Stress Test

  “Don’t worry about them,” Rouse told me. “They’ve probably already forgotten every word they said.”

  I had to testify about the bonuses, too, a hearing I remember mainly because my daughter, Elise, running on a treadmill at the gym, saw me on TV sitting in front of a “Fire Geithner” banner held aloft by some Code Pink activists. Michele Bachmann, a conservative from what would soon be known as the Tea Party wing of the Republican Party, kept demanding that I point out the section of the Constitution that approved what we had done, as if the congressional approval of TARP was null and void because the Constitution didn’t specifically mention bank rescues. Liberal Democrat Maxine Waters suggested we were doing the bidding of Goldman Sachs. Another conservative Republican, Jeb Hensarling, went after me with echoes of Watergate.

  “Mr. Secretary, the public needs a straight answer,” he said. “What did the Obama administration know, and when did they know it?”

  The challenge during these long and stormy congressional grillings was to endure them, to be civil in the face of the grandstanding. Alan Greenspan once told me his coping mechanism for enduring hearings was to think about lunch. But while the Hill theater didn’t usually matter much, the overall bonus furor was compounding the reputational damage for AIG, driving the company back toward the financial abyss. Customer renewals in AIG’s key insurance business declined sharply in March, and the company’s credit ratings were at risk yet again. Even though we had already committed an unfathomable $182 billion to AIG, some members of my team still thought we might have to break up the firm through a bankruptcy-type process. We had only $110 billion left in TARP to fix the banks as well as the auto industry, so the idea of tapping those funds to resolve AIG immediately was not appealing. But there were still a lot of enthusiasts for that idea, despite my warnings that it could revive the panic.

  The politics of crisis response were unspeakably awful, and I thought the White House’s efforts to align itself with the populist fury were growing increasingly futile. On March 27, the President invited the CEOs of the major banks to the White House, where he famously said our administration was the only thing standing between them and the pitchforks. I guess the idea of the meeting was to show the President pressuring bankers to show restraint on compensation, but the overall effect was to reinforce the sense that we weren’t willing to do much about it—and that the financial elite was welcome at the White House. The President once told me he felt uncomfortable playing a populist, like he was wearing clothes that didn’t fit. He wasn’t going to be a convincing Teddy Roosevelt, lambasting the “malefactors of great wealth.” And the bankers weren’t going to impose public-sector salaries on themselves and their senior executives. They were surprised and resentful about the public antipathy, and they thought we were feeding it.

  There was just a vast chasm of misunderstanding separating the bankers, the public, and us. At one point in the meeting, JPMorgan Chase’s Jamie Dimon told the President he could lend me his team to help draft our proposed financial reforms. This was not a tempting offer. Dimon would later express genuine irritation to the President that we hadn’t taken him up on it, as if it would have been a feather in our caps to let Wall Street’s most powerful firm help write our new Wall Street regulations. After the White House meeting, one banker told the press the session showed “we’re all in this together,” which was not quite the message the White House wanted.

  We never really figured out how to navigate the populist waters. One of my advisers, Jake Siewert, suggested I see President Clinton on a later trip to New York. Jake had been Clinton’s press secretary, and he thought it would be helpful for me to discuss the politics of populism with the master practitioner; we had a nice conversation over takeout soul food in the former President’s Harlem office. I remember he was on a diet, so he ordered something healthy and picked fried chicken off everyone else’s plates. He had lots of excellent political advice; for example, he urged us to continue to push hard to raise taxes on the top income bracket, but cautioned me to make sure I didn’t look like I was happy about it. Unfortunately, when it came to the anger about bailouts and Wall Street, he said the American people were just too angry to be appeased.

  “You could take Lloyd Blankfein into a dark alley and slit his throat, and it would satisfy them for about two days,” he said. “Then the bloodlust would rise again.”

  Of course, it wasn’t much fun to be on the receiving end of so much of that anger. My colleagues kept asking with deep concern if I was OK, as if I had contracted some pitiable disease. I tried to keep presenting a good sense of equanimity, but I knew I was a political liability.

  One morning before we walked into the Oval Office, Larry mused that the President probably thought he was getting a Rubin-Greenspan dream team when he hired us, another above-the-fray “Committee to Save the World.” It wasn’t turning out that way, and there was something poignant about that.

  “It must be hard for him,” Larry said.

  “REGARDLESS OF whether he stays, resigns, or is fired, there is universal agreement that Treasury Secretary Tim Geithner is ‘embattled,’ ” began a Slate article in late March. After listing several examples of the media calling me “embattled,” the author compared my status to other embattled figures—such as former Illinois Governor Rod Blagojevich, a Democrat indicted for corruption, and former Idaho Senator Larry Craig, a Republican arrested for lewd conduct in an airport bathroom—to gauge my chances of survival. He concluded they weren’t zero, because “if Geithner stepped down under a cloud, that could send investor confidence, and thus the markets, into the ground.”

  That particular spring, that counted as optimism. The President kept expressing confidence in me publicly, in press briefings, on 60 Minutes, even on The Tonight Show, but that just fueled more speculation that I was on my way out. I sometimes joked about my inevitable firing with Axelrod. “The sooner, the better,” I said. More seriously, I told Rahm several times that I’d resign if he thought it would help the President. He told me, in colorful terms, that my resignation was not desired. Still, I recognized that if our overall strategy failed miserably, I would be the fall guy, and rightfully so.

  I was pretty disciplined about ignoring my press clippings and limiting my cable TV diet to SportsCenter. But I worried that the cumulative damage of all these controversies, and especially the white-hot rage over AIG, would make it impossible for me to be effective. That spring, I asked my friend Michelle Smith, a savvy Washington hand who had worked with me during my first stint at Treasury and was now Ben’s communications director at the Fed, whether I would ever recover enough for me to do my job properly. She said she thought I would, but that it could take another year. I was beginning to think it would be hard to wait that long.

  In some ways, those days were easier than the worst of 2008, because I believed we had a reasonably good plan, even though I may have been the only one who thought so. I didn’t feel helpless. But it was still a searing time. I was living apart from my family, feeling lonely. I was racked with guilt about what I was exposing them to. Carole felt as acutely as I did the huge burden of responsibility my job entailed, the pain of my failure to give more confidence to a wounded country. She didn’t take my advice to avoid reading the news, and she took the constant attacks on me personally. At one point, David Axelrod called her to thank her for her sacrifice, because it really was a sacrifice.

  I was lucky to have friends in Washington from graduate school and my earlier stint at Treasury, who knew me before I became a public figure, who didn’t care about my standing in the Beltway constellation. And it was somewhat freeing to be a reluctant warrior. I hadn’t sought the job, and I had no aspirations for another job in public life, so I could try to do it as well as I could without worrying too much about the personal fallout. I remember Bob Rubin reminding me over dinner to just make sure I was true to myself, to do what I believed was best and right, not to bend too much to the political imperative. This was partly his
way of gently chiding us for doing too many public events designed to align ourselves with Old Testament concerns, but it was good advice. Generally, I tried to focus on what I could control.

  Unfortunately, there was a lot I couldn’t control. I was still the President’s only Senate-confirmed appointee at Treasury, running a department with 120,000 employees during a crisis. When Jim Lehrer of PBS came to Treasury to interview me, he was stunned by how empty it was on the third floor, where the senior staff was supposed to sit. We could hear our footsteps echoing through the halls. It was hard to find confirmable candidates at a time when most forms of financial expertise and experience were considered disqualifying. One candidate to be my deputy didn’t work out because she had been a top SEC official during the boom, another because she had served on the boards of AIG and Goldman Sachs. I even tried to bring in Rodge Cohen, who had represented just about every troubled Wall Street firm during the crisis, but he withdrew as well, probably a wise political decision.

  I finally had the inspiration to call Rahm and ask him to send over Neal Wolin. After Oxford and Yale Law School, Neal had worked for Bob Gates at the CIA; he had been Treasury’s general counsel during the Clinton administration; he had run a major insurance business; and now he was a deputy White House counsel. Rahm immediately told him to get the fuck over to Treasury to help me, without even specifying a job. Neal says the call where I actually asked him to be my deputy a few weeks later lasted less than thirty seconds.

  One of Neal’s first excellent insights was that we simply couldn’t function as long as the AIG bonus mess was smoldering in our laps. “It’s sucking the life out of everything,” he said. His idea was to bring in Ken Feinberg, who had overseen the September 11 victim fund, as an independent “special master” to oversee compensation at TARP firms. Feinberg would do a great job reining in some of the industry’s excesses; he was not the slightest bit intimidated by the titans of finance. And it would be good for me not to have to get too deep into the messy and time-consuming process of pushing down the levels of compensation in individual firms, even though we’d still get blamed for whatever excesses remained.

  Otherwise, I tried to keep us moving, laying out the details of our new programs, showing the markets we would do what we said we would do. And, gradually, even in the depths of AIG hell and bailout rage, we started to see the early signs of light.

  IN LATE March, the President was as worried about our plan as anyone. The uncertainty of waiting for the stress test was agonizing. The derision of my colleagues, the press, and the public was troubling. So was the market reaction. We had already rolled out new financial programs to support the housing market through mortgage modifications and new aid for Fannie and Freddie, to revive consumer and business lending through TALF, and to repair the banking system through the stress test and capital assistance. Investors remained unimpressed.

  During one Oval Office meeting not long after the Roosevelt Room showdown, the President asked me: “Tim, are you sure your plan is going to work?”

  I said no. I was not sure. I explained that it had taken economists decades to reach a rough consensus on what policymakers screwed up in the Great Depression. Nothing in life was certain. “But I’m confident that our plan is better than the alternatives, Mr. President,” I said. He presumably would have liked a more definitive show of confidence.

  On March 23, we finally got some positive feedback from the markets, after we unveiled some details of our Public-Private Investment Program for buying toxic assets. Prominent economists and journalists portrayed it as yet another giveaway to Wall Street, “a vulture fund relief scheme,” as Martin Wolf of the Financial Times put it. Paul Krugman dubbed it “financial hocus-pocus” and “cash for trash,” while the economist Jeffrey Sachs, who had already accused us of ripping off taxpayers to enrich bankers, called it “even more potentially disastrous.” But the markets loved it. Stocks rose 7 percent, the first day of mostly good news in my two months at Treasury. Investors, who had been disappointed after Hank twice abandoned plans to buy toxic assets, and then again when my initial speech hadn’t lived up to the leaked expectations about asset purchases, were excited again.

  I thought the giddy investors and our angry detractors were all overreacting. The PPIP fund was not a decisive element of our strategy, and while it did offer some incentives for private asset managers to invest in distressed assets, it was not nearly as generous to Wall Street as everyone thought. Overall, the government would take more downside risk than our private partners, while any profits would be split evenly. In a market dominated by sellers, we thought it was important to put the massive firepower of the government on the buy side. But the private funds would still have to put money at risk if they wanted to buy. And financial firms with troubled assets would be under no obligation to sell.

  That was why we liked the PPIP. Market forces would determine the prices of distressed assets, reducing the risk that taxpayers would overpay and provide a massive backdoor bank bailout, as well as the risk that banks would be forced into fire sales and massive losses. But that was also why we had modest expectations for what it might accomplish.

  Ultimately, the PPIP would help catalyze more activity in illiquid markets, but it would directly finance only about $22 billion in asset purchases, a far cry from the $1 trillion potential amount we had initially announced. If it had been the money-for-free boondoggle that our critics described, there would have been a lot more interest. At the time, though, we were happy the markets were happy. I hadn’t anticipated such a spark in confidence. As for our critics, well, the market rally just reinforced their view that everything we did was too generous to Wall Street.

  I remember one revealing exchange when I testified before the Congressional Oversight Panel, a TARP monitoring body led by the Harvard law professor and noted consumer protection advocate Elizabeth Warren. This time, the Code Pink signs behind my head said “Give Us Our $$$$$ Back!”—which we ultimately did with interest. Damon Silvers, an AFL-CIO attorney and a member of the panel, was grilling me about PPIP, trying to get me to admit it was a heads-Wall-Street-wins-tails-taxpayers-lose scam, when the cross-examination took a personal turn.

  “Let me stop you right there,” Silvers said. “What I don’t get—and I practice law, and you’ve been in banking—is a deal—”

  “I’ve never actually been in banking,” I interrupted.

  “Well, a long time ago,” he said.

  “Actually, never,” I replied.

  “Investment banking,” Silvers retorted.

  “Never investment banking,” I said. “I’ve spent my entire life in public service at the Treasury and the Federal Reserve.”

  “All right,” Silvers conceded. “Very well then.” And then he continued his attack on PPIP as a shocking handout to financial interests.

  THE ECONOMY shed another 800,000 jobs in March, pushing the unemployment rate to 8.7 percent. The human costs of joblessness were devastating, but the jobless number was also a political disaster that would undermine our efforts to ease those human costs. In January 2009, Christy Romer and Jared Bernstein had issued a forecast suggesting the Recovery Act would keep the jobless rate below 8 percent, giving Republicans an enduring anti-stimulus talking point. Clearly, the problem was that the pre-stimulus situation had been worse than we realized, not that the brand-new stimulus had already failed, but Republicans would cite that forecast incessantly. Economically, their argument that stimulus was actually making things worse was ridiculous, but politically, it packed a punch. It was short and simple, in contrast to our long and complicated explanations about counterfactuals. It was another reminder of the perils of prediction, making us look like an economic gang that couldn’t shoot straight.

  Partisan spin aside, it was true that two months into President Obama’s term, things felt worse—especially in the industrial Midwest, where some factory towns had 20 percent unemployment. And GM and Chrysler had burned through their Bush administration br
idge loans, so we had to decide whether and how to try to save them. I had no background in manufacturing, but I thought it would be crazy to let GM or Chrysler collapse in the midst of a deep recession if we could somehow help them become viable again.

  In our strategy debates at the White House, Christy Romer, Austan Goolsbee, and others argued that letting Chrysler die would give GM a better chance to live, but I never got the sense the President considered that option too seriously. Our team analyzing the auto industry believed that Chrysler had a decent chance to survive if it restructured and completed a merger with the Italian automaker Fiat. With hundreds of thousands of jobs at stake, we weren’t going to consign a potentially salvageable company to the scrap heap. That would have caused substantial new damage to an economy that was still contracting, offsetting the benefits of the stimulus.

  I had a lot of confidence in “Team Auto,” an experienced group of investors, lawyers, and financial advisers led by Steve Rattner and Ron Bloom. The team reported to Larry and me, but I generally left the details to them. Rattner didn’t even consult me before he fired General Motors CEO Rick Wagoner; if anything, that move increased my confidence in Team Auto. They balanced a solid understanding of the industry’s importance with an appropriate disdain for its leadership’s unwillingness to change. In our meetings, President Obama kept telling them to be tough, to ignore the politics, to focus on how the companies could become competitive again. GM’s management assumed that we would keep sending them checks, that we wouldn’t dare force America’s most iconic company to restructure through bankruptcy, but that was a serious miscalculation.