Sheila Bair Punched. Will Geithner Counter Punch?
On the same day that a critical new book by former Federal Deposit Insurance Corp. Chairman Sheila Bair hit shelves, Geithner said he had no plans to write his own memoirs when he steps down from Treasury.
That's too bad. As head of the Federal Reserve Bank of New York and then Treasury, Geithner played a starring role in the government's response to the financial crisis. He owes it to history to give his account of what took place. If for no other reason, he should do it for his own vanity.
The picture that's emerged so far from Bair and others (including former bailout watchdog Neil Barofsky) doesn't portray Geithner in a favorable light. Bair's book, "Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself," labels Geithner the "bailouter in chief" and says he was overly sympathetic to the banks. Bair writes of sparring with Geithner over terms of various rescues, of being cut out of meetings and decision-making and not being treated as a serious partner.
His appointment as Treasury Secretary, Bair writes, was "like a punch in the gut."
The public airing comes at a particularly bad time for President Barack Obama -- so close to Election Day. The book revives a narrative that Treasury and the White House have been trying to tamp down: That Washington favored Wall Street over Main Street.
In addition to accusing Geithner of treating the banks with kid-gloves, Bair skewers him and former Obama economic adviser Larry Summers for their approach to the housing crisis, saying they didn't appear to care about helping homeowners or fixing underlying problems plaguing the housing market.
Treasury's housing-relief program was "designed to look good in a press release, not to fix the housing market," Bair wrote. She says Geithner and Summers undercut Obama by not pursuing a more aggressive program.
Whether intentional or not, the administration's housing programs have been lackluster, making the narrative all the more damning. The housing market is recovering but more because of the Federal Reserve's push to lower interest rates than because of the housing assistance offered by Treasury. The main programs have helped about 2.6 million homeowners, far short of the 9 million Obama promised to help avoid foreclosure.
As Bloomberg View has written, Geithner and other administration officials cared too much about avoiding "moral hazard," designing the programs so narrowly that few could actually qualify for help.
Bair's book suggests that those same concerns didn't apply to the banks, who were stuffed with money she says they may not have needed and didn't deserve without fundamental changes to their businesses. (Fed Chairman Ben Bernanke, meanwhile, told the Financial Crisis Inquiry Commission that "only one" of the major banks "was not at serious risk of failure" and that 12 were on the verge of collapse in 2008.)
Bair concedes in the book that the bailouts worked. "The system did not fall apart, so at least we were successful in that, but at what cost?" Bair wrote in an excerpt in Fortune. "We used up resources and political capital that could have been spent on other programs to help more Main Street Americans….It worked, but could it have been handled differently? That is the question that plagues me to this day."
Does that same question plague Geithner? The rescues he and other top officials engineered will have long-term repercussions and influence future generations of policymakers.
"A lot of people are telling my story," Geithner said in New York. He should reconsider his aversion to book-writing and tell his story himself. The American public, which shelled out billions to rescue Wall Street, deserves his explanation.
Read more breaking commentary from Bloomberg View at the Ticker.