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Stress Test: Reflections on Financial Crises Paperback – 12 Mar 2015
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"Sensational ... Tim's book will forever be the definitive work on what causes financial panics and what must be done to stem them when they occur." (Warren Buffett)
"Deals with issues far bigger than anything on the Man Booker long list." (Anne Ashworth The Times)
"Stress Test is an absolutely compelling account of the financial crisis, written in a clear, graceful style with striking honesty at every step along the way." (Doris Kearns Goodwin)
"This is a lucid, fascinating, and extremely important book … Geithner does something unusual: he engages in substance. With both insight and humility, plus a good dose of wry humor, he explains what really happened during the financial crisis. No matter your political persuasion, you will find this book educational, enlightening, and interesting." (Walter Isaacson)
"A fascinating memoir about life in the maelstrom of the financial crisis … Earlier books have described much of what happened that September, but Geithner was present for all the frantic meetings, the thousands of phone calls ― and in the case of Lehman, the failure to find a buyer that could keep it alive. New problems cropped up almost weekly, if not daily. He explains each in easy-to-understand language and what the issues were that shaped the responses… There could be another crisis someday, of course, but what Geithner and his colleagues did has made one far less likely." (USA Today)
From the former Treasury Secretary, the definitive account of the unprecedented effort to save the U.S. economy from collapse in the wake of the worst global financial crisis since the Great DepressionSee all Product description
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Of course his critics might have a different view ... I'm not close enough to it to judge.
This book should definitely be required reading for anyone who thinks he knows what caused the 2008 crisis and who thinks he knows how to prevent future crises. Geithner makes it very clear how a combination of a vast number of factors, many unrelated, worked together to cause the events of 2007 onwards. He doesn't try to pin the blame on any one subset of all the actors, but tries to explain clearly and concisely how actions taken (or not taken) led to the events discussed.
He does throw in some interesting anecdotes and asides, but I feel he could have gone a little further to give a more human touch to all the events that unfolded. I found it particularly amusing how many administration officials were under the impression that he was an ex-Goldmans banker, whereas he had never worked for any bank in any capacity.
I do share his despondency about how difficult it will be to enact the desired changes to make our global financial system safer going forward. My conclusion would definitely be that it would be better to attempt to fix the US political system first. Then and only then could any meaningful supervision and regulatory authority for the financial system be put in place. Almost unbelievable that US politicians would push hard for greater supervision of all consumer finance firms, just not those offering car loans, or greater supervision of all banks, just not the two biggest in the particular State that the politician represents.
All in all, a great read, but just be aware that the author, on balance, will want you to be sympathetic to the subject!
1. Geithner was the only person who worked both at Fed and in the treasury
2. gives a new insight into the life of Obama administration,
3. replies to the Sheila Bair's criticism,
4. tells about the European developments from the American perspective,
5. tells more about Geithner as a person
Critics forget that politics is the art of the possible. Geithner, Paulson and Bernanke would be the first to admit that almost every policy action was a second or third best solution. Any meaningful criticism must take account of political and practical constraints. The treatment of Lehman Brothers is an extreme case in point. With hindsight, the failure of Lehman looks necessary in order to scare the body politic into underwriting the far greater liabilities of AIG and supporting Paulson's demand for $700bn in TARP money, no strings attached.
I recommend reading the Epilogue - which describes the eventual outcomes - before starting this book. One of the ironies in policy-making is that the best public servants rarely get credit. Not only did Geithner, Paulson and Bernanke save us from catastrophe, they were right on all the major calls. It was right to aggressively ease monetary policy and counteract the widespread financial panic with the Fed's balance sheet. Their opponents who pontificated about moral hazard and inflation will be damned by history - persistently low inflation and profound risk aversion are the legacies of 2008.
On fiscal policy, Geithner also wins hands down. American output recovered faster than Europe's and the UK's, it's budget deficit improved more rapidly, and US GDP growth has been far better than the average post-banking crisis recovery. On any measure, America's outcomes have been superior.
There is also a bizarre inconsistency in all the post-crisis hullabaloo from both left and right. The policy-makers who supposedly bailed out Wall Street, actually turned a huge profit on their interventions (only Warren Buffett, perhaps unsurprisingly, predicted this at the time). History cannot fail to observe that these policy-makers sold insurance to the private sector at the height of a panic. And they priced it right. Their policies succeeded, and were profitable for the taxpayer.
Despite an understandable desire to redress prevailing misconceptions, there are honest admissions of substantial errors of judgement. Geithner's decision to appoint Dick Fuld, the maniacal CEO of Lehman brothers, to the board of the New York Fed, reflects particularly poorly. Indeed, if there is a striking institutional weakness at the heart of Fed policy it is precisely the conflict of interest in the structure of the New York Fed, where Geithner was president. It seems obvious that a board populated with the biggest egos on Wall Street should not elect the president of their principal regulatory body.
The timing of this book is also apposite. Transcripts of the FOMC minutes from 2008 and 2009 are now available. So we can check the veracity of Geithner's account. They tell a similar story: he recognised early on the threat of a credit crunch, he was dismissive of "moral hazard" in the face of growing financial panic, and he saw through the threat of inflation from a temporary spike in commodity prices.
Intriguingly, many reviews of this book reveal a deep antipathy to Geithner and his colleagues. In fact, he deserves our gratitude.
Author of 'Money', published by Acumen
Money (second revised edition)
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