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? That’s the stuff that ratings are made of.
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?”
A good follow-up to that question might have been something like this: “When you admit that the White House pressured you to lie to the American public, doesn’t that lose the country by eroding the people’s confidence in their public officials’ honesty?”
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.
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