Geithner plainly has no patience for what he describes as the obdurate unwillingness of colleagues to subordinate their desire for superficial impact to the larger vision. “That’s exactly the dilemma,” he said. “The stuff that seemed appealing in terms of sharp discontinuity, Old Testament justice, clean break, fix the thing, penalize the venal, would have been dramatically damaging to the basic strategy of putting out the panic, getting growth back, making people feel more confident in the future—solving it without putting trillions of dollars of the taxpayers’ money at risk unnecessarily.”
All of this is extremely interesting because of what it seems to reveal about each man: Summers, whose knock has always been that he’s an academic trapped in a world of theory, has become the politically minded one, while Geithner, the savvy realist, now evinces rigorous fealty to an idea. But it’s even more interesting for what it says about Obama. At every turn, he has sided with Geithner.
In late December, the Commerce Department reported that the economy grew at a rate of 2.2 percent in the third quarter, ending four straight quarters of decline. (That figure leapt to 5.7 percent in the fourth quarter.) Then, later that day, Obama told The Washington Post in an Oval Office interview that the most important thing he’d accomplished in his first year was “to ensure that the financial system did not collapse.” Then Geithner went on NPR and stated flatly that there would be no double-dip recession—by Washington standards of caution, a provocative move. Even with unemployment high and anger at Wall Street intense, the mood at Treasury is quietly exultant because the imminent possibility of another depression has disappeared and growth has resumed, all at a fraction of the cost estimates being bandied about last year when it still looked like the government might need to take over large banks.
Geithner likes to point out that after a year on the job, he’s spent $7 billion recapitalizing financial firms while private investors have put up $140 billion. TARP money is being repaid faster than anyone imagined, and if Obama gets the $90 billion tax on big banks he proposed in January, it could eventually be recouped. It’s likely that the cost to taxpayers will be much less than the 5 to 10 percent of GDP that the Cleveland Fed says is typical for a crisis, and possibly as little as 2 to 4 percent—about the cost of the much smaller savings-and-loan crisis of the 1980s. A recent Treasury study indicates that it could be less than 1 percent. By any reasonable standard, this would be an impressive achievement, and it would owe a great deal to Geithner’s strategy.
And yet, a year into his presidency, the overwhelming criticism of Obama is that he is taking too much control of the economy and spending too much money—which must really sting, because by avoiding nationalization and its colossal costs, he has probably saved an incredible sum. “We’re getting killed from the right and from the left on the basic strategy,” Geithner told me. “The right argues that we unnecessarily socialized the entire financial system. The left says we wasted money on things they’d have rather used to help real people directly. As you might understand, I have no sympathy with either. Neither critique is right. To the right, I would say: ‘No, the strategy we adopted was overwhelmingly designed to try to make sure that private markets came and took us out of this as quickly as possible. That was a conscious choice, a shift in strategy, and a more pro-market approach that will help us deal with our fiscal challenges.’ And to the left, I would say: ‘And that saved the taxpayer hundreds of billions of dollars that you can use to meet the main challenges we face as a country—health care, education, infrastructure, and our long-term deficit.’”
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