One of these days, there's going to be a book about the financial crisis as good as Peter Baker's book about the U.S. response to 9/11, Days of Fire: Bush and Cheney in the White House (Doubleday, 2013). Baker's account, which presents George W. Bush as "the Decider," at first somewhat overly inclined to take his vice president's advice, then moving away from him during their second term, has become a dominant motif of the narrative of the Bush administration.
In the meantime, there's Stress Test: Reflections on Financial Crises (Crown, 2014), by former Treasury Secretary Timothy F. Geithner. Geithner, 53, who was president of the Federal Reserve Bank of New York for five years before joining the Obama administration, is one of four senior policy-makers who served throughout the Panic of 2008, the others being former Fed chairman Bernanke, former Fed vice chairman Donald Kohn, and former Treasury Secretary Henry Paulson of the Bush Administration.
At a certain point, in describing his battles with Lawrence Summers, chief economic advisor to President Obama - in this case, stress-testing the banks, as opposed to asking Congress for hundreds of billions of dollars with which to nationalize and reorganize them before spinning them out again - Geithner recalls a pause in the argument when Summers "suddenly looked perplexed, as if he had just discovered something unexpected in a familiar place.
"You know, this stuff is really hard," said Summers.
"Welcome to my world," replied Geithner.
Geithner's world has always been an interesting place. The first of four children of lively parents, he grew up in India until he was twelve, attended junior high in Pelham, NY, and high school in Bangkok - his father worked first for the U.S. Agency for International Development, then for the Ford Foundation. After Dartmouth College, he graduated from the School of Advanced International Studies at Johns Hopkins University, from which former national security adviser Brent Scowcroft hired him into the firm of Kissinger Associates, the hypocenter of establishment internationalism, on the recommendation of Geithner's dean. After three years it was a short step to the Treasury Department of Nicholas Brady under George H. W. Bush.
It was Summers, after he took up his duties as Assistant Treasury Secretary for International Affair, in 1993, who next picked Geithner out of the pack - first as a personal assistant, then, after a year, to be Deputy Assistant Secretary for International Affairs. Summers was a brilliant economist and a champion debater but, Geithner writes, "I knew some things he didn't, like how Treasury worked, how diplomacy was conducted, and how to get things done." Former Goldman Sachs co-CEO Robert Rubin became Treasury Secretary and looked after the careers of both men.
Geithner developed a reputation as a man who talked back to Summers as his boss began his meteoric rise to replace Rubin. The three men managed the Mexican, Asian and LTCM financial crises together. When Geithner finally left the Treasury at the end of the Clinton administration, colleagues put together a series of joke suggestions for his next job. Rubin suggested he might become Summers' biographer.
When George W. Bush won to the 2000 election, Geithner took a job, a modest step down, as director of policy and review at the International Monetary Fund. A couple of years later, after Robert Rubin and Summers proposed him and Alan Greenspan endorsed him, Geithner became president of the Federal Reserve Bank of New York, a giant step up. CORRECTION: an earlier version mistakenly asserted Summers had been offered the job and declined.
Suddenly Geithner was immersed in the immensely complicated world of banking. The New York Fed is the biggest and most important of the regional Federal Reserve banks; its president is vice chair of the committee that sets monetary policy, and its staffers run the trading desks that execute it; its supervisors share responsibility for regulating many of the nation's largest banks.
Summers, meanwhile, spent those years managing a university. Upon resigning from Harvard presidency, he joined the hedge fund firm of D. E. Shaw - part time, a day a week - in the hopes of gaining experience in financial markets. By that time, however, he was at a disadvantage. The crisis had begun, and Geithner, as president of the New York Fed, was at the center of it.
After Obama was elected in 2008, Summers, who had signed onto the campaign in September as its chief economic strategist, pressed aggressively for his old post as Treasury Secretary. When the president nominated Geithner instead, Summers stayed on in hopes of replacing Bernanke in two years - or, perhaps, even replacing Geithner if he failed before then.
For a time, the contest between the two men was a close-run thing, with anonymously-sourced stories appearing almost weekly in the spring of 2009 about how much better a job Summers would do. But Geithner weathered the storm and the pair settled down to a long-running series of arguments about how to combat recession and get the economy growing again.
"Larry's mantra in those days was 'discontinuity,'" writes Geithner: "the importance of distinguishing the Obama response from the pre-Obama response." Signaling a break with the past was appealing, Geithner says; most Americans disliked the Troubled Asset Relief Program, known as TARP, and the administration needed Congress to appropriate its second half.
But I didn't like Larry's frequent derision of Hank [Paulson] and Ben [Bernanke]. One of Larry's memos to Obama was full of digs at "the mistakes of the past year and a half," the "erratic" and "ineffective" crisis response, and "the absence of any meaningful communication about objectives." These critiques weren't entirely wrong, but Larry hadn't been there and I didn't think he had earned the right to second-guess with that degree of confidence.
Geithner, on the other hand, represented continuity. He took plenty of criticism as a stooge of the banks, even though he had never worked for one. He argued for emergency lending, saying that saving the banking system meant saving the bankers, on the grounds that "what feels just and fair is just the opposite of what's required for a just and fair outcome." He won the argument for stress-testing the banks that survived the great mash-up of 2008. And in the end, in the summer of 2009, he persuaded Obama to nominate Bernanke to a second term, instead of replacing him with Summers.
I told the president I thought the current arrangement was working well., and I said this didn't seem like a great time for change at the Fed. He liked the idea of keeping Larry at his side and Ben at the Fed. I spoke with Ben, and the President invited him over to the Oval Office, where Ben said he was willing to stay, although he wasn't sure he wanted to serve a full additional term. He was tired, and the worst of the crisis seemed to be over. When it became clear the president wanted continuity, Larry was disappointed but I think he also recognized it wasn't an ideal time for a change. He was tired, too, and considered leaving the administration. But the president, Rahm [Emanuel, chief of staff], and I all leaned on him to stay. and he relented.
Summers left the next year, and when Obama nominated San Francisco Federal Reserve Bank president Janet Yellen to be governor and Fed vice chair, again on Geithner's recommendation, Summers immediately recognized his path to the chairmanship might be blocked. "Larry mused that she was certain to be the next Fed chair because she would be too compelling a choice to pass over - another correct prediction," Geithner writes.
Michael Hirsh, writing in Politico under the beguiling headline "Tim's Not Wild About Larry", imagines that Summers's hawkishness in losing the debate on financial reform may help him the next time the Fed job comes open, "if he's successfully rebranded himself as more of a progressive by then." I'm not so sure.
But Summers hasn't given up the chase. Two weeks ago he pronounced in the Financial Times that House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again (University of Chicago, 2014), by Atif Milan, of Princeton University, and Amir Sufi, of the University of Chicago's Booth School of Business, was not only "likely to be the most important economics book of 2014; it could be the most important book to come out of the 2008 financial crisis and subsequent Great Recession." Why? Presumably because it seeks to rekindle, in Summers's favor, the debates over mortgage relief that he lost to Geithner and others in 2009 and 2010. (Nor has the irrepressible Summers changed in other respects.
I can't resist passing along this YouTube clip, made for a reunion of the Harvard College Class of 2009, in which the Charles W. Eliot University Professor makes a cameo appearance, as does his economics department colleague N. Gregory Mankiw, who passed the clip along to readers of his blog.)
As usual, Summers is partly right. The biggest problem with Geithner's book is that he goes too far in forgiving his Treasury predecessor Hank Paulson (who gave his own account in On the Brink: Inside the Race to Stop the Collapse of the Global Financial System (Business Plus, 2010), then followed up with a Kindle update, Five Years Later (Hachette, 2013). That's easy enough to understand. They were partners when, after a year of trying to devise a "private-sector" remedy to the bourgeoning crisis, Paulson reversed himself and joined Bernanke and the Fed in taking the steps that stemmed the Panic of 2008 and prevented Great Depression 2.0. The same is true of President Bush. Geithner writes,
I didn't think much of Bush's tax cuts, his war in Iraq, or his conservative views on social issues, but I admired how he acted during the crisis. It couldn't have been easy for an ideological Republican to preside over such extraordinary government intervention in private enterprise.
These are matters that await some journalist in the future. The highly talented Baker, who covers Washington for The New York Times, loses interest in the economy as he pursues his Bush-Cheney theme. But in the meantime, all this, and much more, is described in Stress Test. Geithner, with the help of veteran journalist Michael Grunwald, who took a leave from Time, has written a terrific book.