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Former US Treasury Secretary Tim Geithner (left) yucking it up at a meeting of global elites in 2009. Photo via Flickr user IMF
The most consequential event of this young century has been the financial crisis. This is a catchall term that means three different things: an economic housing boom and bust, a financial meltdown, and a political response in which bailouts were showered upon the very institutions that were responsible for the chaos. We will be seeing the fallout for decades. Today, in Europe, far-right fascist parties are on the rise, climbing the unhappiness that the crisis-induced austerity has unleashed. China is looking away from the West as a model of development. In the US, Congress is actually less popular than certain sexually transmitted infections, and all institutions of national power are losing their legitimacy. At the same time, the financial system did not, in the end, collapse, and there was no repeat of the Great Depression.
More than anyone else, it was then US Treasury Secretary Tim Geithner who shaped this response, and who bears praise, blame, and responsibility for the outcome. And finally, with the release of his book, Stress Test: Reflections on Financial Crises, Geithner is getting to tell his side of the bailout story.
Stress Test is an important book, because Tim Geithner is an important man. Economist Thomas Piketty may be explaining essential social dynamics of inequality, and Elizabeth Warren may be describing the need for Americans to get a break from the banks, but it is Tim Geithner who, for better or worse, actually shaped our institutional, legal, political, and economic dynamics at the moment when the system was most malleable.
That said, Geithner is not a popular man, and he knows it. “I never found an effective way to explain to the public what we were doing and why,” he writes. “We did save the economy, but we lost the country doing it.” He knows he’s never going to win the argument, he knows he can’t possibly convince people he did the right thing. Even his book tour is being described as an undertaking that "could have been worse." But he’s going to try to convince you anyway.
Stress Test is a fun, if long, book. It’s enjoyable, it’s charming, and it’s well written (or least well written by ghostwriter Mike Grunwald). It’s replete with simple and colorful anecdotes that explain the complexities of capital markets, without condescension and with a minimal amount of jargon. There are two parts to the book. The first is a set of arguments, told through his experiences during the crisis, about why bank bailouts are essential—the financial world according to Geithner. And the second is an autobiographical account of Geithner’s life.
I’ll address both of these, since they are intertwined. For as I read the book, and compared the book with what was written at the time and what was written afterwards, I noticed something odd, and perhaps too bold to say in polite company. As much as I really wanted to hear what Geithner had to say, I quickly realized that I wasn’t getting his actual side of the story. The book is full of narratives, facts, and statements that are, well, untrue, or at the very least, highly misleading. Despite its length, there are also serious omissions that suggest an intention to mislead, as well as misrepresentations of his critics’ arguments. As I went further into Geithner’s narrative, even back into his college days, I got the sense that I was seeing only a brilliantly scrubbed surface, that there were nooks and crannies hidden away. It struck me that I was reading the memoirs of an incredibly savvy and well-bred grifter, the kind that the American WASP establishment of financiers, foundation officials, and spies produces in such rich abundance. I realize this is a bold claim, because it’s an indictment not just of Geithner but also of those who worked for him at Treasury and at the Federal Reserve, as well as indictment of the Clinton-era finance team of Robert Rubin, Larry Summers, Alan Greenspan, Michael Barr, Jason Furman, and other accomplices. That’s why this review is somewhat long, as it’s an attempt to back up such a broad and sweeping claim. I will also connect it to what Geithner is doing now: working in the same kind of financial business that made Mitt Romney a near billionaire.
First, it’s important to rehash Geithner’s stated argument in the book about why he did what he did, and go over those debates. I should say upfront that I do not know why Geithner organized the bailouts the way he did, but I do not believe that the intellectual justifications laid down in the book are the actual reasons. Perhaps we’ll never know why he did what he did. It’s still important to chronicle what he says he did, and why he says he did it.
Geithner’s basic stated view is that financial panics are inherent to capitalism, and that they are incredibly destructive if not stopped through massive and immediate bailouts. Geithner uses a metaphor—"wall of money"—to describe this. In traditional bank runs, depositors would be afraid their bank could not honor deposits. Banks would put bricks of cash in the windows, a visible "wall of money," to assure lined up customers they needn't worry, that the bank was solvent. Customers, seeing the assurance, would then go home without needing to withdraw their deposit, secure in the knowledge their money was safe. Breaking the back of any panic is a confidence game.
Geithner argues he acquired this philosophical view from his career as a financial-crisis manager in the public sector. He worked on collapses in Mexico, East Asia, and the United States, and his conclusion is that all crises require a wall of money. The downside of such a strategy, Geithner acknowledges, is that it’s very unpopular. No one likes it when bankers get bailed out, but if you don’t do that, depositors will get spooked and reignite a panic. You must put forth a wall of money, with no strings attached, or all is lost.
So that’s his argument.
Geithner also addresses his critics, motivated by what he derisively calls “Old Testament justice.” It may be morally righteous to hang the bankers, he argues, but it’s irresponsible to do this at the cost of allowing a crisis to destroy the lives of millions. He tells an anecdote in the book, about how Bill Clinton pulled him aside and said that he could knife Goldman Sachs’s CEO in a back alley and the populists would be satisfied only for a day.
It’s clear that Geithner doesn’t like his critics, and they don’t like him. Neil Barofsky, the government bailout watchdog, was "untainted" by knowledge of finance. Populists like Elizabeth Warren, former FDIC Chairman Sheila Bair, and even Larry Summers (who comes off as a major foil of Geithner in inter-office spats) could backseat-drive, but they didn’t have a credible workable alternative. "I was sometimes uncharitable about the ‘chicken hawks’ of the crisis,” Geithner writes, who were “the financial equivalent of ardent Iraq War supporters who had never fought in war and had the luxury of distance from the battlefield.” He notes that Summers turned to him one day and said, “You know this stuff is really hard.” Geithner came as close to smirking in prose as possible, as if to wryly note to Summers that "as brilliant as your reputation might be, you’re in my world now."
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.
***
But the book is more than just a set of arguments; it’s also an autobiography of a man. And while I was reading it, I kept getting the feeling I wasn’t learning the full story. I noticed oddities, a kind of set of shimmering ephemera which suggest that there was something the author was holding just out of view of the reader.
Geithner talks about his childhood growing up abroad, with high-powered family members who had advised presidents, and a father who was a senior executive at the Ford Foundation in Southeast Asia in the 1960s and 70s. At that time, the Ford Foundation was a pivotal instrument of US foreign policy, an important vehicle for anti-Communist efforts and heavily integrated into the financial and foreign policy establishment (the head of the foundation even set up an internal committee to organize incoming requests from the CIA). Yet Geithner portrays himself as a largely apolitical and directionless kid, a sort of ordinary person in unusual circumstances, with loving parents. It was an odd way to describe growing up cocooned in the foreign-policy elite. Geithner is far too smart to not have been able to observe what was going on around him, yet he is silent in the book on how he saw power up close at a young age.
At Dartmouth, Geithner portrayed himself an "unexceptional and uninspired student," finding economics dreary and political consulting boring. He didn’t even remember voting in 1980. Yet over Christmas break during his freshman year of college, he notes, he did a short stint as a war photojournalist along the Thai-Cambodian border for the Associated Press. It’s a short piece in the book, meant to describe one Christmas break. But I had to reread it several times, to make sure it was actually in there. I kept thinking, What the hell? Who does that? It’s not that it’s not true; it sounds like it is. But there’s more to this story than “Oh, I was a freshman in college and didn’t like studying, and then I did a stint as a war photographer over Christmas break and decided I didn’t want to be a photographer.” There’s something he’s not saying. He was not just a boring apolitical kid who didn’t notice very much about the world. Such people do not become photojournalists for a week over Christmas in war zones when they are 18.
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.
As the book moved into the guts of his career, the Mexican crisis in the early 1990s, I began to come into contact with events that could actually be fact-checked. In 1994, just after NAFTA was signed, Mexico experienced a massive currency collapse. The roots of the crisis were excessive lending by American banks to Mexico, so the US Treasury–funded bailout helped ensure that Mexico could pay its debts and that US banks had their money returned. Geithner participated in the rescue designed by then Treasury Secretary Bob Rubin. The bailout was deeply unpopular at the time, and Congress refused to fund it. But Rubin found the financing for the wall of money in an old account called the Exchange Stabilization Fund, and the American banks who had lent to Mexico were ultimately paid back. Geithner presents this as a triumph of wisdom over the stupidity and cravenness of a short-sighted Congress and impatient public. Yet as Dean Baker notes, “Mexico had the worst per capita growth of any major country in Latin America in the two decades following” the bailout. It was bad for Mexico, but great for Citigroup.
That’s not the only crisis Geithner misrepresents. There was the East Asian crisis of the late 1990s. Geithner recounts his work saving Thailand, South Korea, and Indonesia from currency speculators and ruin. Geithner again was a calm crisis fighter doing unpopular things too difficult for the public to understand. Geithner, however, doesn’t mention the one country that rejected his advice: Malaysia. This is important because Malaysia pursued a different path, and simply banned speculators from speculating in its currency. And it did fine.
As Joseph Stiglitz, the former World Bank chief economist, helpfully put it, "IMF boosters suggest that the recession's end is a testament to the effectiveness of the agency's policies. Nonsense. Every recession eventually ends. All the IMF did was to make East Asia's recessions deeper, longer, and harder.” The example of Malaysia proves the point. But for Geithner, Malaysia does not even exist. He cannot and will not engage where his narrative fails.
There's another serious omission about this period in Geithner's career: his time as a Treasury lobbyist. As documents unearthed by financial analyst Josh Rosner show, in the late 1990s, Geithner, Summers, and Rubin lobbied for World Trade Organization rules forcing the liberalization of financial services across borders, at the behest of large bank CEOs. This matters because the entire book is about Geithner's reflections on financial crises, and one of the central causes of these crises was 'hot money.' “Globalization had unleashed enormous sums of ‘hot money’ that could instantaneously flow across borders,” he warns, “while the aspects of human psychology that had helped produce financial booms and crises for centuries remained unchanged."
By presenting globalization as an inherent natural force, and not mentioning his role in crafting the policies that led to hot money flows, he misleads by omission. In other words, Geithner wasn't just a firefighter, but an arsonist. You wouldn’t know this, because Geithner in the book laments free capital flows. But he wasn't lamenting them when it mattered (and the position of the US government's trade representative today is still that hot money is good).
You see the same rhetorical tricks and traps as we move to Geithner’s tenure as president of the New York Federal Reserve, which began in 2003. Much of the discussion of Geithner’s book and his time in office is essentially a rehash of the strategies pursued during the bailouts. As with the hot money flows, Geithner pretends he was part of the solution, not the cause of the problem. But Geithner also played a huge role in the run-up of leverage in the financial system, a role he lies about when discussing his time at the Fed.
Geithner served at the New York Fed until 2008, and this region was the center of the financial universe, the place where profits from the boom were husbanded and collected. The New York Fed regulated Citigroup, a massive systemic risk requiring multiple bailouts and obscure financial supporting arrangements. Thus, lying about his tolerance for this run-up in leverage, and about his distance from the financial industry, is critical in painting a later portrait of a cautious but savvy crisis manager.
While at the Fed, Geithner erects a self-pitying picture of an unfair public who thought he came from Goldman Sachs, noting that, for the record, he never worked for a bank on Wall Street or basked in luxury like tycoons might have. These optics set up Geithner and his whole strategy as misunderstood but ultimately correct and mature. Geithner presents himself as having a standoffish relationship with Wall Street bigwigs. “I rarely socialized with Wall Street executives,” he writes. “As I had warned the board, Carole and I did the minimal amount of Manhattan socializing I thought necessary to do my job properly, including a few awkward birthday celebrations for our modern-day tycoons at various museums in Manhattan.”
Yet as he also recounts, he was recruited to the Fed by billionaire Pete Peterson, his patron was former Goldman Sachs head and then Citigroup chairman Bob Rubin, and it was Citigroup executive Michael Froman who introduced him to Barack Obama. He was even heavily recruited to be Citigroup CEO in 2007. Geithner made the Fed far more Wall Street–friendly, recruiting bank veterans for high-level management positions. He also reorganized the New York Fed Board to include prominent financiers, “including Lehman Brothers CEO Dick Fuld; JPMorgan Chase CEO Jamie Dimon; former Goldman Sachs Chairman Steve Friedman, who was still on the firm’s board of directors; and General Electric CEO Jeff Immelt.” As he put it, “I basically restored the New York Fed board to its historic roots as an elite roster of the local financial establishment.” His former colleague on the Obama economic team Paul Volcker even mocked him for being so close to the big banks. These are not the actions of someone who has a distant relationship with Wall Street power players.
An additional lie is that Geithner was never a Wall Street banker. Technically speaking, the New York Federal Reserve, which Geithner headed up for years, is actually a bank on Wall Street. It is in fact a bank of banks—the bank of banks. It’s why Chuck Prince wanted him for the Citigroup job. And Geithner lived like a power player. He entertained Wall Street bigwigs as part of his work and could get anyone in the world on the phone. The New York Fed isn’t subject to federal-government pay caps, so Geithner was paid $411,200 a year, with a $434,668 severance when he went to Treasury. While this is a low salary for a Wall Street banker, it is a lot of money, especially for a public servant. And it’s an especially large amount of money considering the remarkable perk package, which included, as he notes in his book, coffee served by staff on a silver tray and a car with a chauffeur and sirens to get to work every day. In other words, the reason people thought Geithner came from a bank on Wall Street is because, both in a technical and a cultural sense, he did. Geithner knows the New York Federal Reserve Bank is a bank on Wall Street—a special public-private bank, of course, not an investment bank, but a bank nonetheless. Yet he denies this because it sounds better that way.
There’s more. While president of the New York Fed, Geithner argues, he didn’t take on the subprime crisis because “Ned Gramlich, a Fed governor in Washington, was already leading a process to examine excesses and abuses in the mortgage business serving lower-income Americans. I was impressed by Gramlich’s work, and those issues seemed to be getting a fair amount of attention from the Fed in Washington. I didn’t want us to be like kid soccer players, all swarming around the ball.” Gramlich’s work was so impressive, apparently, that Fed Chair Alan Greenspan blocked him from even bringing it up to the board level for consideration. Geithner is nothing if not an incredibly savvy bureaucratic infighter, so he would have known that Gramlich needed help. Once again, Geithner’s excuse for inaction seems extremely fishy. Gramlich died several years ago, so we can’t know what Geithner really said to him, if anything. But this explanation doesn’t wash.
One of the most remarkable and brazen set of misleading statements is Geithner’s recounting of his speeches while president of the New York Federal Reserve bank, which is how he introduces the beginnings of the financial crisis. As Felix Salmon noted, these speeches are online, and you can check them against what he says in the book. And his recollections in the book are just not consistent with the speeches themselves. He says that in his first speech he tried to push back against complacency, which isn’t really true. He says that in nearly every speech he talked about systemic risk, but again, that’s highly misleading. He did virtually nothing at the New York Fed to head off the crisis. And while he says he was concerned about insufficient capital levels at Citigroup, Sheila Bair says in her book, and more recently told Gretchen Morgenson, that the New York Fed under Geithner was undermining her push for higher capital levels at the Basil Accords. Only a hearing and threat from Barney Frank to Geithner and the Fed allowed Bair to go ahead. The crisis was creeping up on regulators, but Geithner was fighting against the most basic measures to do anything about it.
Geithner also misleads the reader about the single most important moment of the crisis: when Goldman got bailed out through Federal Reserve loans to AIG. This mattered because it was when the public really began taking over the debts of the financial system, and it’s well documented in the Congressional Oversight Report of June 2010. When AIG was on the verge of going under, exposing every big bank that had bought insurance from them, Geithner had a choice. He could force big banks to share the losses or just bail them out. He chose the bailout. Rather than forcing Goldman and JP Morgan to share in AIG’s loss, to which they were heavily exposed, Geithner took 100 percent of the liability on the New York Fed’s balance sheet. Then, in November of 2008, the Fed bought back underlying securities from Goldman, at par, despite their trading at 50 cents on the dollar. This was a massive funneling of resources to Goldman in particular.
Geithner then argues that Goldman didn’t profit from the AIG bailout, for somewhat obscure technical reasons. But in literally the next paragraph, he says that when you look at the details, Goldman actually did profit. This same inconsistency is evident when he discusses the bonuses resulting from this raw deal, when AIG gave extra cash to the employees who had crashed the company and the economy. By the time these bonuses became a public scandal, Geithner had already become Treasury Secretary.
Geithner offers shifting and inconsistent statements about these bonuses. At Treasury, Geithner says he didn’t want the government to interfere with bonus payments, for fear of scaring the markets. The right time to have imposed executive pay restrictions was when the bailouts themselves happened, but unfortunately, “I had been too consumed with trying to contain the post-Lehman panic to even consider whether we could do anything about executive compensation.” Yet this plainly wasn’t true. Earlier in the book Geithner recalls fighting against Senator Max Baucus during the TARP negotiations. “I didn’t think Congress should mess around with TARP as a way to reform executive compensation,” he said, “not because I approved of the industry’s lavish salaries and bonuses, but because reducing them seemed like a secondary objective in a crisis.” In other words, Geithner first says he sought to preserve bonuses for bailout recipients, and then he says he didn’t.
Geithner makes yet another dubious claim about the economic stimulus, saying he was never an "austerian" when it care to stimulus even though, as Paul Krugman noted at the time, he called the stimulus "sugar." Geithner also says that an $800 billion stimulus was far larger than anyone expected, which is, once again, false. Geithner’s deceptive narrative is so cheap that he uses as evidence in the cause of his own boldness that the stimulus was larger, in absolute terms, than the entire New Deal. Well, considering the economy today is 15 times larger, of course it was. And movies used to cost five cents.
Aside from all the lies and misleading statements, there are many claims that are difficult to verify. Geithner writes that he tried to get haircuts from banks that were counterparties to AIG, but seven out of eight AIG counterparties refused to take anything less than 100 cents on the dollar. Yet Goldman Sachs CEO Lloyd Blankfein said in press reports that he had never even been asked to take haircuts. If you look at the bailout watchdog reports released at the time, it’s clear efforts to get haircuts cannot even fairly be considered halfhearted. Later on, Geithner says his no-haircut strategy was a "no-brainer." He wasn’t trying to save taxpayer money; he was trying to appear like he was trying to save taxpayer money while funneling money to banks.
Geithner also says that as incoming Treasury secretary he recommended that the administration retain Sheila Bair at her position, even though press reports at the time and counter pressure from Congress suggest he was trying to get her fired. He also claims that Bair agreed to guarantee Wachovia’s liabilities after she saw how ruinous her strategy of penalizing shareholders and bondholders at Washington Mutual had been. She had “gotten her glimpse into the abyss, her taste of the burden of fear that Hank, Ben, and I had carried for more than a year.” Bair tells it differently, of course, pointing out that Wachovia and Washington Mutual had different institutional risks and different regulators.
The list of misleading statements goes on and on, and it’s a long book. Dean Baker captured a lot more of them, from misleading statements about a Second Great Depression to the housing crisis run-up to a bad analysis of the first-time home-buyers' tax credit. Recognizing this tsunami of deceit is actually central to recognizing what happened during the bailouts. The bailouts were, simply put, done in bad faith. Geithner was hired to lie, steal, and cheat on behalf of bankers, and he did so. The rival books, the competing stories about what happened, aren’t a philosophical debate over policies anymore than stabbing someone in the back with a knife is an honest airing of disagreements.
***
So why did Geithner actually release this book? Perhaps he wants to make himself look good. It wouldn’t be the first time for a DC memoir. Or maybe the reason is more prosaic—maybe the book actually helps Tim Geithner make money. Geithner left Treasury and is now the President of Warburg Pincus, a powerful private equity group that buys and sells companies. Geithner has no understanding of this business, but he was hired anyway to run it, or at least appear like he runs it. Why? Sure, he’s a talented guy, but one obvious reason is because of his network of contacts in government and in the banking world. Elites like Geithner trade on their credibility, so he must have his fictionalized version of the crisis in print. If he doesn’t, then officials might eventually listen to the version put out by Elizabeth Warren, Neil Barofsky, and others and tune him out. While Geithner can’t block Elizabeth Warren from telling her story, at least he can throw sand in the umpire’s face.
That isn’t, of course, what he said publicly about his new job.
Geithner told Ezra Klein at Vox that he chose private equity because of ethical concerns: He did not want to go through the revolving door to the banks, he said, and did not want to be involved in companies he had been regulating. Of course, private equity as an industry was actually placed under regulation by none other than Tim Geithner through Dodd-Frank. The industry is heavily dependent on large banks for syndicate financing, so Geithner’s contacts and credibility should come in handy.
Beyond that, one of Warburg’s very first investments with Geithner at the helm was a $100 million infusion of cash into a company called Source, which is a large European asset manager that handles a shadow banking instrument called an exchange-traded fund (ETF). The government recently warned that ETFs may help contribute to the next financial crisis. And amusingly enough, there is a bitter fight between the regulators as to how and whether to regulate these companies, one that Geithner could be swaying behind the scenes (as he did so often with policies he did not like during the crisis). And this is just one example—Warburg owns many companies in the heavily regulated finance space, and I’m sure Geithner can add value to many of them. Already, SEC Chairman Mary Jo White is aggressively fighting to prevent any regulation of these asset managers. White was nominated to be SEC Chairman on January 24, 2013, the day before Geithner left Treasury. Her nomination might have been the last substantive decision he made in government, and it could be profitable for his new employer.
Moreover, the idea that private equity is an ethical industry is a remarkable claim. It is an industry dedicated to financial engineering over creating real value. The government recently came out with its very first analysis of this industry, which is known to most Americans as the place where Mitt Romney somehow got wealthy by laying people off. It turns out that more than half of the private equity funds the SEC examined were engaged in outright violations of laws in their financial dealings (or, more politely, were said to have "material weaknesses of controls"). Private equity funds routinely overstate returns, mislead investors, loot companies they buy, and break the law. Geithner found an industry even scummier than working as an executive at a Too Big to Fail bank and jumped right into it.
This book, in other words, is not an honest account of the crisis. It is simply one more tool for Geithner to use to get what he wants, and if there’s truth in it, that’s just merely because at that moment truth was convenient for Geithner’s ends.
Ultimately, Geithner was a hit man for American democracy—and the middle class that sustained it. Geithner has acknowledged substantial fraud in the crisis, but he won’t even deign to answer why the administration did nothing about the individuals who perpetrated it. He doesn’t discuss distributional questions from the bailout. He sneers at the notion of justice. He argues for "anti-democratic" measures in a financial crisis, including emergency powers for the president similar to those the president has for national security. He won’t really explain why he refused to fight for writing down mortgage debt, or even what his role was in doing so. Geithner even takes time to knock Franklin Delano Roosevelt’s handling of the Great Depression. In other words, Geithner never grapples with any of the political or moral consequences of what he did. It’s just TARP-made money, baby! Or, as I’ve laid out, buckets of lies, misstatements, and omissions.
Geithner is at heart a grifter, a petty con artist with the right manners and breeding to lie at the top echelons of American finance at a moment when the government and financial services industry needed someone to be the face of their multi-trillion dollar three card monte. He’s going to make his money, now that he’s done living his life of fantastic power after his upbringing of remarkable mysterious privilege. After reading this book and documenting lie after lie after lie, I’m convinced that there’s more here than just a self-serving corrupt official. There’s an entire culture, of figures at Treasury, the Federal Reserve, in the entire Democratic Party elite structure, and in the world of journalism, a culture in which Geithner is seen as some sort of role model.
Americans may not get the reckoning, investigations, and jail time for wrongdoers, including Geithner himself, which they want, at least not now. But they don’t have to buy Geithner’s version of events. Far less important than what kind of regulation is in place is the ethical and cultural question of whether people like Tim Geithner can continue to lie, cheat, and steal at the highest reaches of government. Hopefully, Americans have learned enough from the financial crisis so that the answer will be no.
The task of reclaiming democratic power will involve making work at Geithner’s Treasury a black mark on a resume, an embarrassment and a shameful episode. That has already started. Larry Summers was prevented from becoming the Chairman of the Federal Reserve by progressives on the Senate Banking Committee, including Elizabeth Warren, Jeff Merkley, and Sherrod Brown. This week, the same coalition blocked the appointment of Michael Barr, the architect of Treasury’s housing policies, to an open slot at the Federal Reserve board. The pushback is happening because the Geithner era is increasingly seen as a time of betrayal and lies, not just disagreements over ideas. These people are seen as bad faith cancerous operators who need to be removed from positions of power and influence. Traditionally, Democrats think that the GOP is the party of meanness, of the wealthy, and then wonder why citizens choose to vote for them. But Americans are not stupid, and they saw what Geithner, as the head economic official in a Democratic administration, did.
As a result, the liberal faction in the Democratic Party is beginning to grapple with what it means to have grifters setting the course for economic strategy. There is now a debate about whether and how to purge this toxic culture. Geithner probably wishes there weren’t, which is one reason he wrote the book. He actually has to try and justify the horror show he put on. Believe it or not, that’s progress. Next time there’s a crisis, if reformers learn anything from this book, it’s to make sure that there are no Geithner types anywhere near the levers of power.
From 2009 to 2010, Matt Stoller worked on the Dodd–Frank Wall Street Reform and Consumer Protection Act as a congressional staffer. Follow him on Twitter.
