In 10th century Japan a “pillow book” was a form of diary, a place to gather notes, lists and other scraps of paper and reflect upon them before retiring to bed. A “court lady” to the Empress used hers to depict life in the royal household, and today “The Pillow Book of Sei Shōnagon” is considered an invaluable record of a pampered and long-vanished Imperial court’s customs and beliefs.
Someday we may look at former Treasury Secretary Tim Geithner’s memoir “Stress Test” the same way.
Imagine for a moment you’re Tim Geithner. You’re intelligent, competent, and hard-working. Your friends like you. Your bosses appreciate you. You’re a good family man. You worked under extraordinary pressure to save the financial system. And all you get for it is grief. Naturally you want to write a book to set the record straight.
It’s all perfectly understandable, at least from Geithner’s point of view.
Now imagine that you’re a middle-class wage earner who’s worked hard all your life. You bought a house, perhaps sometime in the 1990s. The talking heads on TV said it was a great investment, your bank’s assessor said the house was valuable, and politicians from both parties had been telling you for decades that homeownership is the American Dream.
But you were defrauded by lawbreaking bankers, and then abandoned by presidential administrations of both parties. You’ve been unemployed for years now – thanks to a financial crisis that the banks created by manipulating people like you – but in Washington they’ve stopped talking about job creation. You’re slipping down the economic ladder, rung by rung. Maybe you’re suicidal, like some of the people who wrote to me back in 2010.
Nobody’s asking you to write your memoirs. In fact, nobody seems particularly interested in your story anymore. If you’re a little bitter at all the attention Tim Geithner’s new memoir is receiving, that’s understandable. A lot of the economists and bankers who ruined your life are featured prominently and flatteringly in Geithner’s book.
But you? You’re barely mentioned at all.
And that’s the problem in a nutshell. It’s not that Tim Geithner is venal, or evil, or corrupt. The problem is that he is deeply embedded in a social group whose worldview is insulated from the very experiences and viewpoints that could have enriched and improved Geithner’s public service immeasurably. If that worldview is allowed to prevail – if memoirs like Geithner’s are allowed to rewrite the economic narrative of our time – it will exert a tragic influence on the policy decisions we have yet to face.
Many fine economists and writers (including Dean Baker, Mike Konczal, Anat Admati, Joe Nocera, Amir Sufi, and others) have highlighted the flaws in Geithner’s book. Felix Salmon has demonstrated that, at least in one case, Geithner tailored the facts in order to make himself look better.
But, while there are many economic arguments that need to be corrected in this book (and we’ll take our turn in a subsequent piece), its greatest value for future generations may well be as primary source material for sociological research. Timothy Geithner is a model courtier, if an unwitting one, for today’s economic and political hegemony.
Geithner comes off as surprisingly likable in this book. That alone is interesting, since he certainly did not seem likable the only time I met him in person. Either he’s a nicer guy than he seems, or he had a really good ghost writer.
(Geithner did, in fact, have a collaborator, whose name appears only in the acknowledgments. It’s Michael Grunwald, who took a leave of absence from Time magazine to work on the book. After that he returned to Time as its “senior national correspondent,” where we can only hope he is able to provide impartial reporting on the ongoing impact of Geithner’s policies.)
Likability aside, it’s fair to say that Geithner reflects the culture of his “Imperial court” just as much as Sei Shōnagon reflected hers. It’s all there: the patronage, the friends and enemies, and the social biases which run so deeply that they are invisible to those who hold them.
Here’s how 21st-century patronage works: Refreshingly, and modestly, Geithner sounds as incredulous as many others were when he recounts being plucked from obscurity by billionaire Pete Peterson to become president of the Federal Reserve Bank of New York.
At this point, a discerning reader might ask how hedge-funder Peterson became chairman of the board of an institution which was created by an act of Congress to serve the public interest. One might also ask why Jamie Dimon, CEO of scandal-plagued JPMorgan Chase, served on the Federal Reserve committee which set a number of critical Fed employees’ salaries.
Don’t be surprised. That’s how today’s interlocking system of political and financial institutions works.
Much of the book is taken up with Geithner’s attempts to prove that he’s not a bad guy. He’s not – as long as you accept the extremely limited worldview that he represents. But what’s even more striking than the limitations in his understanding are the many ways he celebrates his own refusal to transcend them. Instead Geithner celebrates close-mindedness, both in himself and in those around him. In a typical sentence, Geithner writes that “Alan Greenspan once told me his coping mechanism for enduring hearings was to think about lunch.”
Given the fact that Greenspan’s entire free-market philosophy was discredited by the crisis of 2008, perhaps he should have paid a little more attention to policy and a little less to his appetite.
Typically of his insular class, Geithner has a number of catchphrases that serve to diminish and dismiss thoughtful criticism, as evidenced by this sentence: “I remember half-joking to the President that we had two types of critics … People who were blocking our proposals to produce a stronger recovery, and people who believed in unicorns.”
That latter category includes Keynesian economists, “ideological advocacy groups,” and other advocates for common sense. Unfortunately for Geithner’s place in history, there is now an immense body of economic research which shows that, in fact, their policy ideas would have worked much better than his. Many of those ideas could still be extremely useful if enacted today.
Geithner’s favorite dismissive phrase, which is peppered throughout the book, is “Old Testament.” It first appears in this sentence: “Old Testament vengeance appeals to the populist fury of the moment, but the truly moral thing to do during a raging financial inferno is put it out.”
Phrases like these merely illustrate how irrevocably closed Geithner’s mind, and that of the people around him, had become. After all, if your “Old Testament” critics are merely seeking vengeance, the only moral course is to refuse them.
Here’s the problem: Firing incompetent bankers, seizing mismanaged banks, and prosecuting criminals would have done more than just served “Old Testament” ideas about justice. It would have been sound economics. It would have restored the proper incentives to the financial sector, while providing the most powerful disincentive possible for bankers tempted to indulge in economy-busting fraud: jail time.
Geithner attempts to avoid responsibility for this failure to protect the economy by caricaturing his opponents as a bloodthirsty fanatics. Geithner wasn’t alone in his reluctance to provide outrage where it was economically – and morally – justified. “The President once told me he felt uncomfortable playing a populist,” Geithner writes, “like he was wearing clothes that didn’t fit.”
Unfortunately, it showed.
The Geithner book demonstrates all too clearly why incompetent and/or crooked bankers were bailed out, kept in their jobs, and protected from prosecution. The name of Robert Rubin, an early Geithner patron, appears many times in the book – as Bill Clinton’s former Treasury secretary, and as a trusted advisor to Geithner himself.
One name that does not appear in the book is that of Richard M. Bowen III, the Citigroup executive who warned Rubin and several other senior Citi executives of the bank’s massive problem with defective derivatives. His memo was ignored by Rubin and other senior executives, which resulted in their continued personal enrichment at the detriment of investors in society at large. (Rubin claims he never read the memo, which if true was a shocking act of irresponsibility on his part.)
The name “Larry” also appears frequently in the book. That would be Larry Summers, of course… Summers, like Rubin, was a Clinton-era Treasury Secretary who went on to make lots of money on Wall Street. He, like Rubin, Greenspan, and Geithner’s other trusted advisors, was proven spectacularly wrong about the economy in 2008.
(To his credit, however, Summers is depicted as proposing smarter policies than those that Geithner ultimately implemented – although “smarter” is a relative term here.)
Geithner could have demanded substantial changes at mismanaged banks in return for government help, but he refuses at every turn. He writes this, for example, about the endlessly mismanaged (and foreclosure fraud-crazed) Bank of America, after Gene Sperling advised him to fire CEO Ken Lewis: “I understand the impulse to chop off a banker’s head and mount it on a stake, but … we didn’t control the firm.”
Contrast that with Geithner’s tough (and entirely appropriate) treatment of AIG. When the firm and its lawyers objected to Geithner’s demands – a penalty interest rate of 11 percent, ownership of 79.9 percent of the firm, and the firing of its CEO – Geithner responded, “These are the only terms you’re going to get.”
They’re also the only kinds of terms we should have been presented to America’s major banks. For all his elaborate self-justifications, Geithner never explains why he didn’t do that with institutions like Bank of America. (Ken Lewis was later sued for fraud, ordered to pay $10 million for concealing $9 billion in losses at Merrill Lynch from investors, and banned from serving as a public company official for three years.)
But then, Geithner seems remarkably incapable of seeing bankers for who they are. Lloyd Blankfein of Goldman Sachs, who many observers believe only narrowly escaped indictment on perjury as well as fraud charges, is described by Geithner as one of the “calmer, stronger, (and) smarter forces on Wall Street.”
Blankfein, along with “Larry” Summers, “”Bob” Rubin, and Jamie Dimon, are touchstones in Geithner’s cognitive universe. To accuse them of error, or of deeds that were far worse, would have been to create an intolerable dissonance in Geithner’s consciousness.
The consequences of that were tragic.
Tim Geithner wants us to know he’s not a bad guy. He also wants us to know that, contrary to a widely held belief, he never worked at Goldman Sachs. But he never asks himself how so many people came to believe that of someone who had spent his entire career up to that point as a public servant.
Here’s one explanation: Geithner, like so many of the politicians with whom he served, internalized the culture of Wall Street so deeply that he came to embody it. He came to believe that the best way to serve the nation was to serve the financial institutions that sit astride it like … well, like the courts of medieval emperors.
It’s true. Tim Geithner didn’t work for Goldman Sachs. He merely reflected it, like a well-polished mirror.
“The financial crisis was a true stress test for the United States,” Geithner writes. It was a stress test for its leadership, too, and they did not acquit themselves well. This book does nothing to change their record of failure. It does, however, help us understand the culture that led to it.
Perhaps we can put that knowledge to good use when the next crisis strikes.