I wish Geithner had spent more time on this concept, but he seemed to be content with saying that "reaching for yield" was at the fault of many bad client decisions.
Now, when Bear went down, JPMorgan Chase (JPM) stepped up to the plate at the behest of the government and got some guarantees against the worst of the paper. In retrospect, this was one of Jamie Dimon's most ridiculous decisions, one that the government was pilloried for as a giveaway but instead has haunted the bank for years now. I was surprised that Geithner didn't spend more time on what a chump Dimon was and instead defended the government's decision to do the deal. In other words, there was no reason to defend this one at all because Dimon was all in, incorrectly, and should have been chastised by his shareholders. This was early on in the image-making of the fortress balance sheet era of Dimon, though, and he was viewed as the smartest man in the room by the media.
The Bear lesson for the government going forward was a bad one. It consisted of a belief that there would always be white knights for failed banks because Dimon was supposed to be a visionary with the Bear deal, so others would leap to it, too.
That judgment clouded the process that brought down Lehman, which was the central catastrophe that triggered the systemic risk. The book is weak on this issue and I complained and questioned Geithner about this during my interview of him at Barnes & Noble, an interview described as well-scripted by The New York Times, even as Geithner picked me because he believed people would understand how unscripted it would be. We didn't speak about the book until we got up to the podium. We both wanted it that way.
I found that judgment of my interview, made by the righteous Gretchen Morgensen, to be most disingenuous, given that Geithner directly attacks her accuracy in her repeated salvos against Geithner for coddling up to Goldman Sachs (GS) during the AIG (AIG) debacle. Why not savage him, he savaged her? I think disclosure was clearly a needed and ignored disinfectant on this charge.
The Lehman clusterf***, as Geithner calls almost all of these attempts to put out fires, is quite Rashomon-like in its depiction, but Geithner seems somewhat unaware that he's describing it in so many different postures.
First, we had the no-more-Bear-bailouts camps, led chiefly by Treasury Secretary Hank Paulson, namely because of the legacy that Dimon got the best of the government. Of course, that was wrong and punitive to all. But it was righteous, a view that Geithner subtly castigates. Geithner doesn't take himself nearly to task as much as he should in the Lehman debacle because then-CEO Richard Fuld's financials seem out-and-out fraudulent and should have been caught by his office. Did Fuld skate because he was on the board of the directors of the Fed? Unanswered by Geithner and potentially very damning.
But it was the proximate cause of why no deal could be put together to save the bank. Hence, a second version of events. Paulson, at first, says no bailouts because of Bear and that Lehman should be allowed to fail (the Old Testament theme that Geithner castigates throughout "Stress Test"). Then he relents and accepts that Lehman is so bad off that a White Knight has to be found. The feds seize on Barclays as the potential White Knight. But Barclays is so weak that the British regulators won't bless it. Meanwhile, a hapless and devious Fuld promises a Korean bank bailout that he can't pull off. If the feds had insisted that Fuld go well ahead of that fateful weekend, I believe there would have been a better resolution. Again, was Geithner too cozy with Fuld? Not at all clear.
I know that Geithner had a solid look at Lehman before it went down, well warned by others at the bank, but it seemed to mean nothing because Geithner felt constrained by the law and the lack of Fed tools to save the banks. Again, there's another Rashomon view because it somehow, wrongly, presumes that there is an authority that could have blocked the Fed and Treasury from taking action.
I questioned Geithner in the so-called scripted interview about why he doesn't admit that the there was no countervailing authority and it could easily have been done in the same way that President Lincoln suspended habeas corpus, but Geithner deftly parried this by saying the lawyers wouldn't let him do it. Of course lawyers are made to be overridden and the bank could have been saved. Our history is filled with leaders who have overridden counsel for public policy concerns. A more engaged president sure could have helped and might have if he were involved, as he is hardly villainous in the text, much to the chagrin of most liberal commentators of Stress Test.