Who is Tim Geithner?
Tim Geithner was Barack Obama’s Secretary of the Treasury from 2009 to 2012. Prior to that, he was President of the Federal Reserve Bank of New York starting in 2003. He played a pivotal role during the Financial Crisis and its aftermath. All told, he spent 23 years working for the Federal Government, mostly in positions that involve economic and financial oversight.
His memoire, Stress Test, outlines what he experienced and considered during the crisis. It outlines the distressing and paradoxical nature of the banking system in a modern economy. The financial system is the economy’s life-blood. Companies need access to credit both as investors and as borrowers. When The Reserve Money Market Fund broke the buck after Lehman failed, the ensuing panic threatened the economy’s financial infrastructure.
Shoring up that structure—preventing the collateral damage that could lead to a depression—looks like rewarding arsonists. The big banks created all these sub-prime mortgage-backed securities and CDO-squared bonds; big banks had their capital threatened—and many failed—when those bonds failed to perform as advertised; and the big banks got the big bailouts at the bottom of the slump. How is this fair?
But the bailouts weren’t for the benefit of the banks. The bailouts were an efficient way to protect the people and institutions who used the banks, people who had borrowed responsibly and paid their bills on time. And the political grandstanding, hypocrisy, and partisanship didn’t help us address the crisis more effectively. When the building is on fire, it’s not a good time to debate whether the fire truck gets adequate gas-mileage.
This financial crisis was less disruptive than many others have been. Of course, we’ll never know how bad it could have gotten if the government had just let everyone fail. But eventually we’ll see if our system can get back to normal. We haven’t gotten there yet.
Douglas R. Tengdin, CFA
Chief Investment Officer