly--even though overseeing the IRS is now part of his job description. And he is also someone who can't be trusted not to fall asleep at the switch whenthe next Lehman Brothers is on the verge of collapse.

On the other hand, Andrew Mellon, the 1920s Secretary of the Treasury, was reviled by others in government because he DIDN'T want to expand the tax base. Or the powers of the IRS. He knew full well that the powers of the government that were available to him when he was in charge, could be used against him when he left. A later IRS hounded him for taking tax deductions until he died.

Tim Geithner doesn't "get it." He's expressed a view that's all too prevalent nowadays. And all too wrong.

Maybe it's because he is long on capital. And short on character.