One feature most politicians have in common is their penchant for blaming their predecessors and sneering at their successors. Typically, it goes something like this: “When I took over, things were in a mess. When I left, things couldn’t be any better. After me, things reverted to the mess that existed before me!”
[inset_left]Stress Test: Reflections on Financial CrisesBy Timothy F. GeithnerCrown Publishing Group, 580 pagesNew York, 2014[/inset_left]
There is, therefore, no reason why a partial memoir by a former United States Treasury secretary should be any different.
And, yet, Timothy Geithner’s Stress Test, which is built around his stint as President Barack Obama’s Treasury secretary, is something more than a mere exercise in self-aggrandizement and the disparagement of others.
Unless he used a ghostwriter of talent, Geithner reveals himself as a gifted author especially in the autobiographical segments of the book. We see him grow in a middle-class German–American family anchored in traditional conservatism while, at the same time, aspiring after liberal values. Geithner soon becomes exposed to the realities of a globalized world in which the metaphorical flapping of a butterfly’s wings in the Amazon could trigger storms at the opposite end of the world. Twists of fate take young Geithner to faraway places, including Zimbabwe, Zambia, India and Thailand where he undertakes some of his education. Exposure to foreign—and to some Americans, exotic—cultures encourages young Geithner to learn a number of foreign languages, among them Chinese and Japanese.
Geithner starts his public service career under the patronage of former secretary of state Henry Kissinger as a researcher. However, as a budding economist Geithner became a protégé of Lawrence Summers, the liberal economist who served as deputy secretary of the Treasury under Robert Rubin during the Clinton presidency. It is quite possible that Rubin’s influence played a key role in persuading Obama to pick Geithner as Treasury secretary.
Nevertheless, Geithner’s book does not portray him as a typically liberal economist, in the American sense of the term. To be sure, he comes across as a neo-Keynesian with a firm belief in the utility—not to mention, necessity—of state intervention when and if required by the circumstances.
However, one cannot be sure of Geithner’s true ideological colors for two reasons. First, he was part of a team led by Obama, a politician who, in the American context, comes closest to being a socialist in the sense that he believes in the role of the state as the ultimate arbiter of fairness in a nation’s economic life. The second reason is that Geithner became Treasury secretary at a time that the American economy, indeed Western capitalism as a whole, was passing through what some commentators have described as the worst financial crisis since the Great Crash of 1929.
Geithner’s central claim in this book is that without intervention by the federal government the entire American economy might have collapsed, producing a much bigger meltdown than Black Tuesday. The collapse of one major investment bank and the possibility that at least four other giants of American banking were wavering on feet of clay, made it imperative for the federal government to ride to the rescue. Geithner invented his famous “Stress Test,” as a means of assessing the health and strength of the banking sector. When a bank failed that test, the federal government would step in with “adequate cash infusions” to prevent bankruptcy. In time, the state-sponsored scheme came to be known as Troubled Assets Relief Program (TARP), costing the US treasury over 350 billion US dollars.
In the old times—good or bad, according to one’s ideological position—such huge expenditure by a government in an ailing business would have led to nationalization, at times even without compensation for recalcitrant owners. The Geithner–Obama scheme, however, maintained the rescued businesses, including General Motors and Chrysler, under private ownership with the excuse that not doing so would lead to “something worse, much worse.”
If one regards the saving of US banks, some of them badly managed and ridden by corruption, as a success, Geithner’s stewardship must be rated as a success. The trouble is that the former secretary tries to claim something more.
That claim is based on two assertions. First, Geithner insists that the financial crisis of 2009 could have been deeper than that of 1929. However, the truth is that we don’t know whether that would have been the case. Today, we have the tools and the knowledge necessary for dealing with financial crises, something that was not the case in the 1920s. More importantly, perhaps, our options are not limited to classical Keynesianism or Chicago school supply-side remedies.
Secondly, Geithner asserts that the fight against the financial crisis has ended with victory for America. However, that too is not as certain as the former secretary wants us to believe.
A few facts would indicate that Geithner’s self-congratulatory stance may well be premature. Today, US annual gross domestic product is growing by a statistically problematic 1 percent. Compared to pre-crisis average annual growth rates, the US economy has, in fact, shrunk by almost 1.5 trillion dollars while median family income is 2.2 percent lower. In 2014, US national debt is expected to rise above 18 trillion dollars, which is higher than the annual GDP.
True, headline unemployment is marginally lower. That, however, may be partly due to an estimated 2.8 million people who, having become tired of looking for jobs, have dropped out of the labor market.
The US economy emerges from the financial crisis badly damaged, a fact that Geithner tacitly acknowledges. However, obliquely he puts the blame on Obama who would not shy away from asking his cabinet to “massage” the facts to suit his political narrative. Geithner also extends the blame game to the Republican members of the Congress whose principal aim was to “get at Obama” rather than turn the economy around.
If only because of its highly readable and authoritative account of the crisis, Geithner’s book remains a valuable contribution to the study of a crisis that gave global capitalism a really bad shake, its ripples still felt across the world.