Stress Test: Reflections on Financial Crises, by Timothy Geithner, Random House Business/Crown, RRP£25/$35
If you had taken odds on which of President Barack Obama’s senior officials would make it through his first term, Tim Geithner would have got the longest. As it happens, the self-described “backstage guy” who detests public speaking was the last one standing. Long after Rahm Emanuel, Lawrence Summers, Robert Gates, Peter Orszag and even Hillary Clinton had left the scene, Geithner was still at the president’s side. “Thanks for navigating us through a terrible storm,” wrote Mr Obama. “[Alexander] Hamilton would be proud!”
Mr Obama’s parting note was apposite. Geithner calls Hamilton the “original Mr Bailout”; the founding father honoured all the young republic’s debts. Geithner’s critics make much the same allegation. Yet it was the bankruptcy of Lehman Brothers in September 2008 – and Geithner’s acquiescence in it, as chairman of the New York Federal Reserve – for which he will be best remembered. That was the day the global meltdown began. Geithner confesses he suffered from “Lehman syndrome” from then on. “I opposed anything that would weaken confidence or stability,” he writes in his sharply worded and candid memoir.
No matter how bad it looked, Geithner faced down the “Old Testament populists and moral hazard fundamentalists” who would have preferred to burn the house down, in his view, than bail out rich bankers. “Nothing we did was out of sympathy for the bankers,” says Geithner. They were merely “collateral beneficiaries”. He repeatedly had to dissuade Mr Obama from the “showy, populist head fakes” thrust on him by his political advisers. These included proposals to fire the chiefs of the bailed-out banks, nationalise the banks, impose strict pay limits and claw back generous bonuses.
Mr Obama was continually torn between his promise to hold Wall Street accountable and a desire to prevent a second Depression. In each case the Treasury secretary got his way. “So let me get this straight,” said Mr Obama, after Geithner informed him there was nothing he could do to stop the $160m in bonuses that AIG, the insurance company was paying out after it had been saved from bankruptcy. “We’re going to pay bonuses to the very people who caused all this damage to the financial system?” Yes, Mr President.
The politics was brutal. “We never really figured out how to navigate the populist waters,” Geithner says with characteristic understatement. Blame came from all sides. The right saw the Obama administration as “Che Guevara in suits”, while the left viewed Geithner and his team as “Wall Street’s wing men”.
History may be kinder. Few economists believed the $700bn in troubled asset bailout funds would be returned to the taxpayer. It came back with interest. Still fewer gave credence to Geithner’s bank “stress tests”, which even some White House officials suspected were rigged. They worked like a charm.
Almost nobody believed Geithner would make it to the end of the first year. When he unveiled his first, ill-fated financial stabilisation plan, the markets collapsed. The more Geithner spoke the further the Dow fell. Barney Frank, the Democratic lawmaker, said he looked like he was attending his own bar mitzvah.
“My voice wavered,” writes Geithner. “I tried to sound forceful but I just sounded like someone trying to sound forceful.” It was a disaster. Geithner soldiered on. “I knew I was a political liability,” he writes. Eventually, though, Mr Obama came to see him as indispensable. Whenever he tried to quit, the president turned him down. The joke was that Geithner was forced to wear an ankle bracelet.
Will history see Geithner as a great Treasury secretary? That is uncertain. He was certainly effective. But too much of this otherwise self-deprecating memoir is self-defence.
Geithner is at pains to emphasise he spent almost his entire career as a public servant – and none of it on Wall Street. That did not stop people from describing him as a Goldman Sachs alumnus.
Yet Geithner’s protestations are undercut by his new job as president of Warburg Pincus, the private equity firm. He is stung by the charge that he served Wall Street at the expense of Main Street. Yet he admits, “I wish we had expanded our housing programs earlier, to relieve more pain for homeowners.”
Ultimately, Geithner will be judged by how the system handles the next big crisis. It was he, after all, who drafted the Wall Street reform bill that became Dodd-Frank. Geithner does not sound very optimistic. “Markets will find ways around risk-taking constraints,” he writes, “the way rivers flow around stones.”
The writer is the FT’s chief US commentator