In the spring of 1983, as a cap and gown-wearing Tim Geithner was graduating from Dartmouth College, the commencement speaker was Paul Volcker, who was chairman of the Federal Reserve and was under intense public scrutiny for his decision to raise interest rates as high as 20 percent to clamp down on inflation.
In his book “Stress Test: Reflection on Financial Crises,” Mr. Geithner recalls that fortuitous day: “Volcker would later become an adviser when I headed the Federal Reserve Bank of New York — and even later an Obama administration colleague who didn’t always approve of my work — but at the time I don’t think I even knew what the Fed was.
“I’d like to say that his speech inspired me to pursue a career as a truth-telling central banker and public servant, but honestly, the sound system was so garbled I couldn’t hear a word.”
Fast-forward 25 years. Mr. Geithner would be President Barack Obama’s secretary of the Treasury as the nation faced an economic crisis that was many times more toxic.
But while Mr. Volcker’s relentless rate-raising campaign was hailed as being just what the doctor ordered for the United States, Mr. Geithner’s legacy of responding to the nation’s biggest financial crisis since the Great Depression is tainted with an unpopular bailout of major banks whose own mismanagement had pushed the nation to the edge of financial Armageddon.
Mr. Geithner’s “Stress Test: Reflections on Financial Crises” comes in at a hefty 544 pages, many of which are devoted to shedding some light on what was going on behind closed doors at the height of the historic financial meltdown. We get a sense of what it may have felt like to be in Mr. Geithner’s shoes when the nation was looking to him for leadership as stock markets were crashing, the mortgage market had collapsed, unemployment was surging and millions of Americans stood to lose their savings and their homes.
At a time when many Americans were terrified of what the future would bring, we learn that Mr. Geithner wrestled with his own doubts and insecurities in the darkest days of the crisis. He dreaded public speaking, had spent his whole career behind the scenes, and was utterly unprepared for being suddenly thrust into the spotlight.
His public appearances did little to inspire the confidence Americans desperately needed at that time. Mr. Geithner often came across as someone who was uncomfortable being out front and always seemed to be holding back information about how bad things really were. We now know all of the above was true. Mr. Geithner wasn’t even that sure of his own message.
Our financial system is alive and well six years after the crisis. While the recovery plan Mr. Geithner engineered with the help of other insiders continues to have its supporters and critics, Mr. Geithner’s central theme through the book is that his response to the crisis had nothing to do with sympathy for the banks. He only wanted to limit the damage to ordinary Americans and others around the world.
The stakes were indeed high, and many Americans are still convinced that Mr. Geithner and his team rewarded greedy banks with billions or even trillions in taxpayer dollars. But as Mr. Geithner explains it, hard choices must be made in the midst of a rapidly unfolding crisis, and not every choice will be right.
Tim Grant: firstname.lastname@example.org or 412-263-1591.