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Geithner Omits Cost of Success in ‘Stress Test’

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Tim Geithner’s valuable career as a civil servant culminated in four high-powered years as Treasury secretary. His recent book about those experiences captures the traumas and tensions of the financial crisis. He rightly takes credit for what most experts agree was largely a success: an economic cataclysm avoided, teetering big financial institutions restored to economic health, ultimately at no cost to taxpayers. Former Federal Reserve Chairman Ben S. Bernanke, ex-Treasury Secretary Henry Paulson, Geithner and his Obama administration colleague Larry Summers were the architects of these policies.

What Geithner doesn’t entirely convey in his book, “Stress Test,” is that success came at a price: more cynicism and distrust toward both government and the big banks. Most Americans think Wall Street, which created much of the mess, was bailed out, wasn’t held accountable and is now richer than ever, while Main Street still struggles.

In a Wall Street Journal-NBC News poll last month, only 13% of Americans expressed confidence in big financial institutions. That’s lower than the support for the national news media (never a favorite), the federal government or the Internal Revenue Service. The IRS!

An anecdote in the book is revealing. In 2009, shortly after the administration took office, Geithner and President Barack Obama were supposed to appear on television from the Oval Office. That day, newspapers had reported that the year before, as the financial system was on the verge of collapse and the government poured hundreds of billions of public dollars into a rescue, the big banks paid out bonuses of $18.4 billion.

The plan was for the president and his Treasury secretary to assail the inopportune bonuses. Geithner writes that he refused to do so on the grounds that he was “not very convincing as an angry populist.” In this view, he left the demagoguery to Obama.

Geithner argues that anti-business policies may feel good but accomplish little and are often counterproductive.

“Tough actions would feel resolute and righteous but in a time of uncertainty they would damage confidence and accelerate the downward spiral,” he writes.

Yet, notes Nell Minow, a prominent shareholder activist, it seems not to have occurred to him that he had a fiduciary responsibility to taxpayers to hold these companies accountable, even if he couldn’t roll back the bonuses. “That would have made the public feel better about both the government and Wall Street,” Minow says.

That isn’t the same as pitchfork populist policies. The book makes a persuasive case the government got most of the policies right. Conservatives contend that the big banks should have been allowed to fail, but that course of action probably would have caused another depression. The liberals’ calls for a bigger stimulus package and more help for strapped homeowners weren’t politically realistic.

Geithner said that he had spent his adult life in public service and was falsely portrayed as a creature of Wall Street.

“Nothing we did during the financial crisis was motivated by sympathy for the banks or bankers,” he writes. “Our only priority was limiting the damage to ordinary Americans.”

Even so, he seemed more comfortable with the banks’ culture, and never fully grasped that successful public policies must engender public support.

He can be balanced and self-critical. An example: His discussion of Brooksley Born, the chairwoman of the Commodity Futures Trading Commission in the 1990s, who was ridiculed by the economic establishment for suggesting that derivatives, which contributed to the crash, needed to be regulated.

Geithner still questions some of her remedies, but acknowledges that her concerns were “prescient” and that “we shouldn’t have been so dismissive.” This is in contrast to Summers, who became angry when Born was given a Profile in Courage Award by the John F. Kennedy Library for sounding the alarm.

The perception that the administration coddled Wall Street — even though financial executives insist they were vilified — has contributed to a sour, quasi-populism within both political parties.

This year, some Republican candidates are promising voters they will end bailouts, neglecting to note that the government got its money back. Republican senators as diverse as John McCain of Arizona and David Vitter of Louisiana have embraced measures targeting big banks. Look for the party’s right-wing populists — Rand Paul, Ted Cruz and maybe Mike Huckabee — to do some Wall Street-bashing in the 2016 presidential contest. (A challenge for Cruz is that his wife is an executive at Goldman Sachs Group Inc.)

On the Democratic side, here’s some bad news for the Geithner-Summers-Bob Rubin wing: If Hillary Clinton chooses not to run for president, the party’s base would turn to Senator Elizabeth Warren of Massachusetts, the scourge of Wall Street.


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