Monday, June 23, 2014

Stress Test

Anyone who wants to re-live those exciting and scary days of 2008 and 2009 when we suffered through the worst financial crisis since the Great Depression, should pick up Tim Geithner's Stress Test. More than a memoir, the book tries to serve as a manual for dealing with massive financial panic. Yet it turns out to be an entertaining and pretty quick read for a 500 page tome, probably because it's dealing with momentous times and big issues.

Geithner is probably the most misunderstood and under-appreciated member of President Obama's first-term cabinet. He was disliked by both the right and left, and he probably realized even at the time that his task was thankless politically. He was a poor communicator, starting this self-deprecating book with the story of his first disastrous speech as Treasury Secretary, and talking elsewhere about his "colorless" speeches. And he failed to deal with some of our most distressing financial problems--high unemployment, fairness, bank regulation--in a way that satisfied most Americans.

On the other hand, Tim Geithner, maybe more than anyone else, probably saved us from another Great Depression. And the stress test, which he conceived sitting on a beach in Mexico during Christmas vacation just before President Obama took office, turned out to be a brilliant solution to restoring confidence in the banking system, which was absolutely critical to getting the economy moving again. Past massive bank failures, such as the savings and loan crisis of the 1980's, ended up costing the taxpayers many billions of dollars. But the near collapse of some of our largest financial institutions in 2008 ended up costing the taxpayers nothing, due to Geithner's brilliant plan. In fact, we were paid back with interest.

But who's going to thank Tim Geithner for saving the banks, as necessary as that may have been to economic recovery? A lot of people think they should have been allowed to fail, or at least punished more than they were, even though we probably would have seen the resurgence of 1930's style shantytowns across America had a general banking collapse been allowed to happen. (A lot of people also think that the basic problem was that the banks were too big to fail in the first place, and that that problem has not been solved. Geithner responds to that criticism by reminding us that the Great Depression was precipitated by the failures of hundreds of small banks. Breaking up big banks would not have prevented or solved the financial crisis. Anyway, in comparison to the banks of most other advanced countries, relative to their home countries' GDP, our banks are actually not even that big.)

From the viewpoint of Obama-watchers like myself, what's interesting about Geithner's portrait of the president is Obama's emphasis on getting the policy decisions right, regardless of the political consequences. President Obama pushed his economic team to come up with the best possible plan, and backed them up to the hilt. It's ironic, given that Obama supporters such as myself were initially attracted to his candidacy because of his promise of a more open and inclusive political process, even at the possible expense of particular policy outcomes. Instead the president stuck to his team's policy guns, because that was what was deemed necessary to restore the economy. And without restoring the economy, nothing else would have been possible.

Regardless of whether you agree or disagree with Geithner's analysis or prescriptions, it's hard after reading this book not to admire his self-sacrifice and devotion to the best interests of the country. And Geithner has solid answers to all the criticisms of his tenure in office. His perspective deserves to be heard and better understood.

1 comment:

  1. Very good article Joe. Much appreciated. Happy 4th to you!