Timothy Geithner tried to talk Barack Obama out of appointing him Treasury secretary in late 2008. Along with Federal Reserve chairman Ben Bernanke and President Obama’s all-star team of advisers, Geithner was a core member of the rescue team that won the financial crisis of 2008–09. The TARP programs, market interventions, and the stimulus of 2009 stopped the panic, halted the economy’s cataclysmic fall, and created the conditions for growth. “At the New York Fed and following at Treasury, Tim’s actions have been heroic,” says Roger Altman, a former deputy Treasury secretary and the current CEO of investment bank Evercore. “I think that history is going to view the response of the U.S. to the credit market collapse of 2008 as a historic and textbook response.”
But since late 2010, the narrative surrounding the group that author Noam Scheiber dubbed “the escape artists” has been less about winning the economic crisis and more about them losing the recovery. Most of the members of the brainy, contentious Obama financial team—economists like Larry Summers, Peter Orszag, and Christina Romer—came and went rather quickly. But Geithner, whose involvement in the rescue efforts predates the Obama administration (he was president of the New York Federal Reserve when things went south in 2008), is one of the only members of the economic team to stay for the duration. His reward for sticking around? Slogging through a subpar recovery, grappling with politically imposed debt crises, and trying to cajole Europe into acting to prevent its own meltdown. Oh, and shouldering a share of the blame as the administration threatens to snatch economic defeat from the jaws of its early financial victories.
"We still have an economic expansion that is pretty broad based and looks pretty resilient given how broad those constraints are," Geithner tells Newsweek, stopping to talk after a flight from Europe—where he had been trying, for the umpteenth time, to convince European central bankers to decisively tackle their sovereign debt and banking crises. "I don't believe it's fair to put responsibility for the headwinds or congressional constraints on the president." *
Geithner continues to serve as a lightning rod for criticism aimed at President Obama. Now comes Bailout, the New York Times–bestselling memoir by Neil Barofsky, the former inspector general for the TARP program. The acid-drenched polemic pins much of the administration’s failure to fix the housing mess on Geithner. “From my experience, he was incredibly dismissive of dissenting views,” says Barofsky. “We could not have a respectful disagreement on an issue like transparency in how banks use TARP funds.”
The crises that catapulted Geithner into prominence began four years ago this month. I first encountered him in the fall of 2008, in the fortresslike headquarters of the New York Federal Reserve, when he sat down and walked me and two other journalists through a bunch of charts on interest rate spreads. Approachable, young (he’s only 50), not averse to being addressed by his first name, Geithner has the mien of a consultant rather than a financial statesman. And the career bureaucrat made an unlikely choice for Treasury secretary. His predecessors at Treasury were generally middle-aged men who had been titans of business or finance, possessed of vast fortunes and hair that was silver or gray (when it was there at all). “If you look at a guy like Jim Baker at Treasury, or [former Fed chairman] Paul Volcker, they had a certain moral authority or personal authority,” says Mort Zuckerman, the real-estate and publishing magnate who backed Obama in 2008 but has been disappointed by what he views as the failure of the administration’s economic policies. Geithner’s age, résumé, and carriage didn’t comport with the traditional image of the office. Or, as former chairman of the House financial services committee Barney Frank puts it: “I mean, part of his problem is he’s young-looking. When he speaks he sort of looks like he’s giving a bar mitzvah speech.”
As the final exam of the 2012 election approaches, Geithner, like any smart teenager, wants to be graded on a curve. “Where we had authority, how well did we use that authority?” he asks. Pretty well, comes the answer. The crisis-era measures—the bailouts, the rescue programs, the $787 billion stimulus, the Dodd-Frank financial reforms, and Obamacare—were all carried out in the first half of Obama’s term, and were accomplished largely without the support (or consent) of recalcitrant congressional Republicans.
The implication, of course, is that since the 2010 elections when Republicans regained control of the House, the Obama administration really hasn’t had the authority to enact legislation, implement programs, or even make nominations to vital posts like the Federal Reserve or the Federal Home Finance Administration, which oversees Fannie Mae and Freddie Mac. And so, this reasoning goes, Obama—and hence Geithner—shouldn’t be held fully responsible for the failure of the housing agencies to move more quickly on mortgage modification, for example. Or for the fiscal cliff that we’re rapidly approaching: on Jan. 1, 2013, unless Congress and the White House cut a deal, the economy will be hit by huge tax increases and draconian spending cuts.
For critics like Barofsky, the failure to deal with housing aggressively, when it could have, is the Obama administration’s original sin. “There was never the same ferocity in dealing with the housing crisis as there was dealing with the failing banks,” Barofsky says. “Why didn’t they take hundreds of billions in TARP for a broad principal-reduction program?”
Geithner’s response? Barofsky’s reading “is based on a deeply misplaced view on what was feasible at the time. We were aggressive and creative and acted at the frontier of our authority.” Treasury did not have hundreds of billions of dollars to spend on reducing mortgages and lacked the authority to impose solutions on the dysfunctional mortgage industry. And, he notes, “we’re still constrained by the limits of the possible.”
Beyond political constraints, another factor far beyond the authority of the Treasury secretary threatens the recovery: Europe. For the past 30 months, U.S. policymakers have been pressing their European counterparts to mimic the American response in 2008–09. “If you are too slow, stay behind the curve, too limited in your effort, it’s going to be much more expensive, and politically harder, to solve,” Geithner says.
But here, again, Geithner is playing on different terrain. In the 1990s, Treasury secretary Robert Rubin and his deputy, Larry Summers, were able to put out fires in Mexico and Southeast Asia with relative ease. As one former Treasury secretary put it: “We were the aircraft carrier in the 1990s. We had a high rate of growth, high productivity, and a surplus.” Now, though, with its trillion-dollar deficits and political gridlock, the U.S. is in no position to dictate a solution to European countries who view themselves as America’s equals. “The United States doesn’t have the economic clout it used to,” says Leslie Gelb, president emeritus of the Council on Foreign Relations. And so Geithner is generally reduced to playing a hortatory role: offering encouragement and prodding.
Geithner has little tolerance for thin-skinned whiners—in public policy or on Wall Street. You win some battles, you lose some. When it comes to the battles of boosting the economy before November and solving the European crisis, the Obama administration is still very much in danger of losing. On Aug. 2, when the European Central Bank announced its latest half-measure—that it would consider buying bonds of countries like Spain and Italy—the U.S. stock market fell nearly 100 points. When the U.S. jobs number came out the next day, the result was a mixed bag: the economy added 163,000 jobs, but the unemployment rate ticked up to 8.3 percent.
The administration’s main talking point is that, all things considered, the U.S. continues to weather the storm fairly well. But voters generally don’t grade on a curve. Whether or not Obama ultimately wins the recovery and is reelected in November, Geithner won’t be around to deal with the fallout. “I promised to stay to the end of the first term,” he says.
Type A’s make for unlikely existentialists. But win or lose, the Treasury secretary accepts that the situation is what it is. He’s not sure what comes next. “This is all I’ve ever done.”
With Daniel Stone in Washington and Matthew Zeitlin in New York
* This paragraph was corrected to reflect a misquotation of Treasury Secretary Timothy Geithner in the original. The original read: “We still have a recovery that is pretty broad based and looks pretty resilient given the broad constraints we face,” Geithner tells Newsweek, stopping to talk after a flight from Europe—where he had been trying, for the umpteenth time, to convince European central bankers to decisively tackle their sovereign debt and banking crises. “I don’t believe it’s fair to put that on the president.”