Testing Stress Test
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The Tim Geithner legacy project – which began in January 2013 – is entering its third phase: memoir release. Stress Test: Reflections on Financial Crises is out today. Phase one, receiving a glowing review from the president, and two, establishingfavorable consensus opinion, were completed before Geithner even left his role as secretary of the Treasury.
The third phase, according to Geithner himself, was supposed to be something different: he told Charlie Rose that he had no plans to write a book. But he did, and he talked to Andrew Sorkin about it at great length. The NYT’s Neil Irwin crystallizes what he learned from the book’s 580 pages, none of which is particularly revelatory.
The WSJ’s James Freeman says “one of the themes in Stress Test is Mr. Geithner’s difficulty in understanding the health of large financial firms”. Freeman thinks that this failing is personal, not institutional. William Black likewise thinks that Geithner’s biggest missteps were as a regulator, which is the hard part. Bailouts are comparatively easy: “Bailing out banks”, writes Black, “is not hard when a nation has a sovereign currency and the banks’ debts are denominated in that currency”.
Yves Smith is critical of Geithner’s attempt to rewrite the history of TARP and the actions that followed the asset relief program. “There were plenty of other options for saving the system. The one chosen, that left the banks largely unreformed and no one of any consequence punished, was clearly just about the worst of the available options, unless, of course, you are, like Geithner, a banker”.
The book does contain a revealing anecdote about how Geithner viewed regulation within and among financial institutions. Geithner writes that he was worried that former mentor Larry Summers’ influence on policy was driven by hedge-fund managers’ view of “banks as dumb lumbering giants”. Matt Levine points to Geithner’s comment as evidence of how “surprisingly hard [it is] to be against ‘the financial industry’; tightening restrictions on one area of finance tends to make another happy”.
Brad Delong thinks Geithner misses the point: regardless of who thought so, in 2008 and 2009 banks really were dumb lumbering giants, and insolvent ones at that. DeLong has twenty questions Geithner’s book should answer. Dan Davies does his best to respond. But the big unanswered questions remain the same: why the federal government wasn’t tougher on banks in during the crisis, why more wasn’t done to help homeowners, or stimulate the economy in 2009 and 2010? We’ll have to wait for the book tour. — Ben Walsh
On to today’s links: