At a state dinner in 2011, Timothy F. Geithner writes in his new book, Stress Test: Reflections on Financial Crises, Barbra Streisand told him he had to be a good guy because, after all, he was a Brooklyn Jew. “It was kind of her,” the former Treasury secretary recalled, “except that I’m not Jewish and I’ve never lived in Brooklyn.”
Surprisingly, the question of Geithner’s alleged yiddishkeit never came up May 22 at Washington’s Sixth & I Historic Synagogue. Perhaps that’s because he had a far more serious topic to address: how the White House struggled to get the U.S. economy back on track following the financial meltdown of 2008.
“The crisis was borne of a long period of relative boom, rising borrowing, a huge increase in leverage, and the expectation that future recessions would be short and shallow,” Geithner told a sellout crowd of 450 people — many of them clutching copies of his book and hoping for an autograph. “There was this deep disbelief that somehow we had designed a financial system that could survive pretty massive shocks.”
Geithner, 52, shared the bima with Ben Shalom Bernanke, chairman of the Federal Reserve from 2006 until this February, when he was succeeded by Janet Yellen.
“In 2007, you had this initial slow burning run on the periphery of the system, gathering momentum and reinforcing itself — ultimately leading to the collapse in 2008,” he said. “It’s something we hadn’t seen on a global scale for more than 70 years.”
(Bernanke, who reportedly earns $200,000 per speech, is working on his own memoir.)
Bernanke quizzed the former treasury chief on how the financial markets reacted to the initial crisis, to which Geithner joked, “This is like talking about baseball with Mickey Mantle.”
Even though Americans were “at the point of maximum danger,” he insisted, ordinary citizens never felt it as they did during the Great Depression of the 1930s.
“Previous periodic financial failures being absorbed easily helped breed the sense of excess confidence. When that crisis hit us, a huge amount of that risk ended up outside the core of that traditional banking system, without any foundation of protection against runs and panics,” said Geithner, who frequently faced unrelenting criticism from both Democrats and Republicans for his supposed lack of empathy. “It’s uncomfortable to admit, but it’s sort of like a power grid. If it goes off, everything stops. It took a massive, unprecedented deployment of financial force to begin to heal the damage.”
Bernanke, noting that Geithner was neither part of Obama’s 2008 campaign nor a member of his inner circle, asked him why he ultimately agreed to leave his job as president of the Federal Reserve Bank of New York and become Treasury secretary despite his own misgivings.
“My father voted for Romney in 2012, and my mother gave money to Elizabeth Warren,” Geithner confessed. “But when I met [Obama] four years before, in 2008, he said he might have to ask me to come to Washington if he became president. When your president asks you to do something, you should say yes. I’m glad I did, even though it imposed a terrible burden on my family. It was a great privilege to work with him.”
Geithner said he tried as much as possible to protect his family from the stress of his job — particularly at the height of the crisis.
“In December 2011, I was in the hospital waiting for an operation, and my wife and daughter came to hang out with me,” he recalled. “I was alert, though somewhat sedated. Then my secret service agent knocked on the door and said POTUS was on the phone. My daughter said, ‘Who the heck is POTUS?’ I felt pretty proud that after three years, she still did not know the acronym for president of the United States.”
He also defended the Obama administration’s response to the crisis, fending off critics who said the government cared more about Wall Street than Main Street.
“Predatory lending caused this crisis. You have to decide. Your first obligation is to protect people from the risks of calamity and massive unemployment. Then you can turn your attention to giving people a measure of justice,” he explained. “It’s like you’re in the cockpit of a plane, the plane is on fire and people want you to come out of the cockpit and negotiate better conditions for the passengers. But you’ve got to land the plane first, then figure out how to fix a very damaged system.”
Looking back, Geithner said his fiscal stimulus strategy proved “remarkably effective” — especially when compared to Europe’s response to the crisis.
“I wouldn’t want to trade our challenges for theirs,” he said. “They had a tougher challenge, but they chose impose a generalized austerity across the continent at a time when their economies were falling off the cliff. That strategy was the typical instinct, pretty much the opposite of what you should do.”
In contrast, he said, “we had both feet on the accelerator” — helping markets recapitalize the U.S. financial system on its own, and restoring badly needed confidence.
“The economy went from falling 8 percent at the end of 2008 to growing within six months,” he said. “We’re still suffering from the huge damage left over from the crisis, but those actions were essential in ending panic and forestalling the risk of massive unemployment.”
In the question-and-answer session that followed Geithner’s speech, one member of the audience asked what he thinks about today’s partisan gridlock in Washington.
“It’s cause for despair. It seems we’ve lost the capacity to legislate reforms, but I try to tell a more optimistic story,” he replied. “Relative to the last 100 years of financial crises, our political system was able to build a coalition of support for emergency powers that were vital and essential — despite the fact we were in the midst of a transition between two presidents of different parties. In some sense, this demonstrated once again that when confronted with crisis, the United States did the necessary thing.”