Geithner’s ‘Bible’
Geithner adhered to the concept outlined by Walter Bagehot in his 1873 book “Lombard Street,” that during times of crisis, banks should fill their front windows with all the cash they have and “to lend freely, boldly, … so that the public may feel you mean to go on lending.” By doing this, the public would see there is no reason to panic and cause a run on banks. Geithner wrote that he considers this book to be the bible of central banking.
Geithner repeatedly argued for using all the cash the government could throw at the financial crisis as a means to end the panic. He argued that not doing so would wind up costing taxpayers more in the long run.
This concept clashed with the congressional Republican philosophy of austerity, letting the financial crisis “burn” to weed out the crooked and inept in the financial system by allowing “Old Testament justice” to serve as an example to prevent future “moral hazard” (bankers would always be greedy and stupid, counting on government to bail them out).
This battle of philosophies played out during the crisis when, on a first vote, Congress rejected bailing out Wall Street. The market then plunged and Congress voted again to approve the bailout and the market settled.
Crossing Swords
Geithner would cross swords with several Republican lawmakers: Rep. Michele Bachmann, R-Minn., over the constitutionality of bailing out banks through the Troubled Asset Relief Program; U.S. Sen. Mark Kirk, R-Ill., who advised the Chinese not to buy U.S. Treasuries; and one exchange during a congressional hearing when he was being grilled by Rep. Kevin Brady, R-Texas. Geithner told Brady that he agreed with “nothing you said.”
Of course, Geithner also ran afoul of progressives because he wouldn’t agree to give “haircuts” -- letting investors take the hit for putting their money in a “bad” firm. He argued that would dry up investment or cause it to “run” at a time when the crisis didn’t need any further stoking.
MSNBC’s Rachel Maddow told him that it was hard for Democrats to trust him because he was the face of Wall Street bailouts.
Geithner doesn’t take sole credit for what worked. Bernanke and Summers and many others worked hard to save the U.S. economy, Geithner notes. He also said Obama only insisted that they fix the problem and not worry about the politics.
Geithner writes: “Politics is not my life’s work, but it left me with some scars, and I have some things to say about the soul-crushing pathologies of Washington. I witnessed some appalling behavior in the political arena – selfishness and grandstanding, shameless hypocrisy and mindless partisanship.”
“Stress Test” is a memoir and the point of view is Geithner’s. But he does strive for objectivity. He writes of his failures, chief among them was he didn’t see the warning signs of the ’08 crisis. He writes also about the hardships inflicted on his family.
The book has also generated controversies.
Geithner recounts a 2012 exchange at the Economic Club of New York Dinner with Glenn Hubbard, who at the time was the economic advisor to GOP presidential candidate Mitt Romney, regarding the Simpson-Bowles deficit-reduction plan.