Credit default swap. Toxic assets. Subprime loans. Too big to fail.
That was the word cloud ominously hovering over the nation when Timothy Geithner was sworn in as the U.S Secretary of the Treasury five years ago.
In writing this book Geithner is not only recalling how he and members of the Obama administration handled the financial crisis, he's also coming to terms with himself. Perhaps part of his soul searching comes from what led up to the 2008 meltdown.
Today on Boston Public Radio, Harvard Historian Nancy Koehn reminds us that the prologue to Geithner's book is as important as the book itself--if not more so. Koehn points out that before coming to the White House Geithner was part of the pack who favored the kind of deregulation of the banking system that brought about the very crisis he was tapped to fix. To hear Koehn's review of the financial collapse and her credit default swap explainer, which she does in under one minute, listen here:
When Geithner was at the helm he was charged with steering the country through the worst financial storm since the Great Depression. Lehman Brothers went bankrupt. Other banking giants such as Fannie Mae, Freddie Mac, and AIG were also doomed until the government decided to pour trillions of dollars into the imploding banking system in order to stave off a worldwide financial collapse.
Geithner's actions were widely criticized. Economists, legislators, and former colleagues thought he padded a soft landing for free falling banking executives at the expense of the taxpayers. But would today's economic situation have been far, far worse if Geithner hadn't kept the Wall Street fat cats from drowning?
In his new book, Stress Test: Reflections on Financial Crises, Geithner writes about the 2008 financial crisis and his role in preventing a major economic depression. However, he only defends his handling of the situation to a point. In a recent interview with The New York Times' Andrew Ross Sorkin, Geither articulates some of his regrets:
It’s clear we didn’t do enough. Before the crisis, I didn’t push for the Fed in Washington to strengthen the safeguards for banks, nor did I push for legislation in Congress to extend the safeguards to nonbanks. I wish I had figured out a way to respond more aggressively to the initial panic, and to sustain the initial power of our fiscal stimulus. I wish we had expanded our housing programs earlier, to relieve more pain for homeowners.