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A Front Row View of the Financial Crisis

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Treasury Trove

A Front Row View of the Financial Crisis

The central irony of Stress Test, the new memoir by former U.S. Treasury Secretary Tim Geithner, is that a guy who was accused of being a lousy communicator while in office has penned a book that is such a good read.

I’m not qualified to weigh in on the accuracy of Geithner’s recollections, some of which have been called into question by those Geithner criticizes. And of course Geithner provides only one perspective; the verdict may evolve as we learn more from other participants in the crisis. But I’ve now read four or five of these first drafts of the history of the Great Recession, and I believe Stress Test represents the biggest contribution of the bunch.

While some chapters dive into details that only a true policy wonk could love, I found the entire book very clear and easy to read. Geithner could more than hold his own in an explanatory-metaphor contest with masters like Warren Buffett and the author Michael Lewis. For example:

“Even if we couldn’t prevent an ugly crash, I wanted to explore ways to put ‘foam on the runway.’ ” Or:  “When I saw The Hurt Locker, the Oscar-winning film about a bomb disposal unit in Iraq … I knew I had finally found something that captured what the crisis felt like: the overwhelming burden of responsibility combined with the paralyzing risk of catastrophic failure; the frustration about the stuff out of your control; the uncertainty about what would help; the knowledge that even good decisions might turn out badly….”

Ultimately, Geithner paints a compelling human portrait of what it was like to be fighting a global financial meltdown while at the same time fighting critics inside and outside the Administration—as well as his own severe guilt over his near-total absence from his family.

When I ran Microsoft, I sometimes thought I had a tough job, especially when trying to manage the company and deal with a federal anti-trust trial at the same time. But I came away from this book thinking my job was pretty easy compared with what Geithner signed up for. Unless you’re a soldier on active combat duty, you’re likely to think the same thing.

I can understand why Geithner, who acknowledges how hard it is for him to sit still, felt compelled to take the time to write his own 550-page version of events. Given that he’s still taking intense criticism, he had to be saying to himself, “Cut me some slack here!”

For all of Geithner’s actual or perceived mistakes and the horrible optics of bailouts and bonuses, he and his colleagues at Treasury and the Federal Reserve deserve credit for keeping the world economy from going over the cliff. We easily could have had a devastating depression with breadlines and shantytowns all over the country and, indeed, the world. Not only did Geithner and his colleagues prevent the worst from happening; the financial bailout has now turned a tidy profit for U.S. taxpayers. Bailing out the “too big to fail” banks as well as Fannie Mae, Freddie Mac, AIG, GM, Chrysler, and all the others netted a surplus of $166 billion. As Geithner accurately puts it, “The financial industry paid for the rescue.”

Yet those facts don’t seem to count for much. Geithner continues to be pilloried by people who seem to have mutually exclusive critiques. He’s viewed by critics on the left as a soulless tool who cared more about bankers than the victims of their greed. Critics on the right seem to believe he’s a raging socialist hell bent on destroying American capitalism.

Logically speaking, both can’t be true. And I can tell you, based on my four or five meetings with him over the years, that neither is. In my view, he’s a smart, humble, non-ideological guy who, contrary to popular belief, had never worked for Wall Street prior to the crash. Perhaps history will determine that he could have done more to bring down unemployment and help more struggling families stay in their homes. But I’m certain he genuinely cares about doing the right thing for Main Street.

While Geithner’s frustration is palpable in the book, he indulges in less credit-taking and score-settling than you find in most Beltway memoirs. And he does a decent job of acknowledging his own shortcomings. Here are some examples: “I wish I had pushed harder to improve the financial system’s ability to withstand a crisis of confidence when I was at the New York Fed.” “Our constant zigzags looked ridiculous.” “It was my own screw-ups that made the inquisition [over errors on his tax returns] possible, and I felt sick that I had put the President-elect in this position.” He is especially unvarnished in his self-criticism of his deficiencies as a communicator (e.g., “My speech … sucked.”)

But he’s unapologetic about the cornerstone of his approach to fighting the crisis. “We provided extraordinary support to the financial system in general and some very poorly managed financial firms in particular,” he writes. “We didn’t do it to help their executives buy fancier mansions and sleeker jets. We did it because there was no other way to prevent a financial calamity from crushing the broader economy.” This explanation passes my sniff test.

During a time of high anxiety and chaos, it’s no wonder that explanations from a lifelong technocrat who has always shied away from public speaking would be no match for the professional loud talkers on radio and cable TV. The reality is, as Bill Clinton once said, “When people feel uncertain, [they’d rather listen to] somebody who’s strong and wrong than somebody who’s weak and right.”

Will this and the other accounts that are sure to come out help policymakers defuse future financial crises?

I hope so. Good books can encourage decision-makers to stop and reflect on brink-of-the-abyss events, weigh the financial and political risks a little differently, and act a bit more proactively when the dark clouds appear once again. All policymakers know there’s a risk that excessive vigilance could gum up markets and slow economic growth. But I think books like this help them see that the risks and pain of being blindsided—left in “shocked disbelief,” as former Fed Chairman Alan Greenspan put it—are a real concern too.

To be sure, the politics of fighting financial crises will always be ugly. In Geithner’s words, “Actions that seem reasonable—letting banks fail, forcing their creditors to absorb losses, balancing government budgets…—only make the crisis worse. And the actions necessary to ease the crisis seem inexplicable and unfair.” But it helps if the public knows a little more about the subject—what’s at stake, what the options are, what has worked in similar situations—so that the loud talkers resonate a bit less and the knowledgeable ones a bit more. If Stress Test continues to attract lay readers—and its position on the New York Times bestseller list suggest it could—I think that can make at least a modest difference the next time around.

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