Tim Geithner's Memoir Gets a Title, Will Join Crowded Crisis Bookshelf


NEW YORK (MainStreet) — Timothy Geithner's upcoming memoir finally has a title: the former Treasury Secretary's Stress Test will go on sale May 13, joining the numerous other chronicles of the financial crisis written by participants in and observers of the Wall Street-Washington nexus.

In finance, a stress test is a procedure to evaluate the strength of a bank's balance sheet, determining how it would perform under crisis conditions. The Federal Reserve carried out several post-crisis stress tests of the country's leading financial institutions during Geithner's time at Treasury; these analyses got lots of attention as gauges of the system's health shortly after a near-death experience. As the title of a memoir, however, this technical term assumes a personal significance. Geithner seems likely to present his tenure as a time of exceptionally difficult choices, when policymakers did the right things overall but were rewarded with skepticism and public scorn. "We made mistakes, it was messy, and the damage was devastating and long-lasting," he said in a statement accompanying his publisher's announcement. "And yet, at the moments of most extreme peril, the United States was able to design and execute a remarkably effective strategy."

"We saved the economy from a failing financial system," Geithner concludes, "though we lost the country doing it." Of course, what galls critics of the government's "remarkably effective strategy" is the disparity between the post-crisis fortunes of the financial sector and those of the real economy. As of last month, three and a half years after the official start of the recovery, about half of U.S. counties were still below their pre-recession levels of economic output; by the first quarter of 2012, Wall Street earnings were at record levels. So people outside of finance might not be especially receptive to Geithner's message of essential economic success, to say nothing of the occasional note of self-pity he sounds when describing what it was like to administer the bailout-heavy government response: "You look like you're giving aid to the arsonist," he told the Wall Street Journal about the perception of his role. (Associated Press reporter Tom Raum seems to have correctly predicted Geithner's experience when he wrote in fall 2008, "In an economic crisis, as now, [Treasury Secretary] can be one of the most powerful and stressful jobs in the government.")

In anticipation of Geithner's contribution -- as well as that of former Fed chairman Ben Bernanke, who on Monday said he'll write his own book -- here's a look back at the facets of the crisis that have been revealed in book form so far.

Too Big to Fail by Andrew Ross Sorkin (2009)

In the judgment of an economist who read 21 books on the subject, "Sorkin's account is perhaps the best single descriptive narrative of the top levels of the 2008 phase of the crisis that we have." The book is full of insights into the incestuous nature of the high finance clique, though Sorkin indulges in a lot of sympathetic mind-reading of his subjects. At one point, the sight of commuter ferries heading for Lower Manhattan is said to give Geithner pause: "This is what saving the financial industry is really about, he reminded himself, protecting ordinary people with ordinary jobs."

Bailout by Neil Barofsky (2012)

The sentiment ascribed to Geithner by Sorkin above would be vociferously disputed by Barofsky, who served as the first ombudsman for the Troubled Assets Relief Program (TARP). An economics major but a Wall Street outsider, Barofsky arrived in Washington after making his name prosecuting FARC drug traffickers. He saw the $700 billion bailout program as a bonanza for the banks, whose interests were always prioritized over those of ordinary citizens suffering unemployment, foreclosure, and insolvency in the wake of the crash. According to the book, Geithner did not respond well to Barofsky's feedback: when challenged on transparency, the Treasury Secretary shouted, "Neil, I have been the most f--king transparent secretary of the Treasury in this country's entire f--king history! No one has ever made the banks disclose the type of s--t that I made them disclose after the stress tests!"

House of Cards by William D. Cohan (2010)

An investment banker-turned-critical financial journalist, Cohan wrote a definitive chronicle of the life and death of Bear Stearns, the firm whose sudden collapse in March 2008 touched off panic on Wall Street. Cohan's title carries a significant double-meaning: there was a flair for high-level contract bridge among Bear Stearns executives. Chairman Jimmy Cayne was actually away at a tournament when things fell apart. It's possible, Cohan suggests, that a mismatch between the skills and lessons of bridge and finance contributed to Bear Stearns' failure.

Fool's Gold by Gillian Tett (2009)

Whereas Cohan tells the story of the first firm to sink during the crisis, Tett focuses on the bank that is generally thought to have weathered the storm most successfully: J.P. Morgan. In 1994, a JPM team created the first credit derivatives, financial instruments purported to protect against the risk of default. These and other innovative securities soon permeated the market, greatly increasing the systemic risk of a drop in underlying asset prices -- like a collapse in home prices. Tett, whose background is in social anthropology, perceived an insular culture among investment bankers, whom she saw as oblivious to real-world conditions. Her field work included interviews with Geithner and J.P. Morgan CEO Jamie Dimon; the latter she presents as more cognizant of the danger than most on Wall Street.

The Big Short by Michael Lewis (2010)

The heroes of this story aren't government officials or big bank CEOs but rather traders and analysts who saw the crisis coming and bet on disaster. Lewis, who worked at Lehman Brothers in the 1980s, marvels at the mistaken consensus that reigned on Wall Street, allowing a handful of outside dissenters to make huge fortunes when the market crashed.

The End of Wall Street by Roger Lowenstein (2010)

Lowenstein locates the origins of the crisis at the founding of Fannie Mae, the government-sponsored enterprise that helped facilitate the overheating of the housing market (along with its younger sibling, Freddie Mac, and investment bankers hungry for loans to securitize). The mortgage-to-CDO pipeline amounted to an "unholy alliance" between Main Street and Wall Street, exposing hordes of homeowners to risk they could not manage. "What truly failed was the postindustrial model of capitalism," Lowenstein argues. "The market's tools for measuring risk simply did not work. And the most sophisticated minds on Wall Street proved no wiser than country loan officers."

Freefall by Joseph Stiglitz (2010)

The Nobel Prize-winning Columbia professor incorporates the bursting of the dot com bubble into his account of the recent "sinking of the world economy." Just as an inadequate response to the 2000 crash created the conditions for another crisis less than 10 years later, our failure to rein in the too-big-to-fail banks means a new disaster in the near-future is unavoidable.

Fault Lines by Raghuram G. Rajan (2011)

Explaining the crisis in structural terms, with reference to the entire global economy, Rajan identifies several disjunctures that tend towards financial upheaval. Income inequality in the U.S., capital imbalances between countries and the distinction between high finance and traditional business all create skewed incentives that drive dangerous behavior at every level of society. Among his proposed solutions are universal health care and increased democracy in international development efforts.

The Sellout by Charles Gasparino (2009)

The longtime Wall Street television correspondent spreads the blame widely in recounting three decades of pre-crisis folly. From the development of mortgage-backed securities in the late seventies and early eighties, to the expansion of government housing subsidies in the nineties, to the abdication of the ratings agencies in the 2000s, no player in the financial system emerges untainted by failure. The most memorable villain is Lehman Brother's final CEO, Richard Fuld, who berated skeptical employees hysterically and turned down a respectable buyout offer in the belief that a government committed to bailouts wouldn't let his firm go bust.

On the Brink by Henry M. Paulson (2010)

One firm that the government did not abandon was Goldman Sachs. Paulson ran Goldman in the decade or so before the crisis, and was Treasury Security when all hell broke loose. Recently, a reporter mentioned these facts to Tom Steyer, a former hedge fund manager who used to work at Goldman and is said to be a friend of Paulson's. Did those two positions amount to a conflict of interest? Steyer responded that his old firm "got deferential access and deferential outcomes, and that anybody who doesn't get that is a f--king idiot."

Deference to Goldman is not a salient feature of the government's response in Paulson's account; as he tells it, "the most important part of the story is the way Ben Bernanke, Tim Geithner, and I worked as a team." Given Paulson's view of their partnership as "an enormous asset during an incredibly difficult period," it will be interesting to see how their memoirs compare with his.

--Written by Eamon Murphy for MainStreet



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