STRESS TEST
Reflections on Financial Crises
Timothy F Geithner
Crown Publishers; 580 pages; $35
He's written a really good book - we might as well get that out of the way, as so much else about Timothy F Geithner remains unsettled. Mr Geithner served as president of the New York Federal Reserve from late 2003 to 2008 and secretary of the Treasury from 2009 to 2013, and so sat near the centre of the American financial system as it prepared to self-destruct. He then had a courtside seat to the global catastrophe. He has rich material to work with, and he has contrived to preserve its freshness. His inability as Treasury secretary to explain himself, or his actions, or the financial crisis, or his beliefs about financial reform, to the wider public will leave many readers, I suspect, feeling they are hearing his voice on these subjects for the first time.
Mr Geithner is clearly more at ease, and more himself, on the page than on the stage or the screen - which is, for an American public figure, both odd and charming. So much so that I finished his book half wishing he had just skipped all of the public performances required of him as Treasury secretary and instead written out what he had to say and handed it to an actor - say, Denzel Washington - to perform. Stress Test has surprising virtues - for instance, the skill with which Mr Geithner draws his hard-to-describe main character. He thinks of himself - and on the evidence it's hard to disagree with him - as a fairly ordinary person thrust into a great many extraordinary situations. His mother was a card-carrying liberal; his father a Republican who spent his career working in nonprofits in poor countries, and who voted for Mitt Romney in 2012 while his son was still in the Obama administration.
In general, Mr Geithner comes across as the sort of young person who had no particular idea of himself until the world forced him to have one. His lack of a need for self-definition extended to his career. He apparently didn't feel much personal ambition, at least in the beginning. Oddly, for a Republican Ivy League graduate of the 1980s - and even more oddly for a future Treasury secretary - he found Wall Street pointless and the business world faintly ridiculous.
At any rate, the more or less perpetual global financial crisis that he helped deal with - the run on the Mexican peso, the run on Southeast Asian currencies, the Russian default and so on - obviously gave him his identity: crisis manager. He became one of the guys who kept their heads as others lost theirs, defined less by what he was than by what he was not: in trouble. Mervyn King, the former governor of the Bank of England, joked (and as Geithner quotes him joking): "Tim was present at all the crises. But he didn't cause the crises. The crises caused him."
The story Mr Geithner goes on to tell blames everyone and no one. The crisis he describes might just as well have been an act of God. Basically, no one noticed what was happening inside the financial system until after it happened. A few of the important people with a privileged view expressed concerns about the risks being taken, but most said nothing. Geithner counts himself in the minority.
Interestingly, Mr Geithner has little sympathy for those who wanted to see Wall Street bankers held accountable for whatever it was they had done. "Old Testament vengeance" is his pet phrase for such moralistic sentiments, and he argues persuasively that if he had indulged them, the crisis would only have caused more economic pain and suffering for ordinary people. He thinks it was a mistake, for example, to allow Lehman Brothers to fail in September 2008, and writes that he would have prevented it if he could have.
Mr Geithner sees the government's response to the financial crisis mainly as a great success - though he of course understands that a lot of people don't agree with him. ("We did save the economy, but we lost the country doing it.") He clearly thinks people ignore the facts and judge with feeling rather than reason. He himself is careful with the facts. For example, he points out several times that most people seem to believe that the Treasury's injection of capital into the financial sector cost the taxpayer a fortune when in reality the investments yielded a projected profit of $166 billion. (But he doesn't mention that the jury is still out on the effects of the less overt but more expensive subsidies flowing from the Federal Reserve.) He finds it silly that many people believe Dodd-Frank changed nothing important. (Yet he never explains why the roughly five percent capital ratio it demands of the big banks is anything like a magic number for bank safety - and he does not mention the powerful case recently made by the economists Anat Admati and Martin Hellwig that the right number is at least 20 per cent.)
Finally, he seems to believe that the American financial system is now more or less fully reformed. Those who think the root cause of the crisis was the bad incentives of financiers are unlikely to be persuaded. They made vast fortunes from their colossal failure. There's no reason they couldn't or wouldn't try to fail so well all over again.
But that's the wrong note to end on. There's hardly a moment in Mr Geithner's story when the reader feels he is being anything but straightforward - a near-superhuman feat for someone who spent so much time in public life defending himself from careless and dishonest personal attacks. The decisions he made are easier to criticise than they are to improve upon. I doubt many readers will put his book down and think the man did anything but his best. On his feet he might have stammered and wavered. That in itself was always a sign he was unusually brave.
©2014 The New York Times News Service
