On Thursday evening, former Treasury Secretary Timothy Geithner appeared on the PBS NewsHour
to discuss his new memoir. Not only did the taxpayer-subsidized anchor
Gwen Ifill gently press Geithner from the left on policy matters, she
failed to ask him about one of his most startling admissions – that
Obama administration officials wanted him to lie during appearances on
the Sunday morning TV talk shows.
It's not for a lack of air time either. Ifill gave a two-minute
introduction, followed by a 10-minute interview, yet she never got
around to this revelation from Geithner’s book Stress Test:
I remember during one Roosevelt Room prep session before I appeared on the Sunday shows, I objected when Dan Pfeiffer wanted me to say Social Security didn’t contribute to the deficit. It wasn’t a main driver of our future deficits, but it did contribute. Pfeiffer said the line was a "dog whistle" to the left, a phrase I had never heard before. He had to explain that the phrase was code to the Democratic base, signaling that we intended to protect Social Security.
Would PBS, or any other broadcast network, be able to hold back their questions if a Republican official admitted that his White House wanted him to send a “dog whistle” to the GOP base?
Ifill could have fit in a question about this juicy tidbit. In her very
last question, she said, “You conclude in your book that you may have
helped save the economy, but lost the country. What do you mean by
that?”
Of course, there were signs right from the start that this would be a
cozy interview. Ifill began by greeting Geithner, “Mr. Secretary – I
hope I can still call you that.” Geithner replied, “You don’t need to,”
to which Ifill responded with a chuckle, “But I will.”
You can read the full transcript here:
GWEN IFILL: Next: an interview with a key architect of the government’s
response to a financial crisis that spawned problems and lessons the
country is still grappling with today.
TIMOTHY GEITHNER: To get credit flowing again, to restore confidence in
our markets, and restore the faith of the American people, we are going
to fundamentally reshape our program to repair the financial system.
GWEN IFILL: February 2009, newly installed Treasury Secretary Timothy
Geithner unveils the revamped Troubled Asset Relief Program, or TARP.
The $700 billion effort bought up the mortgage-backed securities and
other toxic assets that were drowning Wall Street and the credit
markets. It wasn’t Geithner’s first taste of crisis. As president of
the Federal Reserve Bank of New York, Geithner was central in the sale
of the investment firm Bear Stearns in March 2008, the decision to bail
out insurance giant AIG in September of that year, and just days later
the decision to let Lehman Brothers go bankrupt.
But, as treasury secretary, he faced bailout backlash, especially when
word broke that AIG planned to pay executives $165 million in bonuses.
TIMOTHY GEITHNER: I share the anger and frustration of the American
people, not just about the compensation practices at AIG and in other
parts of our system, but that our financial system permitted a scale of
risk-taking that has caused grave damage to the lives of so many
Americans.
GWEN IFILL: Critics also charged Geithner did too much to help the banks and too little to help underwater homeowners.
Elizabeth Warren, then-chair of the TARP oversight panel, led the critique here on the NewsHour in June 2010:
SEN. ELIZABETH WARREN, D, Mass.: It’s as if we had a boat that’s taking
on gallons of water, and they’re trying to bail it out with a teaspoon.
It is a badly designed program that, from the beginning, was too small,
too slow, couldn’t be scaled up.
GWEN IFILL: Geithner left government last year and became president of
Warburg Pincus, a Wall Street private equity firm. He’s now telling his
side of the story in a new book, “Stress Test: Reflections on Financial
Crises.”
I sat down with him earlier today.
Mr. Secretary – I hope I can still call that you.
TIMOTHY GEITHNER: You don’t need to.
GWEN IFILL: But I will.
(LAUGHTER)
GWEN IFILL: Welcome.
TIMOTHY GEITHNER: Thank you.
GWEN IFILL: Six years later, has the idea that some financial
institutions are too big to fail, has that become sort of permanent
stain on our psyche?
TIMOTHY GEITHNER: Oh, it is the right thing to worry about. You want to
build a system where you can be indifferent to the mistakes of big
institutions, and where those mistakes they don’t make, they make don’t
threaten to bring the economy to its knees, don’t threaten to imperil
the strong.
That’s the aspiration. We are in a much better position against that risk than I think this country has been in, in decades.
GWEN IFILL: Well, let’s talk about how we got to that aspiration.
There are a lot of things that went on. But you make a vigorous case in
your book that one of the things you were not trying to do is protect
the banks, certainly not at the expense of other people. But you also
admit that you were kind of late to the game in recognizing the depth of
this problem.
TIMOTHY GEITHNER: Yes, this was a classic financial panic. Hadn’t seen
anything like this in the United States since the Great Depression.
No real memory of it. And although you could observe all the types of
risk and vulnerabilities that would make you wary of a financial crisis,
it was hard to appreciate and imagine and anticipate the scale of that
vulnerability we faced to a massive panic, a complete run on the
financial system.
GWEN IFILL: Was it because we were fat and happy and too comfortable and didn’t see it coming, couldn’t conceive of it?
TIMOTHY GEITHNER: Well, there’s a — in the famous studies of the
history of financial crises, what people say is that it’s stability,
long periods of stability, confidence, over-optimism which creates these
conditions.
It’s sort of the tragic, paradoxical things, because if you live in a
long period where house prices have only gone up for a long period of
time, then people make decisions about how much money to lend or how
much leverage to take on in that expectation. That itself is what leaves
you vulnerable to a panic.
And for us, that problem was much greater as a country because our
financial system had completely outgrown the safeguards we put in place
after the Great Depression. So we had this deeply complicated mix of
risky institutions, no constraints on risk-taking, outside the banking
system that were vulnerable to runs and panics.
GWEN IFILL: Runs, panics, vulnerability. Do we know that the most
famous collapse of that moment, the collapse of Lehman Brothers, do we
now know that was the right thing to do? Are you persuaded?
TIMOTHY GEITHNER: Oh, we had — we had — it’s a tragic thing. We had no
choice at that point, in the absence of a willing buyer large enough to
take on that risk.
And what happened was, because the world was burning, and it was a very
risky institution, nobody really felt confident that they could come up
and step up and take that risk. And the one institution left interested
was a British bank. And the British authorities in the end didn’t think
they were strong enough to do it.
And that left us with no good options, a tragic thing. It is not like
national security, where we equipped the head of the — the leader of the
country with emergency authority to protect the country in extremis. In
financial systems, we don’t do that because our fear is that if you
give them that standing authority, it will encourage people to take too
much risk.
So we went into the crisis without the tools we needed to protect
people from the panic, and it took the — it took the panic and the
terror of those weeks afterwards to scare Congress into giving more
authority.
GWEN IFILL: Congress, for whom you don’t have a whole lot of good things to say in this book.
TIMOTHY GEITHNER: Well, you know, I don’t think any American can look
at our political system today and say they are confident in what it can
do, happy with how it works, that it makes — more optimism about the
United States.
But I tried to write a slightly more optimistic, hopeful story,
because, in this crisis, at that moment, country deeply divided,
presidents of different parties, this country was able in the crisis to
put together a massive and very effective on the core objective rescue
of the economy.
It wasn’t enough, didn’t prevent all the damage. We are still living
with the scars of that. But that was a remarkable feat for a country
that, from — to any observer on the outside still looks so broken. You
could say a paradoxical thing was that a lot of the divisions we see
today were created in part by the opposition on the right and left to
what was done in the crisis to protect people from a Great Depression.
It’s sort of a paradox. But relative to other countries in crisis, this
country did what we have done pretty well over our history, which is at
the moment of peril, we found a way to do enough force to produce a
better set of outcomes than has been the typical experience in financial
crises.
GWEN IFILL: But there are people who argue still didn’t do enough, that
we are still weak and that — especially in the housing market.
TIMOTHY GEITHNER: Yes.
GWEN IFILL: With a different amount of focus on the concerns of the
collapse of the housing market and underwater homeowners, instead of on
the perils that were facing the banks and financial institutions, we
could have bounced backed a little more quickly.
TIMOTHY GEITHNER: Well, the economy came back to growth really remarkably quickly, but growth has been disappointing.
And it should have been stronger. And it could have been stronger. And
this is the most important thing. It could have been stronger if the
country hadn’t got caught prematurely in a little austerity fever and
moved to cut spending as deeply as Congress did in the years, early
years of recovery.
GWEN IFILL: So, the problem was that spending was cut too steeply, not that you didn’t do more to shore up the housing market?
TIMOTHY GEITHNER: Well, it’s sort of a similar problem in this case,
because housing at this — was mostly a reflection of the fact that so
many people lost their jobs or had their hours cut back.
And even with growth coming back, it took awhile for employment to
start to improve again. That was the biggest reason why the housing
crisis started, why it was so prolonged. But, of course, it would have
been better for the country if we had had more resources and authority
to try to mitigate the damage to the homeowner.
The things we did, although they helped millions of people keep their
homes, millions of people refinance, helped stabilize house prices, get
them going again, those things were just not strong enough, relative to
the size of the problem. But that’s not because we didn’t worry about
it, didn’t have a president enormously focused on it.
It’s because we had limits on what we could do that could not be
relaxed unless Congress chose to do them. And, as you saw, Congress kind
of lost the will in — after the early stage of the crisis to do much
more for the economy.
GWEN IFILL: You write extensively about moral hazards and Old Testament
vengeance and people who just wanted to exact punishment for its own
sake. Was enough punishment exacted?
TIMOTHY GEITHNER: I don’t — I think Americans deserved a much more
forceful response than they feel they have gotten, because the damage
from the crisis was so tragic and brutal and because there was so much
bad things that happened in finance, predatory lending across the
system, in the Wild West of our system.
So I think they deserved a stronger response. And that Old — what I
refer to as the urge for the Old Testament justice, that’s a necessary,
important thing that we all deeply believed in.
The — what I try to explain is that, in the fires of the panic, with
the country facing a collapse, a run and a risk of a Great Depression,
our first obligation was to try to land that plane safely for people,
and then we tried to turn the force of the U.S. government towards not
just reforming the system, but to bring a measure of justice on the
enforcement side.
And you have seen prosecutors across the country — and they had the
right incentives, enormous pressure on them. You have seen them
gradually over time move to try to hold more people accountable. But
they found it a challenge.
GWEN IFILL: Looking back, how close did we come to a second Great Depression?
TIMOTHY GEITHNER: Oh, we came — we came exceptionally close. This is a
really important thing for people to think about, because, again, there
is no memory of a crisis.
But the shock that the U.S. experienced in the fall of ’08 was five
times larger than what the U.S. experienced at the beginning of the
Great Depression. And yet — and this was a terrible crisis for us and a
very weak recovery, still scars across the country, the damage.
In the Great Depression, unemployment went to 25 percent. The economy
shrunk by 25 percent. It took a decade — we had a decade of red lines
and shantytowns around the country. So it was a perilous moment. Hank
Paulson said, I think justifiably, that we were three days away from
people — from the ATMs not working. So we were very close to the edge.
And it was happening around the world, around the world. And, you know,
I tell in the book about how you could hear really the giants of the
global economy, some of the strongest institutions in the world, you
could hear the fear and the panic in their voice, because anybody living
in that world at that time running a business at that time knew that
they were at the edge of losing the capacity to function.
GWEN IFILL: You conclude in your book that you may have helped save the
economy, but lost the country. What do you mean by that?
TIMOTHY GEITHNER: Well, I meant that if you — the thing about financial
crises, the deep panics like we faced, is the things you have to do to
protect people from the risk of mass unemployment are deeply unfair and
they’re totally counterintuitive, because they involve doing things that
look like you are rewarding the people, the arsonist who took that much
risk.
And it’s a tragic, inherent thing in effective response to panics,
because if you don’t do that, then the risk is — of course, is again
much more damage to the innocent. And there’s no way to protect the
innocent from it without creating some collateral beneficiaries of it.
And that basic sense of unfairness, which of course we still live with
today — I think most people still find it inexplicable and unfair — is
at the core of why the politics are so hard and the core of why there is
this tension between what’s necessary and effective for the average
person and what is understandable, acceptable in a sort of political
sense or amoral sense.
GWEN IFILL: The name of the book is “Stress Test,” and its author is Timothy Geithner.
Thank you for joining us.
TIMOTHY GEITHNER: Thank you very much.
-- Paul Bremmer is a News Analysis Division intern.