Stress and Dissent: Reading Geithner and Warren

If you’ve read the books and academic articles or even watched the movies about the financial crisis, you’ve mostly heard a unified and compelling narrative. On the cynical end, Geithner, Paulson, and Bernanke were Wall Street cronies in bed with the largest banks, the vampire squids like Goldman Sachs, and they used taxpayer money to bail them out. The more generous and nuanced view is that they made unprecedented moves to bail out TBTF banks because the big banks had too much power and sway over them. 

Geithner’s cleverly-named “Stress Test” is the Treasury Secretary’s attempt to convince us that everything we believed was wrong. (You can feel the struggle of Geithner trying to pull at the dominant narrative by watching the painful and uncharacteristically not-funny 45-minute interview with Jon Stewart .) Geithner sat at the very center of the storm from beginning to end. First as head of the New York Federal Reserve, the regulator most entwined with the Wall Street firms, he oversaw the early rumblings of crisis as well as the rescue of Bear Stearns and the failure of Lehman Brothers. Then, as Treasury Secretary, he oversaw TARP, the auto bailout, Dodd-Frank and every other aspect of the financial rescue.  Geithner knows what we think happened and he addresses each of our facts with other facts, each opinion with an insider’s take and each objection with a “reality check.” He did not want to bail out banks for the bank’s sake. He expresses disdain for their excess, stupidity, and herd behavior. He wants us to know that his team bailed them out to save the economy and the public from their collapse. The fear that drove him was not Wall Street failure, but America’s demise. He and his team were convinced that “there would have been shantytowns again” if they mishandled the crisis. And once the war was started, it was necessary to use "overwhelming force."

Geithner is not an arrogant hot-head as all the public accounts seem to indicate (See books by Neil Barofsky, Sheila Bair, and even Warren).  He comes off as humble and down-to-earth. His greatest flaw, and it’s a big one given his position, is that he lacks the gravitas and clarity to speak to the public and instill confidence. His signature is on all of our paper money and he sits at the center of a monetary system that is based purely on public trust. He readily admits that that is the one thing he “sucked” at. (He says the night before he started as Chairman of the New York Fed, he was carded when he tried to buy a beer). He is so aware of his failures in this arena that he runs through a list of media criticisms of some of his biggest public speaking flops, like the speech he gave about TARP that set off a stock market sell-off-- a speech that the Wall Street Journal commentator described as “Shock and uh.” He repeats these quips and more to “marinate” us in his shortcomings, which he also did with the President before he appointed him as Treasury Secretary. Geithner describes himself as an ordinary guy with average grades and average ambitions--or none, really. He goes to work for the government  because he didn’t have a clear sense of what he was good at, didn’t want to go to Wall Street, and because that’s what his dad did. Unlike almost every other memoir or autobiography, Geithner doesn’t offer any past narratives colored by the present—he didn’t for example, realize he was “good with money” by running a lemonade stand and he didn’t learn how to deal with crisis because of his childhood spent living abroad. His narrative is an honest, just-the-facts story without much self-reflection or moralizing.

Geitner’s basic message is that he and his team were first responders in a financial collapse and their goal and major achievement was to prevent the U.S. financial system to go over a cliff. His book demands that we measure their success by that metric. They saved us from collapse and earned a profit to boot! What’s everyone whining about? He calls some of his critics “populists,” “moral hazard fundamentalists,” and those who wanted “Old Testament Justice.” Geithner had no time for such grandstanding and rhetoric. He keeps repeating: “plan beats no plan.” He had a fire to put out and he was singularly focused on putting it out. His mantra was “no more Lehmans.”  According to Geithner, his failure to bail out Lehman, due in part to the Brits dropping the ball and not having enough authority, was the avoidable problem that set off an irrational panic.  In this account, it’s hard to argue that Geithner was nothing short of heroic--or as Michael Lewis says, “unusually brave.” He steered a sinking ship to safety by putting his head down and working tirelessly despite relentless criticism (and mockery) from all sides.

But if Geithner is the hero in this story and the bailouts were the only thing between us and another Great Depression, then why is it still so hard to feel grateful? Part of it is that many people are still suffering. But the other part is that any story in which the protagonist saves us all from disaster by giving cash to big banks is not a story that can easily put us at ease.

Geithner is invested in writing the history of the crisis from his perspective and he is honest and thorough as he does it, but maybe what he views as noisy naysayers and “fundamentalists” weren’t just obstructionists who didn’t appreciate the gravity of the situation. Maybe they just wanted to play a different game.

Elizabeth Warren’s “A Fighting Chance” is an account from one of those populists demanding “Old Testament Justice." “No perp walks. No mass indictments ... Where were the armies of auditors, seizing hard drives and poring over the financial statements?” (Although Warren’s book reads much more like a campaign book—it’s basically “Dreams of My Father” and “Audacity of Hope” rolled into one—short on details and heavy on grandkids, dogs and peach cobbler.) If Geithner’s repeated mantra is “No more Lehman’s” and “haircuts are always a bad idea,” Warren’s is: “the game is rigged.”

Geithner played by the rules of the game to achieve the goals of that game and he did a great, even heroic job. And Warren wants to change the rules of the game so that “winning” has nothing to do with bank profits. She refers to Geithner in her book as someone who always had her back, but whose main interest was to “foam the runway” for banks--make the crash landing as painless as possible and return them to profitability as quickly as possible. And this is where Geithner’s background does prove something. Geithner was not a Goldman executive as everyone thought. He makes this clear over and over again. He was not a Wall Street guy. But he was an umpire in that game. It’s possible he spent so long marinating in the rules of that game, that he couldn’t see anything past the stadium. 

Warren talks about a Time magazine cover in which she, Sheila Bair (FDIC), and Mary Schapiro (SEC) are labeled “The New Sheriffs of Wall Street.” Why were the Sheriff’s of Wall Street all women, she muses, when the majority of Wall Street all men? Because they weren’t invited into the stadium--they were outsiders: “I had never inhabited the world of high finance, never played golf with a foursome of CEOs, never smoked cigars at the club. Some people argue that if you are never in the club, you can’t understand it.” The financial system and the crisis are so complex that few people inside or out understand it and Geithner defends himself against the attacks by saying that people just didn’t understand the complexity or the stakes.  He is critical of both Sheila Bair and Brooksley Born (former CFTC chairman who proposed that derivatives should be regulated when no one else saw them as a threat). Geithner’s condescending analysis is that Sheila just didn’t understand the problem they were dealing with and Born’s proposal for regulating OTC derivatives was “noble,” but she lacked a “concrete and plausible plan.” Warren, he says, didn’t have a workable plan that was better than his--and “plan beats no plan.”

In a democracy, dissent can’t just be dismissed because it comes from outsiders "without a plan." And complexity isn’t a shield from criticism. It’s clear that Geithner did everything he could do. Everything except ditch the play book. Or ask foundational questions: were the Wall Street banks actually providing a benefit to the economy? Why funnel the rescue through the banks in the first place? Is our current banking system the right intermediary for credit? Warren, on the other hand, does just that because as she says “not being in the club means never drinking the club’s Kool-Aid. I had studied the banking system from the outside so none of it was sacred to me.”

In the end, I was surprised by how much I actually liked Geithner. And I’ve never believed that the game was “rigged.” Or at least no one is doing the rigging—no “bad guys” or vampire squids. Just a dogma so pervasive that everyone on the inside seems oblivious to life outside the sacred walls of Wall Street finance. And like religious fundamentalists, all challengers to their faith are seen as wrong or misguided. But we don’t live in a Wall Street theocracy and we need to have a public discourse about what kind of banking system works for all of us.