Duty and Stress Test
I recently read two books that interested me because the
writers bridged the gap between the George W. Bush and Barack Obama
administrations—that is, they worked for both. When someone works for two politically
opposed administrations, I take notice, because I think he or she
must be pretty capable and evenhanded.
Duty, by Robert M.
Gates, tells of his replacing Donald Rumsfeld as Secretary of Defense under
President G. W. Bush and continuing on as President Obama’s Secretary of Defense
through his first term. Gates had to deal with the Iraq and Afghanistan wars,
of course. He tells of his dealings with both presidents, both vice presidents,
the secretaries of state, the congress, and the military leaders in particular.
The sacrifices of America’s youth weighed very heavily on him, you will find throughout Duty.
Stress Test, by
Treasury Secretary Timothy Geithner, is the story of his life, how he became gradually interested in economics, and his climb up the financial ladder holding various positions
of influence until he became appointed Secretary of the Treasury under Obama.
The fact he had a Republican background, worked closely with President G. W.
Bush, and was (I would say) a Keynesian, especially interested me. I have never
understood economics very well, but this book helped me understand
more—especially in dealing with the onset of panic during a recession, which is
what the US faced in 2008-2009. He
credits Bush with agreeing with the first bailout measure and Obama for his support of the
“cocktail” of measures Geithner and others recommended during some extremely harrowing days.
The "stress test" administered was key. As I understood it, all the banks (lending institutions and quasi-banks of any kind) were required to take part in a HYPOTHETICAL "What if?" scenario. They (Geithman and the other financial experts he worked with) then played the government's HYPOTHETICAL part in deciding what relief measures they would then take (which might in some cases be to extend no relief).
ReplyDeleteIt sounded as though all the parties learned a lot. The hypothetical experiment gave the banks badly needed confidence. Not confidence that they would be necessarily rescued, but some assurance of where they would be at instead of having no idea if they would sink or swim.
Banks did not know how they would fare when the 2008-2009 Great Recession was at its worst, or else they were way off in their calculations. The top people running the US economy didn't know, either. In fact, they were very scared according to Geithner.
He tells of talking with another top economist in the government on the phone who was about to make a speech. Don’t let the fear in your voice right now show in your speech, Geithner told him. Express anger or any other emotion, he said, but not fear. They were afraid of the (irrational) panic that might ensue if fear were shown.
Hi Lanny,
ReplyDeleteOne of the scariest quotes, reflecting the fear at the time; which was even scarier when it was delivered at a Congressional hearing was by Alan Greenspan:
Alan Greenspan, speaking before a Congressional hearing, admitted that he had been wrong. Not only had he been wrong about policy, but wrong about “how the world works.” Greenspan said it was distressing, but his ideology — the lens through which he interpreted reality — turned out to have been proven faulty.
For this Fed. Chair, a devout believer in the philosophy that "the Market" would stabilize everything, this was an earth-shaking admission.
Dave Israel
Dave Israel