Andrew Ross Sorkin’s profile of Tim Geithner in Sunday’s New York Times Magazine, pegged to the former Treasury secretary’s just-released book, doesn’t break much news. Most of us who followed Geithner’s career already knew he wanted to bail out Lehman Brothers, opposed nationalizing Citigroup, and tried to spike the Volcker Rule. But I’ll say this for Sorkin’s piece: It includes one of the most revealing Geithner quotes I’ve ever read. It comes at the end of the piece, while Geithner is defending his new job as president of the private equity firm Warburg Pincus. “The private sector is what most people do for a living,” Geithner tells Sorkin. “I thought that the possibility some people would criticize me for not staying a public servant was not a good reason not to go try and learn something new.”
The line is rather preposterous on its own terms. (As if people would have responded the same way had he left Treasury to become a yoga instructor.) But it inadvertently highlights something deeper about Geithner, which is the shocking extent to which he’s accepted financialization of the economy as a benign, even admirable, development. The people who spend their days shuffling trillions of dollars around the globe are really just like you and me, except with nicer offices. They deserve the same sympathy and respect, notwithstanding their abysmal track record. That blinkered view colors pretty much every one of Geithner’s utterances as he makes the rounds hawking books.
To take another revealing example from Sorkin’s piece, at one point Geithner complains about the British government’s efforts to rein in executive pay. “It wasn’t really designed to change comp,” Geithner says. “It was designed to create the impression that they were changing comp. Did it … make them more popular for doing it? No. Was it effective? No.” Most people might look at the British experiment and conclude that the flaw was making a phony effort, as opposed to an actual effort, to rein in compensation. Geithner looks at the British experiment and concludes that the flaw was making the fake effort as opposed to no effort.
Geithner’s most consequential riff has to do with TARP, of course—the $700 billion Congress approved for shoring up banks in the fall of 2008. Geithner’s view of this, which he’s expressed many times before, is that the government had no plausible alternative to backstopping the banks. As evidence of the soundness of this view, he points to the way taxpayers made money on the transaction: $32 billion so far, perhaps over $100 billion before all is said and done.
The amount of nonsense contained in this statement is hard to get your head around. For one thing, it’s close to meaningless to say you made money on a loan or investment and leave it at that. One needs to know how much risk was involved. If I lent your all-but-sure-to-fail company $1 million dollars, and you paid me back my principal plus $1,000, the transaction would not be a testament to my financial savvy. It would attest to how egregiously I under-charged you for the loan, since no one else would have offered such generous terms.
This was essentially the problem with our bailout. In mid-February of 2009, arguably the most anxious post-Lehman moment for the financial system, the top financial agencies of the US government (including Geithner’s Treasury Department and the Federal Reserve), put out a statement vowing to “preserve the viability of systemically important financial institutions”—meaning that they wouldn’t let any other giant fail. This explicitly committed the American taxpayer to an insurance policy that covered many trillions of dollars worth of assets. It almost certainly helped revive the megabanks’ stock prices and lower the rates at which they could borrow from private investors. It probably did as much to nurse the banks’ back to health as the money Geithner injected directly into the financial system via TARP. To say we’ve reaped a few tens of billions of dollars when we were on the hook for several trillion seems a bit … strange. But one hallmark of the finance-centric view of the economy is to all but ignore the gobs of hidden subsidies the rest of us serve up for the banking system. Geithner has mastered this delicate art.
Then there is Geithner’s related suggestion that because we saved the banking system and still managed to make money in the process, somehow we stumbled onto a reasonable approach for the future. Sure, it seemed like a bad idea during the financial crisis to have banks so big their collapse would lead to global financial ruin. But Geithner’s take-away is that it’s actually far less pernicious than would appear. If and when the panic comes, you just shovel money into the banks, get paid back (with a little profit, no less!), and go on about your business. It’s so much more practical than actually breaking up the banks, which would make a lot of bankers really, really sad. As Geithner told a Harvard economics class Sorkin sat in on, ending too-big-to-fail is “like Moby-Dick for economists or regulators. It’s not just quixotic, it’s misguided.”
Now might be a good time to pause for a brief historical refresher: The $700 billion we spent on TARP, or even the trillions in implicit subsidies we gave the banking system, were not the only cost of the financial crisis. The crisis and the recession it caused wiped out trillions of dollars in wealth and economic growth, while inflicting pain and suffering on millions of unemployed, newly-destitute, and suddenly asset-poor Americans. While Geithner is right that we had no alternative to limiting the damage with a series of bailouts (even if the banks should have shouldered much more of the cost), that position is only remotely coherent if it prompted us to rethink the structure of the financial sector to ensure this never happens again.
But Geithner considers this demagoguery. Far better to accept self-detonating banks as a central feature of the US economy. “I don’t have any enthusiasm … for trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world,” he told me a few years ago. “It’s the same thing for Microsoft or anything else. We want U.S. firms to benefit from that.” Geithner couldn’t conceive of the U.S. as a global economic power without Wall Street playing an outsized role.
What always bothered me about Geithner, and which Sorkin’s piece draws out, is that he often seemed more dedicated to the banks than the bankers were to their own cause. While reporting my book about Obama’s economic team, plenty of bankers confided to me that the bailouts were shockingly generous. Many of them tended to take a “these f---king guys” view of their colleagues and puzzled over how Geithner could be so deferential. It made me suspect Geithner would have been much more of a hard-ass had he spent a few years toiling on Wall Street before joining government.
Instead, as Geithner tells Sorkin, “My jobs mostly exposed me to talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.” Bummer for the rest us. But I guess that means at least one good thing may come out of Geithner’s recent move to Wall Street: He’ll actually get to know the place this time.