The aftertaste of bailouts

Former U.S. Treasury Secretary Timothy Geithner discusses his new book 'Stress Test, Reflections on Financial Crises' during the Politico Playbook Lunch at The Hamilton May 19, 2014 in Washington, DC. As President Barack Obama's first secretary of the Treasury, Geithner helped pilot the country through the worst financial crisis since the Great Depression. Part memoir, part crisis survival handbook, 'Stress Test' offers Geithner's behind-the-scenes account of how a group of policy makers worked to avoid a second depression. 

Four years ago, I accompanied then-Treasury Secretary Tim Geithner to India.

He was there for the U.S.-India Economic Summit, and I was one of the few journalists along for the ride. I’d traveled with Geithner a few times before, and what struck me most was how relaxed he was on this trip. Geithner had grown up in India, in part. And he was, unmistakably, having fun there.

He blanched a bit when I suggested it then. But then considered the question. Part of his comfort level, he agreed, was his childhood. But another part, he suggested, was being in a part of the world familiar with economic crises. And unorthodox responses to them. Everyone was simply not as panicked.

I met with him again this week. His publisher invited a handful of journalists to an on-the-record coffee to discuss Geithner’s new memoir, Stress Test, much of which is spent defending his response to the financial crisis. It’s a philosophy very clearly shaped by his time at the Treasury Department during the Asian financial crises of the 1990s: act fast to prevent a panic, and then, he reiterated this week, “you go figure out how to bring a measure of justice.”

That approach is clearly controversial. It’s something economists and regular Americans will argue about for decades, especially as they see large banks continue to prosper. Geither is spending a heck of a press tour defending his view. Is he being disingenuous? I think it’s hard to say.

His contention is that punishment for malefactors is important, “but you need to make sure you’re not putting that ahead of what I think is the primary moral imperative: which is to prevent mass unemployment in the country.”

The book has come under criticism from many of the sharpest economic reporters around. From Felix Salmon, who was at this coffee, for overselling his role as a change agent at the New York Fed. And from Jesse Eisinger for many of the watered down solutions the Obama economic team was willing to accept.

Geithner has a strong preference for the art of the possible. Several of the reporters at this coffee asked him about the administration’s woeful record on housing. At one point, for example, the Obama team was behind a proposal that would have allowed some borrowers to reduce the principal of their mortgage if they filed for bankruptcy. The plan ran into trouble on Capitol Hill, and it was abandoned. “The president had a very talented legislative team,” Geithner said. “They tried. He told them to try, and they were not successful.”

He added: “You need a congress that can do stuff. And our system is set up so that it’s easier to block stuff than to do stuff.”

Perhaps the subject that resonates most for regular Americans is the hardest for Geithner, Hank Paulson, or anyone in either the Bush or Obama administrations to prove. That without TARP, or the subsequent lending programs, bailouts and what-have-you; we’d be worse off.  I don’t envy anyone who has to prove that negative.

Geithner himself agrees that he was terrible at explaining it. Reflecting on his opening policy speech in office, he writes: “It was a bad speech, badly delivered, rattling confidence at a bad time.” As someone who covered the crisis closely, I remember watching the markets plummet as he spoke, wondering what cataclysmic shoe would drop next.

And that brings us to the bitterest aftertaste of all the bailouts: the sense that those who gambled and were rescued with public money have never paid.  Geithner calls himself “a big believer in a powerful deterrent on the enforcement side.”

Yet when I asked him for an example of successful deterrence, he couldn’t name one. “You’ve gotta remind people, “ he said, “that I don’t get to make those judgments.” He added that the Justice Department’s prosecutors “were massively focused.”

Still, he said “its relative absence hurt us. Hurt the president a lot.” And perhaps that perception always will.

About the author

Lizzie O'Leary is the new host of Marketplace Weekend.

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