Monday, July 21, 2014

Book Review (#65 of 2014) Stress Test by Timothy Geithner

Stress Test: Reflections on Financial Crises
Here's what you'll not find in this book: The personal philosophies, principles, and policies Geithner used to run a major cabinet agency and the New York Federal Reserve prior to that. There is very little about the advice he gleaned from others, although Robert Rubin and Larry Summers were strong influences and possibly mentors. His economics is pretty rudimentary, mainly just referring to simple Keynesian policies in the book.

The strength of the book is the timeline of the financial crisis from the view of the NY Fed and Treasury. I have read multiple books and seen multiple documentaries of the financial crisis and I'm sure experts will one day compare the books and their sequences of the events and find contradictions, but I felt Geithner's take was pretty thorough and captured the stress on policymakers quite well. The Fed's stress test implemented, with the backing of Treasury, ended up being enormously important in shoring up confidence in U.S. banks among investors but received little press at the time due to other events. That was one policy triumph that Geithner feels was underrated.
He details the frustrations of TARP, how difficult it was to walk the center line when being attacked by the right and left. He has little positive to say about the Republican party and their response to the crisis, although Boehner comes across in the end as a sensible moderate hemmed in by the Tea Party.

I found Geithner's childhood interesting as he grew up as child of USAID worker in SE Asia. He developed a broad world view and studied in China, and later leveraged that experience to land a job in the international wing of the U.S. Treasury Department and later the IMF. This gave him invaluable working experience in the Asian financial crisis, as well as the Mexican peso crisis. It also allowed him to forge some understanding between himself and President Obama that appealed to the President-elect when selecting Geithner for Treasury.

Geithner opens the book essentially with an apology for his horrible confirmation testimony during Congressional hearings and his horrible roll-out of his plan to stress-test the banks. Behind the scenes, he tells of staffers working late nights on speech drafts, but he seems oddly detached and uninvolved in this process. There is very little info on how he managed his staff. Geithner felt a "crushing guilt" for making the President look bad and embarrassing his family. His wife is apparently a counselor and loathed Geithner's political role and the long hours he spent away from home. She opposed him accepting the nomination as Treasury Secretary, and President Obama had to personally assuage her doubts when he decided to keep him on after re-election.

In about 70% of the book, Geithner comes across as a partisan hack, simply supporting the position of the Obama administration and not lending many insights to the infighting among his economic team. He has nothing but praise for Obama from start to finish, which I find oddly contrasting to other memoirs I read where they at least find some fault in their former boss. He is often awkwardly included in Obama press conferences held for political purposes-- to denounce bonuses to CEOs, for example-- just to stand there and be seen as a silent supporter. I think he regrets those moments, but saw them as part of his job as a political appointee.

He expresses his frustration and bewilderment at watching Europe implode at the time the U.S. was finally starting to emerge from recession. Memorable one-liners from Sarkozy highlight his dealings with European leaders. 

He was very supportive of Dodd-Frank and details the political perils of passing it when the Left started overreaching. He was also broadly supportive of Elizabeth Warren and defends himself and others in the Clinton White House for their fight against Brooksley Born's crusade for more derivatives regulation (she was right on principle, but wrong on proper policy execution). Time and again, he has to explain to others that he did not come from the financial industry. He personally had a "dim" view of finance, or at least his ability to work in the Wall Street environment. He was influenced by Michael Lewis' Liar's Poker.

Besides Lewis, Geithner also cites Nate Silver's The Signal and the Noise, Liaquat Ahmet's Lords of Finance, and Rogoff and Reinhart's This Time is Different. The few books he mentions are about the only insight into what he was thinking or learning, which does not appear to be deep. He includes some some general thoughts on financial regulation and dealing with a financial crisis.

I give this book 3.5 stars out of 5. A must-read on the financial crisis and period of '07-12. 

No comments: