Narrated by: Timothy F. Geithner
One can argue that two Republicans (Bush, and Paulson), two Democrats (Obama, and Bernanke), and an Independent (Geithner) form a dream team that save America from the second great depression. That argument is supported in Timothy Geithner’s book, Stress Test, and reinforced by On the Brink, Henry Paulson’s earlier book. President George W. Bush, Henry Paulson, Ben Bernanke, President Barrack Obama, and Timothy Geithner formed an all American economic dream team that put partisan politics aside to forestall the worst economic crises since the stock market crash of 1929.
Geithner does not suggest they are a dream team or that they averted the crises without help, but one becomes convinced that without their firm leadership, the financial system would have collapsed and Americans would still be facing double-digit unemployment. Their leadership fails to change the fundamental problem of a widening gap between rich and poor but, at least, a second American’ economic depression appears averted.
Interestingly, Geithner, Obama’s Treasury Secretary, is not an economist. He never worked for a bank or investment house; contrary to the press he received during his tenure as Treasury Secretary. In contrast–Paulson, Bush’s Treasury Secretary, is a former Goldman/Sachs CEO.
Ben Bernanke, Chairman of the Federal Reserve and central bank of the United States, had never served in a major public office; i.e. his life experience is principally academic. However, part of Bernanke’s focus as an academic was study of the great depression. The point is these three financial wizards and two presidents, with entirely different backgrounds, fundamentally agreed on one thing; i.e. restoration of confidence in the financial industry as the primary objective for stabilizing and rebuilding a collapsing economy.
Without dwelling on the cause of the economic crises or the trillion-dollar deficit at the beginning of the crises, Geithner gives reader/listeners a firsthand account of the effort to save Lehman Brothers, stabilize four massive financial institutions (Bank of America, Citigroup, Fannie Mae, and Freddie Mac), and invest billions of public dollars in AIG.
Geithner and his team establish stress test requirements for banks, and bluffingly dictate cash reserve requirements for troubled banks to quell a potentially catastrophic banking industry collapse. Geithner interestingly explains many of the actions taken by government to restore confidence in the American financial industry.
With clear, forthright language, Geithner explains why most Americans view the bailout of badly managed, or stigmatized financial businesses, as “get out of jail free” cards for financial industry leaders; i.e. many leaders which were rewarded for greed, while main street America lost jobs, homes, and net worth. Geithner tough-mindedly argues that the tragedy of lost jobs, homes, and net worth would have been monumentally greater if confidence in the financial industry was not restored.
Geithner explains that restoring confidence in the financial industry was his primary objective as Treasury Secretary. Without restoring confidence, industrial and commercial investment would diminish; stall the economy, and plunge America, if not the world, into a depression. Businesses would close their doors; inferring the rich would go home, the middle class would have no jobs, and the poor would starve. Instead of job cutbacks, no jobs would be available and none would be created; commerce would come to a standstill.
With the support of George W. Bush, Henry Paulson creates TARP, an acronym that becomes synonymous with the word bailout. TARP is to provide public funds to support the financial sector by either purchasing overvalued assets or improving cash reserves of lenders to weather incurred financial obligations.
This first authorization of $700 billion was reduced to $475 billion by the Dodd-Frank Wall Street Reform act but it became the foundation for stabilizing the financial industry and morphed into a vehicle to support the auto industry.
Geithner and Paulson clearly understood that a bank collapse would reduce confidence in the financial industry, the source of fuel and lubrication (money) for the economy. Geithner reveals how political opposition to a bailout formed out of populist interest in figuratively cutting off the heads of financial industry leaders by firing them , pulling back their bonuses, reducing their compensation, and letting banks, investment companies, and their stockholders go bankrupt.
Some politicians suggest nationalizing bank’ assets while others argue for allowing weaker banks and investment houses to fail; letting only the strong survive. Geithner strongly opposes this populist movement because it would cause a run on all financial institutions, whether viable or not; i.e. he argues that a cascade of bankruptcies would follow because of a loss of confidence in the financial sector. Geithner’s focus is on stabilizing the financial industry to stop the spread of bank failures; to staunch bleeding of bank funds compelled by people’s fear, and loss of confidence in the industry. Further, Geithner pushes for improved regulation of lending practices to reduce bank risk.
After stabilizing the finance industry, an improving economy redirected populist angst to the growing deficit. Geithner explains that Bernanke was an ally in the battle for continued stimulus of the economy.
Both agreed that Roosevelt’s experience in 1936 nearly reversed economic improvement with dramatic, premature reductions in public spending to try balancing the budget before economic recovery stabilized. Neither Geithner nor Bernanke wish to make the same mistake. Despite tremendous political pressure for deficit reduction, Obama continues to promote spending for public works, health care, and tax reform. Obama, Geithner, and Bernanke insist that deficit reduction, though politically demanded during the recovery, is less important than stimulus.
America has a history of resisting change until there is crisis. As of the date of Geithner’s book publication (October 2014), one crisis has been averted. With election of Donald Trump, more crises loom.
Nationalist conflicts, diminished environmental protection, and public health squabbles foment America’s next crises. One hopes another bipartisan dream team will rise to avoid Roosevelt’s 1936 mistake, and President Trump’s uninformed misdirection.