Stress Test by Timothy Geithner

Unelected Secretary of the Treasury Timothy Geithner had more influence on the thoughts and motivations, successes and failures of ordinary Americans than Congress ever did in the years he was in office. While Congress played politics (and not very well at that), Geithner did a lot (some might say too much) with his global role as fire extinguisher.

And who was he? Those of us just watching his pronouncements and public speeches, or feeling the impact of his decisions really did not have a good picture of the man orchestrating the mayhem. Stress Test goes some way to explaining how he moved from President of the Federal Reserve Bank of New York when the monetary crisis began to become U.S. Secretary of the Treasury in 2009, and what he was thinking as the crisis unfolded. It is not a book written for Wall Street insiders. It is written with the general American public, Europe, and other countries in mind. It is, in some sense, a White Paper on the crisis, telling of personalities, events, and lessons learned. It is well worth the time invested to read or listen to it.

Two thoughts competed for precedence as I listened to Geithner narrate the Random House audiobook production of his book. One was that he really is just an ordinary man in extraordinary circumstances. He didn’t have a background in finance; he studied international affairs at Johns Hopkins. He never worked in the finance industry before getting a government job at Treasury in the International Affairs Division in the 1980's. There he met Rubin and Summers, and was named Under Secretary of the Treasury for International Affairs in 1998.

The second thought that rivaled the “ordinary guy” theory was that he has an extraordinary calm and one-or-two-steps-at-a time pragmatist mentality, a willingness to go “all in,” and a lack of interest in the trappings of wealth creation. I remember coming away from Robert Gates’ memoir thinking that only those that don’t want the fame and fortune that comes with vaunted public service must be the ones chosen to serve. (Remember Sam Nunn? He did his duty, oh so well, but he appeared to hate the limelight.) And Geithner must be an impressive thinker and proponent of his thinking in person and in writing, despite or perhaps because of, his measured and sometimes turgid prose. He consistently had strong supporters and powerful mentors all along his path. That doesn’t happen to everyone.

Something we may not value enough is his ability to withstand withering abuse from those who disagreed with him. While there may be, and undoubtedly will be, many who could do his job, not many could handle a crisis of that magnitude while listening, adjusting, and holding firm when necessary. It was a labor of love, doing that job at that time. It occurred to me that some who recommended him for the job wanted someone else to handle the crisis—to be a fall guy.

Somehow I remain convinced that disagreement with his handling of the crisis by injecting cash, propping up illiquid banks, and overseeing TARP needn’t have boiled over into personal attacks. It would have been far more useful to him and to all of us if those with reasonable alternative ideas could have presented them in a civil manner. The market scare showed us unfit and fat, at our ugliest. Nothing would have made me happier than to see the banks fail, if it weren’t that we were all involved.

Geithner’s method, though he freely admits it created “moral hazard” along the way, did bring us back with limited pain and loss, to a market higher than ever in a remarkably short period of time. If anything, this may be the thing that worries me the most. One could argue now that the cash injected into the system allowed us to paper over some of the inequity issues we face, despite changes made to the regulatory system. That someone makes an outsized salary can be remedied by tax reform, but the politics have become even more contentious and disabling. What worries me is that there weren’t enough lessons learned by the folks who needed to learn them.

Histories of the financial meltdown in 2007-2008 we have heard before, but what we learn from Geithner’s personal history is how the crisis looked from his desk, what he was thinking, who he was talking to, and how, as the crises widened, his perceptions changed or crystallized. This type of meltdown crisis will probably happen again, especially if our political system continues to fail. We may not use the methods Geithner used to repair the damage in the future, but everything he did will be considered in the next crisis, combed over and debated, regardless of political affiliation and ideology. This is because pragmatism really does trump ideology in a crisis, no matter what the pundits and politicians say. We wouldn’t want it any other way.


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