Former Treasury Secretary Timothy Geithner’s book Stress Test: Reflections on Financial Crises hits bookstores on Monday. Ahead of the release, Geithner sat down for some yummy food and friendly conversation with Andrew Ross Sorkin of The New York Times. Here is a dissection of the puff piece that ensued.
- “When the housing bubble burst in 2008, Geithner was the president of the Federal Reserve Bank of New York. Along with Ben Bernanke, the chairman of the Federal Reserve, and Henry M. Paulson, the Treasury secretary at the time, Geithner was charged with essentially saving the economy from sliding into the abyss.” — Let’s just skip the part about how if those same three guys had kinda, maybe, sorta been doing their jobs all along, they probably wouldn’t have found themselves staring into such a daunting “abyss.”
- “The perception that he was overmatched for the position was strengthened when he responded to a congressman’s question at a second hearing by saying: “I just want to correct one thing. I have never been a regulator, for better or worse.” The flub, his critics said, was revealing. Geithner had run the New York Fed, whose job is to supervise and regulate financial institutions, at the very moment when Wall Street’s largest banks were gorging on debt and packaging toxic assets.” — When you run the New York Fed, you are either a regulator or a cheerleader for the big Wall Street banks. No one has ever questioned which one Geithner was… not even Geithner.
- “I did not view Wall Street as a cabal of idiots or crooks,” he writes in “Stress Test.” “My jobs mostly exposed me to talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.” — You don’t say!
- “As for the argument that he didn’t focus on the homeowners, Geithner said that’s a myth, too, listing TARP housing programs, a lending program to state and local housing-finance authorities and the mortgage-modification-guarantee program. But when I mentioned the passage in “Stress Test” in which he regrets that he hadn’t done more and asked him to elaborate, he became feisty. “It’s kind of too unicorny to frame it this way,” he said. “Because if you suspended disbelief and say: ‘If we had no constraints on resources or authority, could we have done more?’ If we had no constraints on resources or authority, yeah, we could have done more. And we could have done more, quickly.” — Geithner’s performance on helping homeowners struggled for two reasons: lack of creativity and no sense of urgency. Making relief efforts like loan modifications “opt-out” for homeowners would have been a creative way to ease Main Street suffering. (After all, the “opt-out” approach worked when Geithner, Bernanke, Paulson et al shoved the TARP funds at the big banks during that fateful Sunday meeting in September 2008.) Geithner also compounded the problems faced by homeowners — and soon-to-be “former” homeowners — by looking the other way as banks and loan servicers dragged their feet for months implementing the relief programs Treasury unveiled.
- “When he had the chance to jump on popular issues, like supporting the Volcker Rule, he declined, because he never believed that proprietary trading led to the financial crisis. The big institutions that failed — Fannie, Freddie, Bear Stearns, Lehman and A.I.G. — weren’t the types of banks the legislation was designed to regulate, he told me.” — Yep, because policymakers should always focus on crafting laws to prevent that last crisis rather than avert the next crisis.
- “In 2010, right before the bill passed, Geithner said, “The reforms will end too-big-to-fail.” Obama went further: “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more tax-funded bailouts, period.” But it is now clear that Geithner never believed his own talking points. To him, too-big-to-fail and the so-called moral hazard, or safety net, that it would create can’t really ever be fully taken away.” — There is a word for not believing the talking points, but saying them anyway: Lying.
- “Geithner admitted that he struggled over what to do next. He didn’t want to go back into government, and he wasn’t inclined to go into academia, but he worried about the optics of going into finance. “I think the perception problem — first of all it’s very damaging to me as I was trying to do some tough things, and I think it’s kind of very damaging to the country at the moment because it sees this basic loss of faith in government,” he said.” — Well, when the Treasury Secretary lies to them about ending TBTF, can you blame the people for losing faith in their government?
- “Last month, Geithner officially began a new job as president of a modestly sized private-equity firm, Warburg Pincus. It may not be investment banking, but it’s possibly finance’s second-most-vilified industry, given how Mitt Romney’s Bain Capital experience played out in the 2012 presidential campaign. It’s very unlikely that Geithner will be using TurboTax anytime in the near future, though; he is likely to make millions if not tens of millions of dollars over the next decade if he stays in the business. As we spoke, it became clear that this new job was one Geithner actually wanted.” — Hmmm … I wonder why?
Legacies are forged at the intersection of perception and reality. What Geithner seems unable to comprehend is that people live in different realities, so their perceptions will always vary. I have never heard any Wall Street executive say anything like, “Tim Geithner is not doing enough to help us. He is really hanging us out to dry!” Their reality is that Geithner saved them. Meanwhile, the millions of people on Main Street who were losing their jobs and homes screamed words like that at the top of their lungs the entire time Geithner was atop the Treasury Department. He just never listened. The reality those people faced — and continue to face — is something Geithner has never been able to perceive.