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MAGAZINE | NYT NOW
What Timothy Geithner Really Thinks
By ANDREW ROSS SORKIN MAY 8, 2014
This is kind of like a hearing, Timothy Geithner said, swaying
uncomfortably, face scrunched and hair perfectly tousled. Do you guys
always do it this way?
The former Treasury secretary was looking up from behind a long
desk at his audience a few dozen Harvard undergraduates, members of
Larry Summerss economics course, sitting in elevated rows of chairs and
staring back at him like senators at a Capitol Hill hearing. Geithner, 52, is
5-foot-9 with a naturally boyish look that he maintains in part by running
six miles several mornings each week. He looked hardly older than the
teaching assistants in the front row.
Early in his talk, Summers himself a former Treasury secretary (as
well as a former Harvard president and a director of Barack Obamas
National Economic Council) reminded his protg that many of the
students in the room probably had little idea of the role he played during
the 2008 financial crisis. There are many people in this room who were in
eighth grade when this was happening, Summers said, and soon enough a
number of students were summoning up Geithners Wikipedia page on
their laptops and iPads.
Geithner may have given hundreds of news conferences during his
four years as Treasury secretary, but he remains an awkward public
speaker, even if his audience consists of college students in hooded
sweatshirts. On this morning, as was the case many times before, his
responses generally coalesced around the plan that defined his tenure: the
5/10/2014 What Timothy Geithner Really Thinks - NYTimes.com
wildly unpopular authorization of $700 billion in taxpayer money, known
as the Troubled Asset Relief Program, to bail out Wall Streets biggest
banks. To oversimplify it, and I think this was Jon Stewarts framing,
Geithner told the students, why would you give a dollar to a bank when
you can give it to an American? Why not give them a dollar to help them
pay their mortgage?
Six years later, this question still lingers in angry debates between
economists and in the political rhetoric of candidates (on both the right
and the left) and in the minds of many Americans who feel that the
inequality they hear so much about (and experience firsthand) is a direct
result of Geithners actions. There are those on Wall Street and in the
plutocracy who feel that Geithner is a hero who deftly steered the country
from economic ruin. To many ordinary Americans, however, he is
considered a Wall Street puppet and a servant of the so-called banksters.
And as much as Geithner hates to explain, he very much wants to be
understood.
When the housing bubble burst in 2008, Geithner was the president
of the Federal Reserve Bank of New York. Along with Ben Bernanke, the
chairman of the Federal Reserve, and Henry M. Paulson, the Treasury
secretary at the time, Geithner was charged with essentially saving the
economy from sliding into the abyss. The so-called troika devised the plan
to inject billions of the governments dollars directly into the banking
system, effectively turning taxpayers into shareholders of massive, failing
institutions. When he then ascended to Treasury secretary in 2009,
Geithner became the public face of an economic-recovery program that, in
Paulsons words, polled worse than torture. The far-left labeled him an
Ayn Rand capitalist, the far-right a socialist. Sheila Bair, the former head
of the Federal Deposit Insurance Corporation, called his appointment to
Treasury a punch in the gut. The Daily Kos, a left-leaning blog,
published a story titled, Why Tim Geithner Should Go to Jail. At the
White House Correspondents Dinner in 2009, even President Obama
joked that a goal of his second hundred days would be to house-train his
new dog, Bo, because the last thing Tim Geithner needs is someone else
treating him like a fire hydrant.
Through it all, Geithner has maintained that saving the banks was the
only way to protect the U.S. economic system and, by extension, its
taxpayers. I would say that theres lots of messiness and unpleasantness
and awkwardness and a lot of unjust collateral beneficiaries of our
rescues, he told the students at Harvard. No doubt about it. It would be
nice if it were otherwise. But there was a more salient point he wanted to
convey. People think we gave the banks this free gift of hundreds and
hundreds of billions of dollars, using the taxpayers money that we would
never see again, he said. People thought we would lose $2 trillion on our
financial rescues.
He paused and looked out at a crowd that, its safe to say, probably
did not fully appreciate how intense the anger around the financial
bailouts had been and how close the country was to the precipice of a full-
on depression. We are going to earn, all in, a couple hundred billion
dollars, Geithner said. And six years after the bailouts, the too-big-to-fail
banks and the insurance giant A.I.G. have since repaid the money they
took from the government. Even the rescues of Fannie Mae and Freddie
Mac, the mortgage-lending companies that once had to borrow $187.5
billion, have turned profitable. Much of the dominant view about the
strategy, Geithner said, is the inverse of the truth.
To clarify his perspective on all of that messiness and unpleasantness
and awkwardness, Geithner has spent the past year writing a book
Stress Test: Reflections on Financial Crises that will be published on
May 12. It is filled with revealing and sometimes gripping behind-the-
scenes anecdotes. Geithner acknowledges for the first time, for instance,
that he was initially at odds with Paulson and Bernanke over whether to
bail out Lehman Brothers in advance of the famous weekend meeting in
which they sought to find a solution before the firm collapsed. (I sensed
their advisers pulling them toward political expedience, he writes, trying
to distance them from the unpalatable moves we had made and the even
less palatable moves I thought wed have to make soon.)
Geithner also discloses that some members of the administration
talked openly about nationalizing some banks like Citigroup. (If you want
to go in, you better be sure there are W.M.D.'s, Lee Sachs, an assistant
secretary of the Treasury, said during a meeting with Obama in the
Roosevelt Room.) And Geithner discloses that he refused to fire Ken Lewis,
the chief executive of Bank of America, who was near retirement. (Tim,
Im trying to look out for you, Geithner reports Gene Sperling, a counselor
to him at the time, saying that he didnt owe Lewis any favors. If hes
going anyway, why dont you push him out?) He even concedes that he
and Summers were initially opposed to the Volcker Rule, the widely
popular regulation barring commercial banks from proprietary trading.
His support, he writes, was certainly political.
But Stress Test is also surprisingly personal. Geithner confides that
he actually didnt want the Treasury job in the first place and that he tried
on multiple occasions to resign, but Obama wouldnt liberate him. He is
also forthcoming albeit in the somewhat unemotional language of the
technocrat about his own regrets. (Before the crisis, I didnt push for
the Fed in Washington to strengthen the safeguards for banks, nor did I
push for legislation in Congress to extend the safeguards to nonbanks, he
writes. I wish we had expanded our housing programs earlier, to relieve
more pain for homeowners.)
Geithner likes to say that all the criticism and the second-guessing and
the vitriol directed his way never got to him. I try to pay no attention to
that, he told me over lunch one afternoon in New York. Almost
indignantly, he added, Our job was to fix it, not to make people like us.
Later, though, he softened and qualified the statement. Im human, and I
like to be liked, he said, even if I didnt expect to be liked in this.
Geithner has remained silent about his time at Treasury, but over
the past month, he and I met several times to discuss and debate his
tenure. Despite the wonky monotone he often projected during the worst
moments of the crisis, he is lively and quick-witted in person, and he has a
special proclivity for particularly graphic language. Over lunch at Caf
Centro, near Grand Central Terminal, he told me a story from a few
months earlier: I was crossing Lexington Avenue and some guy said,
Youre one of the Goldman [expletive] who ruined the country. Geithner
said he replied, Thanks for sharing. At another point, he cheerfully
relayed a story that also appears in his book about the time he sought
advice from Bill Clinton on how to pursue a more populist strategy: You
could take Lloyd Blankfein into a dark alley, Clinton said, and slit his
throat, and it would satisfy them for about two days. Then the blood lust
would rise again.
Little of this personality emerged when Geithner was in office. A
career public servant, whose work often took place behind the scenes, he
seemed an unlikely fit for a high-profile position in the Washington
fishbowl culture. When his name was floated for the Treasury job in the
fall of 2008, he was busy helping stave off, as the president of the New
York Fed, the collapse of Citigroup. Geithner had moved for work before,
during the 1990s from Washington to Tokyo and back to Washington
for jobs at the Treasury Department and now wanted to stay put in
Larchmont, N.Y., a comfortable suburb a half-hour from Manhattan. I
felt guilty that I was even thinking about relocating again, he writes in his
book. I had also promised Carole his wife that we would never
again live apart, not for anything, and I knew we couldnt move the kids in
the middle of the school year. Carole Geithner, a social worker and
author, was openly resistant to the idea of her husbands becoming the
next Treasury secretary. Carole didnt just have reservations, Geithner
writes. She was opposed.
When he was summoned in the fall of 2008 to see Barack Obama,
then a candidate, at a W Hotel in Manhattan, Geithner offered a series of
arguments to disqualify himself from the job: He looked deceptively
young; he had little media experience; and, he recalls, in a period of
turmoil and uncertainty, the public would want to see a familiar and
reassuring face in charge of the countrys finances. (Geithner, after all,
had spent his career with titles like deputy assistant secretary for
international monetary and financial policy.) Perhaps most crucial, he
writes, he told Obama: Ive been up to my neck in this crisis. Youre going
to have a hard time separating me from these choices if you ask me to work
with you. The implication was that by appointing Geithner, one of the
main architects of the rescue strategy, the president would essentially be
forced to endorse the bailouts, which could have negative political
consequences. He suggested to Obama that Summers or Robert Rubin, his
mentors, would be fitter for the job.
But Geithner and Obama had a somewhat natural rapport. Geithner,
like Obama, had an itinerant childhood. His father worked for U.S.A.I.D.,
and the family lived in India, Zimbabwe, Zambia and Thailand. In the
conversation, they discovered that Geithners father ran the Ford
Foundations Asia grant-writing program in the 1980s at the same time
that Obamas mother was at its office in Indonesia. It was a nice
coincidence, Geithner says, but it still didnt make him want the job.
That didnt stop Obama from inviting him for another meeting after
the election, this time in Chicago. On his way to meet with the president-
elect, Geithner bumped into Summers, whose name had also been floated
for the Treasury job, at OHare International Airport. I ran into Larry,
who was, Im pretty sure, in the process of checking the Intrade odds on
Obamas choice for Treasury, Geithner writes, referring to the online
market where investors bet on political outcomes. It was kind of awkward
for both of us. I told Larry I had not sought the job and had urged Obama
to choose him as secretary, which didnt really make the situation less
awkward.
On his way back to the airport after his meeting with Obama,
Geithner received a call from Rahm Emanuel, who had been appointed the
president-elects chief of staff. Emanuel wanted to know whether Geithner
would accept either the Treasury job or a job as the director of the
National Economic Council, a less-prestigious post, if one of them were
offered to him. I said I would not do N.E.C., but if you asked me to do
Treasury, I would do Treasury, he said that he replied. In Emanuels
telling, Geithner was not drafted into the job with such reluctance. Im
not here to disagree with Tim, he told me. He said he wasnt going to
lobby for the job or put a campaign on for it, but obviously, if asked, he
would serve. He was asked, and he did choose to serve, and in a role
reversal, Summers accepted the N.E.C. post.
The last part of his acceptance was breaking the news to his wife. I
remember the moment, Carole Geithner recounted to me. He walked in
the door, and I just saw it in his eyes. He couldnt tell me verbally, because
we had a friend visiting who just before said, I dont think you need to
worry, I really think its gonna go to Larry Summers. And we had to wait
till everyone went to bed, and he told me, but I could tell just when he
walked in. And theres this pit in your stomach. She added: Id already
had a taste of the fishbowl, and Id also seen other peoples relationships,
what happens to them when theyre in the fishbowl. So I really had a sense
of dread.
That dread materialized quickly. During his nomination hearing,
questions emerged about why Geithner had not properly filed his tax
returns in 2001 and 2002. Geithner, who after a career in Civil Service was
probably one of the least wealthy nominees in the history of the office, told
the senators that he used TurboTax to calculate his filings. The perception
that he was overmatched for the position was strengthened when he
responded to a congressmans question at a second hearing by saying: I
just want to correct one thing. I have never been a regulator, for better or
worse. The flub, his critics said, was revealing. Geithner had run the New
York Fed, whose job is to supervise and regulate financial institutions, at
the very moment when Wall Streets largest banks were gorging on debt
and packaging toxic assets.
Geithner likes to say that his initial reluctance to take the job gave
him an enormous amount of freedom once he had it. On his third day, for
instance, while heading to a meeting in the Oval Office, he was handed
talking points for a brief statement that he and Obama would make about
the latest Wall Street bonus numbers. Geithner looked over the talking
points, which were meant to express outrage, and decided he was simply
not going to make them. So he sat silently and let the president express
outrage for the two of them. There will be time for them to make profits,
and there will be time for them to get bonuses, Obama told the press.
Nows not that time. And thats a message that I intend to send directly to
them, I expect Secretary Geithner to send to them.
But Geithners refusal to condemn the bankers became a recurrent
theme during his time at Treasury. According to Bernanke, I didnt and
Tim didnt go very far in lambasting individuals in Wall Street, maybe
partly because we were more focused on the problem than on the politics.
Others, however, have suggested that Geithner was simply too cozy with
Wall Street. He had never worked as a banker himself, but he grew up
inside the bubble of elites. (Before going into government, his first job was
working for Henry Kissinger at Kissinger Associates.) He was tutored at
Treasury by Summers, who later worked for the hedge fund D. E. Shaw &
Company, and Rubin, who came up through Goldman Sachs and
eventually joined the board of Citigroup, where he has been blamed in
some circles for its taking on excessive risky debt that nearly caused the
firm to collapse. Each man played a significant role in deregulating the
financial industry in the 1990s by supporting the repeal of the Glass-
Steagall Act, which separated commercial and investment banking; they
also pushed to limit future regulation of derivatives.
This criticism that he was too close to Wall Street was also fueled by
the fact that Geithner, with his English spread-collar shirts and his
perfectly coifed hair, just looks like a banker. He often tells a story about
how Emanuels wife, Amy Rule, once told him at a dinner party, You must
be looking forward to going back to that nice spot you have waiting for you
at Goldman. During an April 2009 hearing about the financial-bailout
program, Damon A. Silvers, a panel member, seemed almost incredulous
that Geithner had never worked on Wall Street.
You have been in banking " Silvers said.
I have never actually been in banking, Geithner interrupted. I have
only been in public service.
Well, a long time ago. A long time
Actually, never.
Investment banking, I meant
Never investment banking.
Well, all right, Silvers conceded. Very well then.
What is certain, however, is that for all the malfeasance of the biggest
banks, Geithner had a predisposition that Wall Street, even as it was,
remained essential to the functioning of the U.S. economy in just about
every sector. I did not view Wall Street as a cabal of idiots or crooks, he
writes in Stress Test. 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. During
his first few months in the job, Geithner fought with Summers, who felt
that his protg had become overly solicitous of the banks. Geithner
dismissed Summers as espousing the hedge-fund view. (Hedge-fund
executives tended to see the banks as dumb, lumbering giants, Geithner
writes.) He disagreed when Summers suggested to Obama that the
administration pre-emptively nationalize banks like Citigroup or Bank of
America or even to try to embarrass them into changing their
compensation structures. I feared that the tougher we talked about the
bonuses, the more we would own them, Geithner writes, fueling
unrealistic expectations about our ability to eradicate extravagance in the
financial industry.
Geithners stance often came off as aloof, or worse. For all the time he
spent focusing on how the financial industry functions, and for all his
knowledge of past crises, critics wondered how someone with his
experience could be surprised that some bankers might operate less than
ethically. In many ways, Geithners first year validated the reservations he
shared with Obama. His first public speech, as he described it, sucked.
(As he spoke, the Dow Jones began a near-400 point drop.) Geithner
offered his resignation, but Emanuel told him he had to stay. Given what
we were facing, three months into the administration, Emanuel told me,
finding a new Treasury secretary wasnt the solution. Instead, Emanuel
says he instituted a quick primer in politics for Geithner, holding a daily
meeting with him and Summers in his office to go over talking points and
strategy. We did that for about six to nine months. The answer was not
resigning; the answer was building.
The job, meanwhile, was exacting the personal toll that he feared it
would. Geithner, who lived at a friends house in Washington, tried
commuting to Larchmont for the weekends with the Secret Service in tow
(his code name: Fencing Master) but rarely made it. We did not see much
of him then, I can tell you that, Carole says. And when he was home, it
was for really brief times. When the family decided to relocate to
Washington, in the summer of 2009, John Oliver, then of The Daily
Show, reported on the familys unsuccessful effort to sell their home.
(Hold on. Timothy Geithner, the man responsible for getting us out of this
[expletive], cannot sell his house? Oliver said. Oh, God. He referred to
the home as a toxic asset.) Geithner told his wife that she might want to
tone down her media consumption. He discouraged me from doing it, but
I couldnt not, she said. I felt like, Well, our friends are reading this, and
people are reading this, and this is what they think about you.
Around this time, Geithner consulted his predecessor, Henry Paulson.
In recalling the conversation, Paulson says that Geithner confided to him
that Carole is not of this world. I remember that very well because he
might as well have been speaking of Wendy Paulsons wife. Theres a
fair amount of hypocrisy in Washington. Before a tough hearing, youll
sometimes have the congressional committee chairman say to you, I love
you, you da man! But when the cameras are on and the lights go on, theyll
rake you over the coals for the benefit of the voters back home. And while
you may learn to accept this and deal with it, understandably your wife
and your kids never do, you know? They take it more personally. After just
two years in Washington, Carole moved the family back to Larchmont.
Perhaps the main challenge that Geithner has found in selling his
argument is that to believe that the bailout truly worked, you have to
believe that the other side of the cliff would have been worse. This makes
his argument something of a counterfactual one, a hypothesis that will
always be open to interpretation.
As such, it has left him open to endless criticism that he was a prisoner
of cognitive regulator capture by Wall Street or suffered so greatly from
Lehman Syndrome that he became soft on the industry. Simon Johnson,
an economist at M.I.T., has argued that bailouts were necessary but
executed in the form of a great giveaway. He has compared Geithner to
Charles Maurice de Talleyrand-Prigord, the French statesman who
served the Revolution, Napoleon and the restored Bourbons
opportunistic and distrusted, but often useful and a great survivor.
Elizabeth Warren, the Massachusetts senator and creator of the Consumer
Financial Protection Bureau, has written in her new book, A Fighting
Chance, that Geithner believed the governments most important job was
to provide a soft landing for the tender fannies of the banks. Its an
opinion shared by Neil Barofsky, the former special inspector general of
TARP. He told me in an email that Geithner, Bernanke and Paulson
consistently put the interests of the banks over those who were supposed
to be helped, like struggling homeowners. While Barofsky acknowledges
that TARP undoubtedly helped save the system, he also says, it was
supposed to do so much more.
That remains Geithners fundamental problem. Even those who
concede TARPs success can find fault with it. Its impossible to know
whether the economy would have bounced back more quickly and we
would be closer to full employment now without the bailouts, since none of
us know what other policies would have been pursued, Dean Baker, an
economist and co-founder of the left-leaning Center for Economic and
Policy Research, has written. We do know that we would have been freed
of the albatross of a horribly bloated financial sector that sucks the life out
of the economy and redistributes income upward to the very rich. For that
fact, Timothy Geithner bears considerable responsibility.
Geithner waved off much of this criticism. The argument that there
was a way to somehow protect people without doing things that looked like
you were protecting the banks was deeply confused and mistaken, he
said, anger rising in his voice. And the accusation or the charge that our
motivations were to help banks is kind of offensive to the people who
worked with me and definitely to the president. But perhaps the more
stinging criticism comes from Bair, who has said that Geithner basically
made a gamble. Tim had no idea whether the governments money would
be lost, she told me. Taxpayers will never be adequately compensated for
the tremendous risks he took with their money.
I repeated the charge to Geithner. How could you be certain? he
said. Lets just go through the natural experiment. The British tried a
couple things that I think are good counterexamples. He referred to the
British governments lending targets, which were intended to show that
the bailouts were keeping credit flowing to regular people. Not to be
unfair to them, but those are largely fake, and they were sort of ridiculous,
because their economy was way overleveraged, too, and lending was going
to fall even in the best sort of circumstances. And did it help the British in
terms of taking some of the sting out of the public anger? No. Then he
brought up the British governments decision to cap executive
compensation. It wasnt really designed to change comp, Geithner said.
It was designed to create the impression that they were changing comp.
Did it significantly diminish the popular version of what they did and
make them more popular for doing it? No. Was it effective? No.
As for the argument that he didnt focus on the homeowners, Geithner
said thats a myth, too, listing TARP housing programs, a lending program
to state and local housing-finance authorities and the mortgage-
modification-guarantee program. But when I mentioned the passage in
Stress Test in which he regrets that he hadnt done more and asked him
to elaborate, he became feisty. Its kind of too unicorny to frame it this
way, he said. Because if you suspended disbelief and say: If we had no
constraints on resources or authority, could we have done more? If we had
no constraints on resources or authority, yeah, we could have done more.
And we could have done more, quickly. He added that if they had full
control over the government-sponsored enterprises and the Federal
Housing Administration, which insures many mortgages, absolutely, we
could have done dramatically more. He paused for a moment. But thats
not the real world. In the real world we had to act within the constraints
we faced and the limits of the authority we had.
Congressman Barney Frank, whose name is on the signature, if
limited, reform bill that emerged from the crisis, once said, You dont get
any credit for disaster averted. But Geithners explanation recalled how
almost pre-emptively he forfeited the public relations battles at Treasury.
When he had the chance to jump on popular issues, like supporting the
Volcker Rule, he declined, because he never believed that proprietary
trading led to the financial crisis. The big institutions that failed Fannie,
Freddie, Bear Stearns, Lehman and A.I.G. werent the types of banks the
legislation was designed to regulate, he told me. (He later changed his
mind on the Volcker Rule after he determined that it would help make the
Dodd-Frank reform legislation easier to pass. Still, he was happy to leave
the impression he was against it so as to make it more palatable to the
Democratic left, he writes.) When outrage erupted over A.I.G.'s decision to
give bonuses, Geithner said they had signed contracts, and the government
couldnt rip them up. These decisions lent credence to the impression that
he started with the idea of saving Wall Street instead of the people who
needed it most that he gave a dollar to the banks rather than the
homeowners.
Geithner is confident that the empirical data has already vindicated
his decision. And while there is some debate over how to calculate the
proceeds from the various bailouts TARP, the auto companies, the
F.D.I.C. programs and Fannie and Freddie, among others the evidence
is persuasive. ProPublica, the nonprofit investigative organization, which
keeps a tally of the bailout, puts the current profit at $32 billion. The
White House Office of Management and Budget estimates that Fannie and
Freddie will turn a profit of $179 billion over the next decade. (Critics
might contend that these figures dont include the costs of the stimulus or
the Federal Reserves quantitative-easing programs.) And regardless of the
math, a larger point is indisputable: While the returns were never the goal
saving the system was they are indeed evidence of its success and
support, to some degree, Geithners counterfactual argument. If the
system had been allowed to collapse or TARP had failed, there would have
been enormous taxpayer losses.
On some level, though, data cannot settle the argument. During our
time together, Geithner spoke about the collateral beneficiaries of the
bailout, by which he meant the inconvenient fact that certain investors and
institutions came out of the crisis better off. And for some, that is direct
proof of another counterfactual argument. To believe that the bailout
worked, they would argue, you would have to believe that the system itself
was worth saving in the first place.
For much of the past five years, Geithner has publicly been fighting
with the idea of too-big-to-fail, which implies that executives at the top
banks were willing to take on remarkable risks because they knew that the
government would ultimately bail them out, given the devastation their
collapse would bring. Geithner and Obama marketed the Dodd-Frank bill
as a way to end future bailouts. In 2010, right before the bill passed,
Geithner said, The reforms will end too-big-to-fail. Obama went further:
Because of this law, the American people will never again be asked to foot
the bill for Wall Streets mistakes. There will be no more tax-funded
bailouts, period.
But it is now clear that Geithner never believed his own talking points.
To him, too-big-to-fail and the so-called moral hazard, or safety net, that it
would create cant really ever be fully taken away. During his lecture to
Summerss class, one student asked a question about resolution
authority, a provision of the reform laws that is supposed to let the
government wind down a complex financial institution without creating a
domino effect. The question prompted Geithner onto a tangent about too-
big-to-fail. Does it still exist? he said. Yeah, of course it does. Ending
too-big-to-fail was like Moby-Dick for economists or regulators. Its not
just quixotic, its misguided.
Geithner paused for a moment. Can you design a system ever that
allows you to be indifferent to the failure of any institution, in any state of
the world? he asked aloud before answering his own question. You can
design a system, and I think we have, that allows you to be indifferent in
most states of the world: the five-year flood, the 15-year flood, the 30-year
flood, maybe even the 50-year flood, he said. But there are constellations
of storms, of panics, of fires that are so bad that its very hard to imagine
that you could be indifferent to the failure of the financial system.
One exception to that moral hazard, however, seems to be Lehman
Brothers. Some have speculated that Geithner, Paulson and Bernanke let
the bank fail in order to send a political message about their vigilance. The
troika have long said they were always in agreement to find a partner for
Lehman Brothers and were prepared to use government funds to make a
deal, as they had when they matched Bear Stearns with JPMorgan. All
have repeatedly said, under oath, that they tried to do all they could, but
that by late Sunday, Sept. 14, with no credible buyer (Barclays and Bank of
America, Lehmans two last suitors, dropped out), an analysis of Lehmans
assets indicated that they couldnt legally lend money to the company.
Yet in Stress Test, Geithner reveals a crucial tactical rift between the
three men going into that weekend. Geithner writes that he was worried
that Paulsons public insistence that there would be no taxpayer bailout
was being driven by politics, not pragmatism, and that he believed that a
no bailout message could undermine the governments further ability to
pursue a rescue if one were needed. Instead, Geithner preferred to send the
impression that a bailout might be available, if necessary, which could
have made the bank more desirable to a suitor. Well never know if that
would have saved the bank, and Geithner wont play that guessing game,
either. Later, he writes: These disagreements did not turn out to be
consequential. Hank and Ben would have the courage to change course
and do what needed to be done.
When I ran the earlier passage by Paulson, he paused for a moment.
While we discussed and sometimes debated tactics, we were unified in
our resolve to avoid the failure of systemically important institutions and
that certainly included Lehman Brothers, where we worked hard right up
until the end to prevent a failure, he said. In his own account of the
financial crisis, On the Brink, Paulson explained why he was so insistent
that the public believe there was no bailout coming. The New York Fed
would be inviting Wall Street C.E.O.'s for a meeting, and we didnt want
them to arrive thinking that we would be there waving a government
checkbook.
Bernanke suggested they were very much on the same page, but he
made another point regarding the popular opinion about Lehmans
failure. Ironically, the conventional wisdom now is that it was obvious
that Lehman should be saved but that the Fed and the Treasury went
ahead and made the big mistake of letting it go, he told me. The truth is
actually quite the opposite. Conventional wisdom at the time was
overwhelmingly in favor of letting Lehman fail, but Tim, Hank and I were
very much convinced that we should do everything possible not to let it
fail. But then of course we ran out of options.
In January 2013, Geithner was finally liberated. He had been
pressing Obama to let him step down since 2010, suggesting replacements
like Erskine Bowles and Hillary Rodham Clinton. At one point, during an
event at the White House, Obama resorted to taking Carole aside and
trying to persuade her to have her husband stay. I wasnt an easy person
to be convinced, she recalls. I mean, I knew it was kind of a hopeless
cause that if he needed to stay, he needed to stay but I was not easily
convinced. And that was probably a little surprising to the president.
After much back and forth, Obama eventually appointed his chief of
staff, Jack Lew, to the job. Geithner returned to Larchmont as an empty-
nester, in the same house he could not sell, where he has spent the last year
writing his book, working out of the Council on Foreign Relations and
giving speeches for six-figure sums. While he claims he is through with
government, he still maintains an intimate relationship with Obama, who
was rumored to have recruited him to succeed Bernanke as chairman of
the Federal Reserve.
When I asked him about it over lunch, Geithner originally glossed over
the point, as if he declined the post. But as lunch continued, he stopped
himself. You didnt ask me whether I didnt say that I declined it, I just
said I was not interested in it. Just to clarify. When I asked if he officially
declined, he responded: I didnt speak to that question, I was just saying
that I didnt. You said that you you phrased my thing as if I had
declined. I wasnt interested.
Geithner admitted that he struggled over what to do next. He didnt
want to go back into government, and he wasnt inclined to go into
academia, but he worried about the optics of going into finance. I think
the perception problem first of all its very damaging to me as I was
trying to do some tough things, and I think its kind of very damaging to
the country at the moment because it sees this basic loss of faith in
government, he said. I thought the only thing I could really do about that
was to make sure I didnt go work for a bank or a firm that wed regulated
or that wed rescued directly.
Last month, Geithner officially began a new job as president of a
modestly sized private-equity firm, Warburg Pincus. It may not be
investment banking, but its possibly finances second-most-vilified
industry, given how Mitt Romneys Bain Capital experience played out in
the 2012 presidential campaign. Its very unlikely that Geithner will be
using TurboTax anytime in the near future, though; he is likely to make
millions if not tens of millions of dollars over the next decade if he stays in
the business.
As we spoke, it became clear that this new job was one Geithner
actually wanted. The private sector is what most people do for a living,
he said. 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. It was also clear he had finally learned some public
relations pointers from Treasury.
On a Saturday in late April, I called Geithner for the last time to talk
about the Volcker Rule and a few personal facts. (Im almost 5-9, just
below 5-9. 5-8-and-, something like that. You can round down, you can
say 5-8. Im relatively secure in my height.) He told me he was enjoying
his new job and that he was preparing to take a flight to Asia later that day
for work.
I asked if the job meant that he had finally given up socialism, which
his more severe detractors had accused him of, and embraced capitalism.
No, he said, with a laugh. I wouldnt claim that yet.
Andrew Ross Sorkin is a financial columnist for The Times, co-anchor of CNBCs Squawk Box and
the author of Too Big to Fail.
Editor: Jon Kelly
A version of this article appears in print on May 11, 2014, on page MM26 of the Sunday Magazine
with the headline: 'Up To My Neck In This Crisis'.
2014 The New York Times Company

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