Jennifer Taub is an associate professor at Vermont Law School. Her book “Other People’s Houses” will be published on May 27 by Yale University Press.
Timothy F. Geithner‘s book, “Stress Test: Reflections on Financial Crises,” is to be released by the Crown Publishing Group on May 12. Based on the book’s website — I have no special inside track — Mr. Geithner will offer a candid self-evaluation of his performance during the 2008-9 financial crisis, first as president of the Federal Reserve Bank of New York, and later as Treasury secretary.
In doing so, Mr. Geithner will follow fellow bank bailout-era officials whose books seek to shape our views of the financial meltdown by detailing what they and their peers got right — and wrong — in their responses.
First with a book was Henry M. Paulson Jr., who became Treasury secretary in July 2006 in the George W. Bush administration, after heading Goldman Sachs for seven years. In “On the Brink,” which was published in 2010, Mr. Paulson defended the rescues of the Wall Street firm Bear Stearns and the giant insurer American International Group as well as the $700 billion bank bailout program known as the Troubled Asset Relief Program, just one part of the many trillions of dollars the government committed to save the financial sector. Mr. Paulson admitted that he missed the impending burst of the $8 trillion housing bubble. This is somewhat surprising, given that Goldman Sachs began its “big short” against the housing market within months after Mr. Paulson left the firm, according to a Senate subcommittee report.
Next came “Bailout” in 2012 by Neil M. Barofsky, a former federal prosecutor who served as the special inspector general of TARP. This role required him to monitor how the Treasury Department was handling the bailout and foreclosure prevention programs, and resulted in frequent clashes with Mr. Geithner. Mr. Barofsky contended that the Treasury Department did not work to stem foreclosures, but just to slow them down so that the associated bank losses would occur at a manageable pace — or, in Mr. Geithner’s words, would “foam the runway” for banks. That same year in her memoir, “Bull by the Horns,” the former chairwoman of the Federal Deposit Insurance Corporation, Sheila Bair, wrote that she did not think helping homeowners was ever a priority for the Treasury Department.
Now it’s Mr. Geithner’s turn to tell all and, perhaps, bite back. His website gives us a glimpse that his book will be like Mr. Paulson’s, admitting mistakes, but not malfeasance, and ultimately declaring victory. On his site, Mr. Geithner notes: “We made mistakes, it was messy, and the damage was devastating and long lasting. And yet, at the moments of most extreme peril, the United States was able to design and execute a remarkably effective strategy.” Notably, the words “homeowner,” “home” or “foreclosure” do not appear on the page.
So what did he get right? I believe Mr. Geithner correctly recognized that restoring bank profitability could be hastened by undermining efforts to rescue homeowners. What he got wrong was choosing banks over people. Mr. Geithner was right when he told Liaquat Ahamed in an interview published in the New Republic that “there is an ongoing political effort to legislate a weakening Dodd-Frank or block political appointees,” but he was wrong when he added, “That effort does not have much political force now.”
Mr. Geithner is right when he notes that the 2008 crisis rescue presented an “extreme real-time challenge.” But it would be wrong to assume that means the government had no models. With the stock market crash of 1929 and the subsequent Great Depression, Franklin D. Roosevelt‘s administration managed a rescue and reform that was (in comparison with the Bush administration and later, the Obama Administration) far tougher on failing banks and easier on struggling homeowners. The Home Owners Loan Corporation that was established in 1933, for example, refinanced more than a million (or 20 percent of all) home mortgages in the country. Some borrowers defaulted again, but 80 percent saved their homes, and the agency later returned a surplus to the government.
In a blurb promoting “Stress Test,” former Secretary of State Henry Kissinger writes that the “country owes Tim Geithner” for his role in fending off the financial crisis and that we are further “indebted” to him for his informative account of those events.
I do concur that the country is indebted — not to Mr. Geithner, but perhaps because of him. Consider the more than nine million homeowners who still owe more on their mortgages than their property is worth. This collective negative equity still holds back the economy and housing market. Under Mr. Geithner’s leadership, the Treasury Department did not support the legislation that would have restored the rights of borrowers to use bankruptcy courts to reduce principal and help save their homes. This legislation, which passed in the House, but failed in the Senate in 2009, would have cost the taxpayers nothing and more than a million homeowners would have benefited, according to the Congressional Budget Office.
Banks and investment firms, on the other hand, more clearly owe the former Treasury secretary for his central role in securing their solvency. Based on the sizable speaking fees — $400,000 for just three appearances in 2013, plus a plum position he has secured in private equity — some financiers appear to be making good on that debt.