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Excellent insight into the machinations of the politics of the great recession. Could have been about 5 hours shorter and Tim labours his point too often. It also sometimes feels like a justification and absolution narrative to explain the actions that were taken were not his fault and there was no other way!
Even though this book had received favorable reviews I was skeptical. Surely, I thought, Geitner would give a politicized, self-serving, and boring account of the events that lead to the 2008 crisis as well as the aftermath when he was one of the key figures. I was therefore pleasantly surprised by Geitner’s willingness to describe the dilemmas and the decision processes, including the mistakes that the FED made in the years preceding the crisis. For example, Geitner openly admits that the FED did receive hints that sub-prime mortgages were a potential risk in the economy, and that (in retrospect) they ought to have payed more attention to them. Geitner compares this situation with what happened before 9/11, saying that it is easy to say which warnings one should have attended to, after the disaster. Still, I never got the impression that Geitner was trying to cleanse away blame. He depicts himself as merely a hard working civil servant who does his best to serve his nation, and sometimes fails to make the best decision.
Geitner’s modest nature is also apparent when he describes his childhood. He says that he was not an exceptionally bright child, and that he was also lazy during his time in school and university. He also says he has always preferred to work in the background, and still does. The reason Geitner still ended up as head of one of the most influential offices in the world is, it seems, that he is good at working with other people and not afraid to say what he thinks, even to his superiors. People like Larry Sommers, could rely on the fact that Tim would tell them if he though a particular strategy was good or bad, and that seems to be a rare thing in those circumstances.
Geitner spends much of the book trying to explain what caused the financial crisis as well as how to handle such a crisis. Often there is a clash between what the public demands and what is good for the economy. When bank employees are getting large bonuses and banks are making profits after their actions has endangered the economy, the public often wants to see blood. They certainly do not want the government to go in and save such irresponsible individuals. Still, at least according to Geitner, that is exactly what needs to be done in some cases. It is either that or risking a far greater economic depression. In the light of this Geitner also criticises how the European Union has handled Greece. According to Geitner it is in general better to give them lots of money to get their economy up to speed. Instead the Germans are forcing the Greek citizens to save money. I am not an expert in these matters and I cannot tell whether Geitner is right, but it was interesting to hear his arguments.
Overall, this book will provide the reader with an in depth description of the events that lead to the 2008 economic crisis as well as the crisis itself, by a man who was right in the middle of the storm.
5 of 5 people found this review helpful
I have read a number of books on the 2008 Financial Crisis, and yet learned a lot from Mr. Geithner’s book. He emphasizes two key points that are critical for understanding why things became so serious:
1. The financial institutions that fueled the “subprime” crisis were highly leveraged. I already knew that, but had not appreciated the point that they were leveraged by means of extremely short-term debt—“overnight” repos in many cases. Thus, once confidence left the financial markets, these institutions were literally hours away from running out of money to pay their debts as they came due. Also important here is the fact that the most important players in the subprime market frenzy were “Wall Street” institutions outside the traditional banking system and thus outside the extensive examination and reporting requirements imposed on the traditional banks.
2. The financial markets were gripped by "Panic" once the players woke up and actually appreciated the fact that the subprime loans were not supported by any realistic credit review, but merely by the expectation that US real estate values would continue to rise and allow the loans to be refinanced. Once panic set in, investors wanted out period. They were not ready to analyze distinctions in credit quality, they simply wanted to avoid losses. That set in motion a vicious self-fulfilling cycle in which all tranches of CDO portfolios fell in value, buyers disappeared, and forced sales of securities through margin calls or funding obligations led to sales at “fire sale” prices and serious capital losses.
Mr. Geithner also addresses a point that most people (myself included) found very troubling in the government’s response to the financial crisis: the government’s approach of throwing lots of money and government guarantees at institutions who were clearly guilty of highly irresponsible management practices. In other words, these were institutions that deserved a punch in the jaw rather than taxpayer cash in their wallets. Geithner points out quite persuasively that although such sentiments are fully justified they are not useful responses to a financial crisis that endangers the whole economic system. “When the neighborhood is on fire, the focus should be getting the fire contained and out, rather than chasing down the arsonists who started the fire,” or words to that effect, is how he frames the issue.
I will add one point of serious criticism I have about the book. Mr. Geithner touches only very briefly and superficially on his role as head of the New York Fed in failing to
supervise properly the lending practices of Citibank and Citigroup in the run-up to the 2008 financial crisis. Citi was the only traditional banking institution (though it combined a large securities trading operation after the merger with Smith Barney) that had such large subprime loan exposures on its books that it has to be classified as one of the principal culprits in the irresponsible subprime lending frenzy. How did the NY Fed miss its exposures and why? There are no doubt important “lessons learned” from those questions that Mr. Geithner might have explored in depth but did not.
6 of 7 people found this review helpful