Ezra Klein: Why should we feel like we did
a good job responding to the financial crisis
despite the fact that today unemployment is
still a whole lot higher than anyone would
like it to be?
Tim Geithner: This was a classic financial
panic, the most dangerous type of financial
crisis and something that hadn't happened
to the world in really almost a hundred years.
If you look at what happened in the Great
Depression, when you look at what happened
around history, this is devastating. In the
Great Depression, you had a shock to wealth,
GDP fell 25 percent, unemployment went to
25 percent, and it took 10 years to get back
to a place where roughly like where we are
today.
Our crisis was caused by a shock that was
5 times greater in terms of loss of wealth
than what happened at the beginning of the
Great Depression. Because we responded dramatically,
more forcefully, much more aggressively, again,
it was messy; it wasn't pretty to look at,
we were able to prevent unemployment from
rising beyond 10 percent. The economy started
growing again within 6 months. That was not
an accident. That was a result of a conscious
set of choices we made to do, some pretty
unpopular things, pretty counterintuitive
things to prevent the panic from getting so
much momentum, it would collapse the economy.
Ezra Klein: I think when people hear this.
When they hear the argument that we were bolder
here than we were during the Great Depression,
it feels counterintuitive.
Tim Geithner: It does. Yeah.
Ezra Klein: Because people can name so much
that happened out of the Great Depression
though, Works Progress Administration, Social
Security. I mean you can really just go down
the line ... What was it called? The alphabet
soup of responses.
Tim Geithner: We did 2 sets of things that
are very different, not just from the Great
Depression, than really what almost any country
has done in the hundred years since. Or what
Europe's done in the last 5 years. First thing
we did was We used the full force of the central
bank monetary policy and the fiscal authorities,
stimulus, tax cuts, spending increases, as
well as a set of financial programs to prevent
a collapse. We used those in concert together.
Typically, what you saw in the Great Depression
is they're working against each other where
you leave some of those tools unaddressed
or they're hidden in the closet. Very unique
what we did. Again, It was a little late the
beginning, and it wasn't sustained as long
as we would like, but we used that full force
of things very dramatically.
The fiscal stimulus, for example, was larger
than what Roosevelt did in the Great Depression
in relative terms. Even though it was a little
over too quickly, it wasn't as large as we
needed, so that was the first thing we did.
which was use those tools very aggressively,
in concert together. They were much more powerful
together being used in concert, than they
would have been if they had been used just
individually. Simple reason, if your banking
system's broken, monetary policy doesn't really
work. You can't get the oxygen where it's
needed.
Second thing we did was to do a very aggressive
restructuring, recapitalization of the financial
system. We cleaned out the worst parts of
it, and we left the core of the system with
much more capital against future losses, and
that meant the financial system was able to
give more oxygen to the economy as it recovered;
it wasn't a huge drag on the economy. The
tools we used to do that and backstop the
commercial paper markets, the credit markets
for the average consumer, they were very innovative,
very creative, and their scale remarkable.
We backstopped indirectly, directly about
30 trillion dollars in financial assets. They're
very complicated mix of programs.
That had never been attempted or done. It
was the scale of that response that made it
possible for us to get the economy growing
again within 6 months, really remarkably quickly.
It made it possible for us to return to the
taxpayer a positive return on the financial
programs. Remember, people thought even in
early '09, that we would lose 2 trillion dollars.
If you just look at the returns today, expected
returns, the taxpayer's going to earn ... We
didn't do it for this purpose. They're going
to earn between a hundred and two hundred
billion dollars. In effect, we made the financial
system pay for the support we gave them.
We didn't do it for them. We didn't do it
for the banks. We did it to protect the Main
Street from a failing financial system.
Ezra Klein: You talk about in the book, the
paradox of financial crises, and it goes to
this point exactly. When people I think look
back on it, and they think about backstopping
these 30 trillion dollar markets, when they
think about bailing out AIG, there's a feeling
that, one, it was really bad. Even if it could've
been worse, it was really bad.
Tim Geithner: It was terrible.
Ezra Klein: A lot of these guys got away.
Part of what you're saying here is that restraining
the impulse to go in and punish was part of
what permitted a speedy recovery than what
we've seen in other countries and what we've
seen in other times. Why would that be? Why
wouldn't disciplining the market in a more
aggressive way, disciplining, making an example
out of people, marching them out in cuffs,
help at least set a lesson, bring confidence
back to folks, that we're setting the rules
down and this won't happen again?
Tim Geithner: That's the core question. It's
what I try to explain, write about it in the
book. It's the central paradox of panics.
In most crises, in most states of the world,
the basic instinct you described is the necessary
right instinct. You want people to fail if
they took mistakes. You want them accountable
for doing dumb things. You want them to bear
the consequence of those choices. That's the
natural response, and it's the right response.
In a panic though, in the classic financial
panic, where the risk of complete collapse
of the financial system is present or at the
edge of the abyss, then you have to suspend
that impulse, not indefinitely, but just temporarily
and make sure you're focusing all your attention
on this simple moral imperative, and it's
a moral imperative, of keeping the lights
on in the financial system.
Because if you let the system collapse, the
damage to the average person is catastrophic.
It doesn't mean you should suspend that sense
of justice and the sense of outrage. It's
just you have to figure out ... You put out
the fire first, and then you got to figure
out how to, not just create stronger set of
rules, but hold people accountable for what
happened. In our system, what we tried to
do was put out the fires. We protected people
from even more damage. You're right. There's
still a lot damage, but then try to move very
quickly to put in place a stronger enforcement
response and to put in place tougher set of
rules over the system going forward.
Ezra Klein: Let me ask you a broad question
about that. When you were going through it,
even just looking back now, did you feel that
there were people who in a perfect world should
be held accountable, or did you feel this
was a systemic period of overconfidence, and
it wasn't that individuals were doing things
that they should be, even in a perfect world,
punished for, it's just that everything got
a little bit out of hand?
Tim Geithner: No. There was an appalling amount
of fraud and abuse and bad behavior in the
run up to the crisis that caused a lot of
damage. I think the American people deserved
a more forceful enforcement response, more
forceful response to that. That was very important.
In fact, you could say that period of optimism,
the mania, the period of exuberance, it in
some sense provided the oxygen for a huge
amount of abuse and fraud. Absolutely, it
was a lot of it. Even if it wasn't central
to causing the worse parts of the crisis,
it was very damaging. It caused a huge loss
of confidence in the fairness of the system.
Again, in a panic, because of the consequence
of panics, you have to do a little bit of
sequencing of your actions. You've got to
make sure the lights stay on first because
if they don't, the damage to the innocent
victim is much more traumatic. Why would that
be just?
Ezra Klein: You ultimately end up, despite
being I think pretty frustrated with the American
political system, with a fundamentally optimistic
take on it, that when the chips are down,
the system responds effectively, not beautifully,
but ultimately effectively. I was thinking
about that a little bit in terms of which
problems we are and are not good at solving.
I think if you look back at the financial
crisis, when firms were at the risk of collapsing,
ultimately the American political system would
respond, I mean-
Tim Geithner: Not because of the firms though.
Ezra Klein: I recognize that, but nevertheless,
we then had a really extended and continue
to have unemployment crisis. At a certain
point, the American political system stopped
responding.
Tim Geithner: I agree with that.
Ezra Klein: We have decided to live with that.
Why do you think that is? Why do you think
that the sort of urgent collapses on Wall
Street did ultimately force action, whereas
at a certain point we decided, if these millions
of people just become long term unemployed,
that is a cost that we'll live with?
Tim Geithner: I think in the midst of the
darkest days of the fall of '08, there was
enough fear and panic about the cost of the
average American that congress felt they had
to respond. They didn't really know what it
was going to take, but they really had to.
There's no alternate at that point. That wasn't
because of the power of the institutions in
Wall Street. It's because of a widespread
recognition that the value of America savings
had just fallen by a level 5 times greater
than what started the Great Depression. It
was a overwhelming existential imperative
at that time. People have written over time
that our system is pretty good at crises.
It's really pretty good, over time facing
existential threat, marshaling the unique
strengths of the United States to deploy the
type of response you need.
Then, what happened? What happened is that
the basic divisiveness of the American political
system, the loss of confidence in government,
the scale of the political opposition to government,
the scale of the skepticism about deficits
in that context took over, and there was a
bit of premature austerity fever. That saps
the will and the strength to do a bunch of
things that would have helped make the recovery
stronger. We were growing, but growing at
pace that was too slow to bring unemployment
down as fast as we could have in that context.
I guess you could say it was what history
has shown about the United States, which is
in the acute extremes, when you're at the
edge of the abyss, our system; again, it's
sometimes messy, responded pretty well. Remember,
that was a very dangerous moment because we
were at the midst of a political transition
across parties, no strong governing majority
in congress, a very dangerous moment. Yet
at that moment, you had Democrats and Republicans
come together and say, "We're going to do
what it takes," in that context. That's a
good thing for the country.
It's not enough though because a lot of the
challenges we still face as a country, they're
going to require compromise and accommodation
and legislation that's going to require majorities
that include Democrats and Republicans. Unless
we rebuild that capacity, it's going to harder
for us to make a bigger dent on some of these
long term challenges.
Ezra Klein: How different was dealing with
Republicans in the House and the Senate behind
closed doors, versus what it was like in public
at a hearing or even non-direct negotiations
with just the two parties kind of coming to
their positions and articulating them to the
public?
Tim Geithner: It's very different worlds.
The world that most Americans see is the world
of extreme, adolescent political theater.
When you're in a room, and you're trying to
solve a problem; you're working through something.
It's a sort of more encouraging thing about
those individuals on the Hill and their willingness
to try and think about problems. Ultimately,
what happens though is you leave the room,
and they go back and try to figure out, can
they get the votes for something in their
party? Most of things that the country needs
today, they're pretty divisive.
Ezra Klein: As a reporter, one of the things
I found over and again, is that all these
processes begin in a room, to some degree.
When they begin, you'll call the people who
are in the room, and these are the folks with
the information. They'll say, "God, that was
really encouraging. I really think we might
be able to get something done here." With
every step people takes out of the room, and
eventually you have to go out of the room,
it becomes more and more remote, and typically
it ultimately, completely falls apart. It
often felt to me that the room doesn't mislead
anyone in Washington so much as it misleads
the people in it -- because the feeling of
working things out on an individual level,
it feels so normal, and as you say, it's more
adult.
Then, when you leave that room, the basic
dynamics of American politics at this moment
in time with the parties as polarized as they
are take over. All of a sudden, how goodhearted
the individuals are, it doesn't matter much
that anymore.
Tim Geithner: True, but remember the people
in those rooms are masters of the craft. They're
realists; no naive idealists in those rooms.
They're pretty pragmatic people. They understand
the constraints. It's better to try. It's
better to try rather to just sitting back
and saying you're only going to play at the
level of theater. Unless you get in a room
with people and understand what their constraints
are, what their incentives are, what their
interests are, what they need, there's no
way you can govern and compromise. You have
to do that. It's worth the attempt.
Ezra Klein: There's a different spin on the
room that I think relates to the question
of whose problems we solve effectively. It
seemed to me that one of the inequities in
the crisis response as it has gone over times,
is that Congress can do more directly for
Main Street than the Federal Reserve can,
or at least than Federal Reserve believes
it can. Yet, Congress is much more gummed
up political polarization. The Federal Reserve
has been able to continue what it sees as
a pretty aggressive policy of helping the
economy long after Congress has had to stop,
and so you've had, it seems to me, a longer
period of support. It's not meant to just
help the financial system, but it does help
the financial system than we were able to
get for Main Street, simply because the actual
processes by which we help the 2 groups are
different. The Fed's is at this point more
technocratic.
Tim Geithner: The only thing that I want to
change your view on a little bit, is the way
you describe the way those 2 different policies
work and who they help in that context. Monetary
policy doesn't exist to help the financial
system. Just look at the history of mistakes
of central banks. Who bears the burden of
the mistakes? Both ways. The burden of if
it's too much inflation or unemployment way
overshooting, that's a challenge, a burden
that the average person bears. The reason
why people invested so much and effort over
time in designing institutions around central
banks that have that level of independence
and expertise is because it's the only way
to improve the odds that the outcomes for
the average person are better than what we
see in countries where central banks are not
independent or they're run politicians.
In fact, you could say the opposite in some
sense. You could say that in those more politicized
systems, the outcomes of central banks are
much more favorable to the financial interest
than is through in a system with this, "Do
we have independence?" Your central point
is true that in our system of government,
the fiscal powers that can affect the economy,
help us grow faster, bring down unemployment
fast, equip people to compete more effectively
in this tough world we live in. Those powers
overwhelmingly exist, or Congress's powers,
any action has to go through Congress. If
Congress is unable and unwilling to act, then
you're left with much worse economic outcomes
than are achievable.
The Fed cannot compensate that for that. It
just puts a greater burden on the Fed instruments
to do it, but it can't compensate for that
failure.
Ezra Klein: Right. I wouldn't argue that the
Fed is motivated by the banks, but I would
say is that, the set of tools the Fed believes
it has right now ... Sitting not too far from
me is Matt Yglesias, who thinks that Ben Bernanke
should be doing something a whole lot closer,
or now Janet Yellen rather, she should be
doing something a whole lot closer to just
sending people checks.
Tim Geithner: Right.
Ezra Klein: In terms of powers of Fed it feels
that it has, you've got a lot of money and
a lot of easing going in the financial system,
and the banks are not often taking the next
step of lending it out aggressively, of actually
pumping that money through the economy. Congress
could do that. Congress could take those really
low interest rates and turn them into tax
cuts, but they're not doing that. They could
it into infrastructure investment.
It doesn't seem to me in any way to be a issue
of motivation, but is a structural issue in
the way economic policy is set and who has
control over what in the American economy,
has seemed to me that there is a greater capacity
to respond at this point of problems in the
financial system than there is to respond
to say, the fact that the labor force participation
rate has fallen, and it's staying whole lot
lower than anyone thinks is a good thing because
that requires Republicans and Democrats in
Congress to come together and agree on some
kind of remedy.
Tim Geithner: Yeah. I think we're in violent
agreement. It would be better for the country,
if it were more active ... If you had a more
active fiscal powers deployed to address these
things like high levels of long term unemployment
and growth that's not as fast as it should
be. I completely agree with you.
Just one qualification since you raised it.
When the Fed lowers interest rates or lowers
long term interest rates, when that works,
it works in part by raising the value of people's
savings and lowering the price of their mortgage,
how much they have to pay for their mortgage
in that context. When that works, it works
because it changes decisions people makes
about how much they spend and how much they
borrow because it improves the rate of income
growth of the average person in that context.
I'll say it a little differently. It's just
that the power of that instrument is inherently
limited, and it can't compensate for the failure
to use those other things that effectively.
You're right. There's that moment of peril
when we use those 2 tools and the financial
programs in concert with pretty enormous force.
Maybe in some sense, the cost of what happened
in that context was the constraints of the
political system reasserted themselves kind
of quickly, and we lost the power to do enough
fiscal.
Ezra Klein: Well, one of the weird dramas
of most of last 5 years on Capitol Hill seemed
to me to be Ben Bernanke as Federal Reserve
Chair, a George W. Bush appointee, going up
and begging Congress to use the money he was
giving them ... I mean you talked about interest
rates a second ago. It always seemed to me
that Ben Bernanke had a really big housing
plan, which was, "I'm going to bring interest
rates down to almost nothing. You guys need
to help everybody in the county refinance
their mortgages." There was plan for that
that came out from the Obama administration,
and it never went anywhere in Congress at
all.
The Fed did take the hard part of that tool
and put it on the table, but the next step
that had to be taken, which is it actually
pushed the banks and make it simpler through
Fannie and Freddie and other things, for people
to go and use that money-
Tim Geithner: It's a little better than what
you said though. Something north of 20 million
Americans refinanced in the crisis. About
a third of those I think were directly things
that were supported through our programs through
Fannie and Freddie. The rest of it was just
the natural fact that interest rates came
down and so was economic for people to refinance.
Now, we had a bunch of proposals we gave Congress
for expanding the reach of those things. Again,
it would've been better if Congress acted
on those things. So I guess I'm agreeing with
you again.
Ezra Klein: Let's talk about those housing
programs for a second. When I talk to folks
both inside the administration and out, the
part of the crisis response, there is the
most either ambivalence or anger over-
Tim Geithner: -- or frustration --
Ezra Klein: Is the housing side.
Tim Geithner: Yeah. Absolutely.
Ezra Klein: I mean there are a couple of dimensions
of this, but 2 of the main ones are, one,
that there was money sitting in administration
programs, sitting in treasury essentially
that was not used, and they could've been
used theoretically with executive action.
Tim Geithner: Can I just respond to that piece?
Ezra Klein: Yes.
Tim Geithner: We put aside 50 billion dollars
from the initial TARP of 30 to spend on housing
programs. We supported over time a pretty
broad mix of programs. When the money wasn't
flowing as aggressive as we thought, we substantially
increased the incentives. We did that over
and over again. What we found over time that
we couldn't get enough take up. We tried to
be as aggressive as we could in using it,
and we had the right incentives.
I mean we had some of the best minds in housing
in the country sitting there, accountable
for this. We had the president putting enormous
pressure on this, on us. We looked at every
idea, and we a tried a huge number of things.
We were as frustrated as everybody was with
this. Certainly, the President was frustrated.
We had the right incentives, and we worked
really hard at it. We were very creative,
but we were unable to figure out a way to
get a reach broader than what we had and to
have it more aggressive. It wasn't because
we were not focused on it or not worried about
it, not trying. We did a lot of experimentation
too.
Ezra Klein: Why did the program so underperform?
When you guys dug into it, what did you find
was actually the obstacle?
Tim Geithner: Let me step back and try to
do what we tried to do and what we achieved
in this context. We tried to do 3 key things.
One was to make sure housing prices didn't
fall. They fell 30 percent. When the president
came in, the futures market said they were
going to fall another 20 to 30 percent. That
would have been devastating, so we were very
focused on reducing that risk because this
is the most valuable piece of savings for
most Americans. It would've been devastating
to the economy. Very successful in putting
a floor under house prices and ultimately
helping them to start to get going again.
We did that in part by ... What the Fed did
in part by trying to make that people could
borrow to finance a mortgage again. Those
markets didn't shut down dramatically.
Second thing we tried to do was to make sure
people could refinance on a broad scale, had
a big tax cut like effects, very substantial.
In some sense for the average who refinanced,
those tax cuts were larger than the Recovery
Act in that context. Again, somewhere north
of 20 million Americans were able ... That's
a pretty broad reach program in that context.
Then, we tried, and this was the hardest thing,
to help as many Americans as we could who
could afford to stay in their home if you
gave them some help staying in their home.
Ultimately, there was something like 5 million
foreclosures avoided because of the mortgage
modification that we supported directly and
put money behind and because of those that
the private markets did on their own on the
model of programs. That 5 million, it wasn't
10 million, but it couldn't really have been
10 million. It was probably going to be 5
million no matter what because there was a
whole range of people who had financed a second
a home or financed a home that was just going
to be unaffordable for them in that context.
There was a limited number of people we could
reach. The basic constraint on doing more
quicker was in part because we were working
through a pretty broken banking servicers
industry. We had to go work through those
pipes. Couldn't go around them, and they were
terrible, terribly staffed, terrible resources,
and way inadequate to a calamity like this
in that context. Again, we did as much as
we could with the authority we had. We had
all the right incentives. We had just demonstrated
we could be enormously creative and a range
of other things where we're taking a lot of
risk. We brought that same mix of talent with
a bunch of better housing talent to it. We
looked at every idea that was out there. Again,
we had a president putting enormous on us
to try and do it.
In the end though, the reach of our programs
just wasn't enough. It wasn't strong enough,
wasn't large enough relative to the force
of the pressures.
Ezra Klein: Within that though, one of the
arguments people make isn't you guys actually
relied too much on the pipes, on the existing
housing market, that what you should have
done was push much harder for what folks call,
"cramdown" and use the legal system.
Tim Geithner: Good argument. Yeah. The president
supported what you call a cramdown. This was
bankruptcy reform to give the borrower a little
more leverage in renegotiating their mortgage.
Good idea. He supported it when he was a senator
and a candidate. We tried twice in Congress
to get that through. Again, we had a support
of president, a pretty talented legislative
staff at that moment, and they run against
a pretty immovable force in terms of ... We
couldn't get enough Democrats who support-
Ezra Klein: How hard did you guys try that?
Because when I spoke to people in Congress
who were behind cramdown, they felt that the
White House kind pro forma supported it and
did not put their shoulder into it.
Tim Geithner: My view is ... You had the president
of the United States who was for it. He wanted
it. He thought it was important. He campaigned
on it in some sense. You had a pretty talented,
pretty creative staff at that point with the
right incentives. My sense, is watching from
a distance, and I wasn't the main architect
of this, was that they worked at it, and they
were unsuccessful, but you have to be a little
realistic about what the alternative could
have produced in that context. It's not clear
that would have given such a dramatic change
and actual leverage. You'd still be still
working through the same pipes, maybe worse
pipes because you have to go through the court
system or inside the court system.
I don't think it addresses the concern you
raised about we were mistaken to rely on the
existing plumbing. The other thing people
suggest is why don't you just create your
own plumbing, create a whole institution separate
going around all that broken plumbing of servicers
and try to write a direct response mechanism
to homeowners? Our judgment was, and I'm very
confident in this, that would ... We have
to appropriate money for that. That's creating
a whole new government agency. It would have
taken a really long time, really complex to
do. Probably would have been slower than working
through those existing pipes and doing what
we tried to do to get them more quickly. Anyway,
most frustrating thing for all us, the most
disappointing in outcome.
The outcomes were more a function of the basic
constraints we were facing, than they were
a function of either lack of incentive, lack
of effort, lack of creativity.
Ezra Klein: To look forward for a second,
the other big thing that you guys did around
the crisis was attempt to keep another one
from happening. Those rules, Dodd-Frank, some
of them are now in place, some of them are
still working their way through regulatory
process. When I look at them, when I try to
figure out how to tell myself the story, that
I don't need to keep my money in the mattress,
the thing that worries me about them is that
they seem to me to give regulators, they put
a lot of faith in the regulatory system. Yet,
the periods of time when crises happen are
the periods in which regulators are the least
likely to use that authority.
I mean I think there's a very good case to
made that Alan Greenspan could have stopped
this crisis from happening in the early 2000s.
That there were things that regulators could
have done in terms of forcing more capital
banks in terms of being much more aggressive
in terms of regulating how the housing market
was moving at that point. That really could
have mattered, but people psychologically,
a lot of the folks in power, didn't think
they needed to. That is endemic to the periods
that create financial crises. If people were
looking for the crisis, they wouldn't stop
it, So why are you confident that the Dodd-Frank
had created a situation which the next time
we're in this kind of a buildup, regulators
will want to use the tools and the authority
they had.
Because the other option is doing much blunter
rules like ... People talk about breaking
up big banks, meaning more to the point, having
very raw, crude leverage ratios that you just
have to keep a lot more capital on you at
all times.
Tim Geithner: Good question. Let's do the
causes, and then I'll explain the theory behind
our response and reforms.
This crisis was so damaging because of the
panic. The panic was the result of the fact
that over time, our financial system outgrew
all the protections we put in place after
the Great Depression. We had a set of constraints
on risk taking in banks, around banks, that
we think in retrospect weren't conservative
enough, but they were conservative enough
so that there was a huge build up in risk
outside the banks where it's unconstrained.
Risk was just able to migrate around that
and go into a set of institutions, very large
ones, investment banks like Lehman or Bear
Stearns or the rest of them, AIG, GE Capital,
Fannie and Freddie, that existed outside those
protections and were terrible vulnerable to
panic and runs.
That's what caused the crisis. When you think
about what the defense about that is, what
you need to do is to make sure not just that
that you have thicker shock absorbers around
banks, better constraints, simple constraints
on risk taking, but they're extended broad
enough, so you don't recreate again a situation
where banks are a small fraction of credit
and all the risk in a panic vulnerability
is out there. That's why our crisis was so
damaging. That's why it's so hard to arrest.
Now, in your basic theory though, I very much
agree with you which is, you don't want to
design a system that depends on agile, prescient
regulators with perfect foresight, no political
constraints, tightening up these rules in
a discretionary basis as things feel kind
of frothy because there's just a risk that
they'll be late or, I don't know, indifferent
or sort of think it's a new normal kind of
thing, great moderation kind of thing. You
don't want to do that.
We tried not to do that, actually. We need
a more simple imperative which is very similar
to what you said, which is we said, "Most
important thing you can do, is to make sure
you have much tougher constraints on risk
taking applied more broadly across the system,
so that you can be closer to be able to be
indifferent to the fate of individual institutions."
You want a system as Larry used to say, "Safe
for failure."
The theory behind our reform is very much
like that. It's saying, you get these things
thicker, and you keep them thicker, and you
apply them more broadly. It's the best defense
against panics you have. The most important
thing down those reforms was those set of
changes to the regime of capital. They're
dramatically more conservative today, and
they're applied more broadly.
Now, over time like water flows around stones
in a river, they're going to ... Risk will
migrate around that. It's the forever war.
You've got to keep at it, keep looking at
ways to makes sure you can protect against
that risk. It's much better against ... Yours
is the right standard. Again, you don't want
a system that's vulnerable to the wisdom and
courage of regulators that depends on foresight
and preemption because financial crises really
aren't amenable to that.
Ezra Klein: I have a couple of very specific
questions about your book. I would like to
hear more about the time you called Dinesh
D'Souza a dick.
Tim Geithner: I don't know if I can say more
about that. I'll tell a story. I went to Dartmouth
College. I met my wife there. I don't know
if you remember at that time. That was a time
when -
Ezra Klein: I don't.
Tim Geithner: It was the early-
Ezra Klein: I do not remember the time when
you were in college-
Tim Geithner: You were born. You were alive.
It was a time when there's the early stage
of the conservative movement among college
campuses, and Dartmouth was one of the epicenters
of that movement. We see the echoes of that
today across the political system. There was
a group of conservative students at that point
that started a newspaper called The Dartmouth
Review. They published in their newspaper
a confidential list of members of the Lesbian
Gay Student Alliance and including a bunch
of people who hadn't come out to their friends
or their parents. It was devastating to them.
Did it without their consent.
I ran into them in a line at the dining hall
or one of the café's and said what you quoted.
Ezra Klein: What did he say in response?
Tim Geithner: I don't remember him saying
anything in response.
Ezra Klein: You were a republican in college.
You say in the book.
Tim Geithner: I was. I wasn't really a political
... I've never really been a political person.
Ezra Klein: One of the things that actually
surprised me in the book was that your father
voted for Mitt Romney in 2012.
Tim Geithner: He did. I was surprised by that
too. Actually, I wasn't that surprised by
that, but he's a sort of classic moderate
republican. I think of it that way. He voted
for Obama in '08, but he's a more conservative
person by instinct, so it wasn't that surprising
to me in 12.
Ezra Klein: You weren't able to win that argument?
Tim Geithner: I didn't really try to talk
him out of him. First of all, he has his convictions.
I was doing my thing. I didn't really think
it was job to try and change his mind.
Ezra Klein: One of the things that comes up
a lot in the book, and I was surprised because
the book is in a lot ways was actually more
personal than I would have thought, and primarily
in this way; there's a lot of guilt in the
book about how you were as a husband and as
a father during the years you were in Treasury.
This is not something that I ever heard you
express before publicly, but it recurs throughout
the length of the book. I'd be curious to
just hear you say a little bit more about
that, about the interplay between, on the
one hand trying to be in a position where
it's public, and it's incredibly important,
what you do affects hundreds of millions and
arguably if you take the global view, even
more than that people, and then also trying
to be a human being on the other side of it.
Tim Geithner: Well, it's a kind of a terrible,
irreconcilable tension. My work was hugely
compelling to me. At times it felt very consequential.
I had no control over its claim on my time.
There's no control over that at all. If you're
raising a family, it means that you're going
to miss huge parts of their lives, and you're
going to put an overwhelming burden for being
a parent on your spouse, a pretty unfair burden.
Then, you inflict on them again the additional
burden of having a father, a mother, and public
life. It's a huge loss of privacy then. You
don't want your kids to be defined by the
profile of their parents. It's not a very
healthy thing for them. It's a very hard thing
to do.
I mean I love my work. I felt really lucky
to do it, and I had an amazing marriage, amazing
wife, amazing supportive kids throughout that
period of time. I think because of them, because
of the support, I was a better decision maker
than I would have been. I was a more careful
decision maker, more thoughtful than I would
have been, so it was a great benefit to me,
but hugely costly to them.
Ezra Klein: One of the 
things I was thinking about reading was some
of that was that it seemed that it was possible
for you to do because you did have an amazing
wife who's willing and capable of taking on
more of that burden. In a gendered way in
this society, that would be a lot rarer for
a young female civil servant who have risen
to your level. I'm curious what you think
about the tensions, that the pressures on
the family play in terms of who actually can
rise up or how many women can rise up, women
who have families, can rise up to the very
top levels of positions of power and politics.
Tim Geithner: I mean my wife had a profession.
She's a practicing therapist, and she had
a private practice, and then she became a
writer. That profession gave her in some ways
more flexibility than what I would have, and
that was sort of the necessary part of making
this work because we wanted to be really engaged
in raising our kids. I think you're completely
right. I would say though that at Treasury
during that period of time I was there, those
4 years, there was huge number of senior women
in those jobs, many of them with kids. It's
not like "It's not possible to do." It's possible
but it puts a really difficult set of choices
on them and a much a harder thing to balance.
Ezra Klein: Do you think it's in general harder
on women?
Tim Geithner: That balance?
Ezra Klein: Yeah.
Tim Geithner: I think it's harder on any woman.
I do think it is. Of course, lots of people
find their way through this. It depends a
little bit on the choices their spouse makes
in their work.
Ezra Klein: When you left Treasury, which
wasn't that long ago, how long have you been
out?
Tim Geithner: About a year and 3 months.
Ezra Klein: Are you happy to be out?
Tim Geithner: Well, I love my work and the
people I work with, but it was sort of time.
It was time.
Ezra Klein: There was a big guessing game
in Washington about where you'd go, and one
of the things that there was a lot of fury
about during the period of the financial crisis
was this feeling of revolving door between
Washington and Wall Street. I mean in the
highest profile post-crisis I think. Example
you would either or was I'd go to Citi Group
which was one of the institutions that ended
up getting a lot of bailout money. Prior to
that you had a lot of folks from Goldman Sachs
become Treasure Secretaries. I mean there
had really felt to people like-
Tim Geithner: Maybe people thought I came
from Goldman Sachs.
Ezra Klein: Yes. Many people thought you came
from Goldman Sachs, and you didn't go into
an investment bank, but you went to private
equity. I'm curious about that decision, both
for you personally, but also why does it seem
or why is it the case in fact that so many
economic policy makers end up in some dimension
of the investment world as opposed to at sort
of name brand companies are producing things
that people have heard of. You hear about
a lot ... Larry Summers for instance, consults
for D. E. Shaw. What you don't hear a lot
of is, "Well this top policy maker went to
General Mills and is now involved in managing
their production process."
Tim Geithner: That's a good question. I'm
not sure I can speak to the other piece of
it. Can I explain my piece of it?
Ezra Klein: Yeah. Please.
Tim Geithner: Then, I can maybe talk about
that. I had this great privilege. I spent
all my life doing this one thing, but I couldn't
do it forever. I needed to something new,
and I wanted a different kind of challenge.
I was very worried about this perception,
and I thought about it quite a bit. I did
not want to go work for a firm that we had
regulated or that we had rescued. I tried
to be as remote from that as I could. I was
very careful in trying to make sure I was
working with a group of people that I thought
were very ethical, and they were doing something
I thought was valuable. I feel very lucky
in that basic choice.
Now, on your broader question, I agree with
you about the perception. I think it's a very
damaging perception ... The typical thing
is people who go run Treasury, will go run
senior parts of Treasury, understandably people
look for people with financial experience.
That's a good thing. It's not a bad thing
because you want people who working on the
side of the American people, who have the
knowledge to be only good decisions about
how to protect their interests. That does
require experience. Now, a lot of people think
that experience is tainted, and it's complicating
in that sense. I think you're probably better
with it than without it.
It's that reality that creates most of this
impression of people when they leave going
back into finance. Now you cited some examples
of people who didn't come from that in that
context. Even the 2 you cited had worked in
that area before, but that's the typical thing.
There's nothing wrong with that. You just
want to make sure you run a set of protections
so that you eliminate completely the risk
or the perception of risk that that experience
affects people's judgments when they're in
office. Our system has very good protections
against that.
Ezra Klein: What are the protections there
that should make people confident? It is a
I think a difficult thing to believe, that
folks who have come from the world of finance,
will not in a very natural, very human, very
sort of deep way have a particular affinity
towards the arguments being made by the people
they liked and knew. I mean humans have a
tendency to trust more things that come from
trusted sources than from outside. I take
the point about the expertise, but what are
the protections that make you confident that
that isn't a problem?
Tim Geithner: Well, the choices you make in
those jobs are subject to enormous checks
and balances. First of all as you pointed
out earlier, most of the authority that matters
that affects the incentives in finance, affects
what you do with the taxpayers' resources
or decisions that Congress owns. Where they
delegate them, they're highly qualified, and
there's a set of protections around when rules
are written and how they're disclosed and
put out for public comments so people can
see them. We try to go way beyond that too
and to make sure that when we put together
rather elaborate, complicated mix of financial
programs in the midst of the panic, and we
made the terms of those completely transparent
to people so people could see them.
You have to very careful that the decisions
to make are subject to very, very tough sets
of checks and balances, so that you're never
in the position where the private interest
can--This is in the executive branch--can
get in the way of the public interest.
Ezra Klein: When you look forward now, I think
... We just got word the other day that we're
now in a expansion as an economy. It is unusually
long. We've gone now an unusually long time
for the American economy without a recession.
There doesn't look to be a recession right
around the corner at least, and yet I think
that the recovery simultaneously hasn't been
as a deep as people expected. In particular,
I think the main manifestation of that is
you've got a lot of folks who dropped out
of the labor force. While the unemployment
rate is coming down quite a bit, it to some
degree overstates the progress-
Tim Geithner: I agree with that.
Ezra Klein: We actually made. Do you think
that we've kind of entered a new normal of
somewhat slower growth and somewhat less employment,
or do you think that the recovery is proceeding
and will ultimately get us back to the kind
of normal we believed in, in 1999 and 2004
and 05?
Tim Geithner: I have the latter view, but
it depends a bit on the choices the political
system makes in the next few years or so.
Let's just go back to the basic thing about
why this recovery has been only a sort of
like 2 percent recovery a year rather than
a 3 and half percent recovery. Of course,
you know about this, written eloquently about
it. A bunch of this is just because we had
a terrible financial crisis that followed
a wave of too much lending and too borrowing,
too much leverage. As we work through all
those problems, it slowed growth. As Rogoff
and Reinhart written, recoveries following
financial crises are much slower. They're
much more fragile. They take a much a longer
period of time because the things you're doing
to repair the damage and to heal and create
a better foundation for growth, they slow
growth in the short term.
Then, we had 2 other things that happened.
One is we had fiscal policy and a little bit
of premature austerity fever turned too austere
too quickly. Deficits came down to fast, and
that sucked about a percentage point out of
growth for on average, most of the last 3
and a half years. Then, we had some a little
bad luck in terms of some external shocks
from Europe, Japan, some other things like
that. Those were material in aggregate.
Reason I begin with that because if you look
at the causes for why people have been disappointed
by the performance of the economy, you can
attribute more than all that disappointment
to those identifiable factors, so you don't
have to look for some new dark theory of our
loss of the goods they produce --
Ezra Klein: -- It's secular stagnations --
Tim Geithner: I think to explain the performance
of the last 5 years ... It's explainable in
a more simple and somewhat more reassuring
things because those are transitory things.
My own view is that most of what you're seeing
today in the economy is just the echoes, the
aftershocks, the tragic aftershocks of the
devastation of the crisis. Most of it is the
function of the fact that we haven't been
growing as fast as we could grow. Those headwinds
are receding now, and we have a change now.
We can grow a little faster for a while. That
should help bring more people back into labor
force more quickly.
Ultimately we won't know the answer to your
question till we get through that and see
where we are at that point. I think it's right
to worry about the risk that ... You've left
people very underemployed, long time out of
labor force, and you have an education system
that is not good enough really in equipping
people to compete in this world. Those are
things you want to work at. You want to need
to work at it relentlessly over time.
I don't think it's quite as dark as that perspective
implies, but that's not a good reason not
to worry about doing things like how could
you get more infrastructure, create more demand
and more jobs now, and how do you create better
outcomes out of the education system, so that
we're improving the odds of people come into
this pretty challenging world with a better
set of skills to compete.
Ezra Klein: Your old colleague Larry Summers
has begun considering this darker theory that
he calls "secular stagnation." When I spoke
to him about it, one of the things he said
was important was coming up with a test for
how he would be wrong. What is the information
that would come in that would begin to make
you think that we weren't just in an extended
period of bad luck or aftershock, but that
something was deficient within the economy's
either growth engine or its distribution of
jobs engine?
Tim Geithner: You want to look at ... Short
term unemployment is back down to normal levels
now, but long term unemployment is very high,
so you want to look at what happens, how quickly
that starts to come down again, how quickly
people start coming back in the labor force,
and what do you start to see the conditions
that suggest broader based income growth over
time. There's reasonable basis for thinking
that's going to happen as long we're creating
the conditions that create stronger growth.
If we have a period of stronger, a relatively
strong, a little stronger growth through better
policies, and you're still left with this
mix of bad outcomes for the average for the
median income and for people long term unemployed,
then you'd worry.
My view of this is you don't have to debate
the thing. We don't know the right answer
to it. Don't let the debate get in the way
of doing a range of powerful things we could
do now that would be good independent of the
outcome of that debate. It's not a good argument
to change the obvious prescriptions for policy
for the country now.
