Matt Stoller reviews “Stress Test,” Tim Geithner’s new book:
There are a few glaring problems with how Geithner portrays this debate. First of all, his main foil during the crisis was a fellow technocrat, former International Monetary Fund (IMF) official Simon Johnson, who actually had significant crisis-management experience parachuting into panicked countries and imposing structural reform on their bankers. Johnson became increasingly irate as he saw Geithner diverge from what Geithner himself at the US Treasury and the IMF forced on other countries: conditions. Geithner was hard on oligarchs when they were foreign, but when it was US bankers, well, then the wall of money argument triumphed. In fact, in a paper released in 2013, it was revealed that financial firms with a personal relationship with Geithner himself saw an abnormal 15% bump in share prices when Geithner’s name was floated for Treasury Secretary, and a corresponding though smaller, abnormal decline when his nomination was on the rocks due to his being caught not paying taxes by Senate investigators.
In 2009, Johnson published his essential argument about the US bailouts in an article titled “The Quiet Coup.” Johnson’s argument was political—he portrayed Geithner’s strategy as fundamentally entrenching a political oligarchy. That article put forward the theory that through the bailouts, America’s democratic system was being replaced by rule by financial titans. Geithner has never acknowledged that power was involved in the bailouts; those with power are loath to admit it exists. Critics of Geithner come as close as possible to calling him personally corrupt and have even marshaled the evidence that his cronies did fantastically well.
The second problem with Geithner’s argument is that the reform bill passed in the aftermath, the Dodd-Frank financial-reform law, is inconsistent with the wall of money theory. In the book, Geithner argues that Treasury lacked the legal ability to deal with large failing banks, to put them in a sort of bankruptcy process. Dodd-Frank provides those tools. However, according to Geithner’s wall of money, this doesn’t matter. Either you provide the assurance and everyone gets paid off, or it’s a collapse. If that’s true, why pass Dodd-Frank? Geithner wants it both ways.
The third problem is housing. Economists Amir Sufi and Atif Mian lead the charge in arguing that the Geithner strategy failed to restart the economy because it focused on leverage at the large banks rather than leverage among households, i.e., foreclosures. The shape of the Geithner policy architecture is two-tiered: The financiers recovered; everyone else did not. And the economy, even today, sputters along at just above stall speed because of this. Geithner halfheartedly admits he should have done more here, but then in the book he argues that there was absolutely no more that could be done. It’s a non-apology apology. Even in that, he’s inconsistent. He said on The Daily Show recently that he supported the judicial modification of mortgage debt for bankrupt homeowners, a pivotal policy, while in his book he says he didn’t think it was “fair” or “economically effective.”
So that’s a rehash: wall of money versus the real economy, or Tim Geithner versus Elizabeth Warren populist school or Simon Johnson technocratic school or however you want to frame it. Yes, there are disagreements on how to run society.
This piece sums him up nicely:
And then there’s the mystery of how he managed to climb up the career ladder so quickly. He never really explains how this happens. He wasn’t a good student. He notes, as a grad student, that he mostly played pool. “During my orals, when one professor asked which economics journals I read, I replied that I had never read any. Seriously? Yes, seriously. But not long after we returned from our honeymoon in France, Henry Kissinger’s international consulting firm hired me as an Asia analyst; my dean at SAIS had recommended me to Brent Scowcroft, one of Kissinger’s partners.”
I’m sorry, but what? How does this just happen? And it goes on. One day, when Geithner was a junior Treasury civil servant, Treasury Secretary Lloyd Bentsen just called him out of the blue to ask his advice on a matter about which he knew nothing. Why? He doesn’t say—he’s just puzzled. Later on, he advances in Treasury without any real credentials in a department where a law degree or economics PhD is essential. Even Alan Greenspan eventually expressed surprise; he had just assumed Geithner had a doctorate.
Power just always seemed to flow to Geithner, and he never says why. He knows why, of course—he’s an exceptional political climber. He just doesn’t say who was grooming him, why he ended up where he ended up, and what he paid to get there. It’s clear he had ideas about how the world should work, but he pretends otherwise.
Go read it, it’s fascinating. Also, here’s Felix Salmon’s take.