The FRONTLINE Interviews: Divided States of America

Tim Geithner

Secretary of the Treasury, 2009-2013

As Secretary of the Treasury from 2009 to 2013, Timothy Geithner was a key architect of the Obama administration's response to worst financial crisis since the Great Depression. Geithner's plan helped rescue the economy from the brink of collapse, but it's more than $800 billion price tag would help fuel the populist anger first sparked by the bank bailouts signed into law during the waning days of the Bush administration.

"We had challenge at that moment because we were trying to lay the foundation for preventing the failure of the financial system and trying to get the economy back as quickly as possible," Geithner says, but "politically, it was killing us." As he explains in the below interview, "We used to say that we occupied no-man's land. That the things we were for were not powerful, strong enough to mobilize the left, unify the left. But they were strong enough to lose the right."

This is the transcript of an interview with FRONTLINE's Michael Kirk on June 6, 2016. It has been edited for clarity on length.

The Obama Administration hasn't started yet, but the economy has crashed or is crashing. It's the fall of 2008, and TARP [Troubled Asset Relief Program] is up for a vote in the House, about to be voted down. As you're watching that go by from the sidelines, you aren't yet about to go into the game, but maybe you'll go into the game. You are in a different part of that game anyway. What did you think?

You know, it's interesting. I thought it was going to pass. I thought it was certain even though it didn't pass initially. I thought it was inconceivable that the United States wouldn't ultimately figure out a way to equip the executive branch with enough authority to fix this. I remember going to a dinner on the way home one night. I was running the New York Fed then, as you said, and I remember on the way home, stopping at a dinner party in New York and saying that I know this feels like our Afghanistan, but, you know, we're the United States; we'll figure out a way through this. It might take us some time. It might be messy.

I thought it was inconceivable we wouldn't ultimately do it. Yet at that moment, it was terrifying. I remember [Treasury Secretary Hank] Paulson calling me that night after it was voted down, just deeply worried, really apologizing. He felt it was their failure, and I think [he felt] scared at that moment. That gave me some pause.

Did you know something was cooking inside the Republican Party? Did you know they were deeply angry at George W. Bush?

Oh, yeah.

Did you feel that sense then?

Yeah. I mean, it was a very fragile moment, because you had a president who I thought, President Bush, very stand-up, I think really willing to do the right thing and spend the capital he needed to do that. But he lost his party some time ago. Even at that point I think the Republican Party was a very divided party internally and was beginning to be pulled substantially to the extreme.

What was it they didn't like him about him? What was being reflected in that no vote?

... This is the basic story of financial crises throughout history. They are terrible for lots of reasons, but they are terrible mostly because politicians confronted by what it takes to put out the fire, you know, they repel against it. They find repulsive the notion that the price of success is to reward the arsonist, and that aversion to the political cost of bailouts, it's the understandable human aversion politicians feel most acutely. I think it was just as simple as that.

You guys [Obama's team] win. The president wins. The transition is happening in Chicago. We've talked to lots of people who were around for that part of the process, and they talk about the day that Obama gets the bad news about just how big the hole is and how hard it might be to fill it. He's apparently floored. Had you yet been selected?

He'd announced his intention to nominate me as secretary of the Treasury, but I'd only met him twice at that stage. We had no history together.

But when that happens, when he gets that news, are you in the room for that?


So tell me about that.

A lot of people have written about this, and I think it's as people wrote it. We structured this as a series of presentations about how deep the hole was in the economy, what it was going to take to put out the remaining fires of the crisis, what the size of the fiscal hole [was] that we had to fill, how daunting the long-term fiscal challenges were. We structured four presentations for him to paint the darkness, and I think we all had this basic view that it was a very perilous moment, a very existential moment at that point, and that our fundamental challenge was to try and figure out how we could muster the political capacity to throw a much more forceful response at the crisis. We had to do that in a way that recognized that there were some limits, some ultimate limits, because we had these long-term fiscal problems, too. We tried to paint that basic picture as honestly as we could.

How did he react?

People have said he was stunned and surprised, but I felt from my previous interactions with him, even though there had been very few, I felt he was actually very aware of how bad things were. I don't think any of us had a sense of what it was going to take still. And at that point you could say we were still feeling our way in designing what we thought would be a credible strategy, and we really weren't sure how to get more traction. A lot of the debate has been about how large a fiscal stimulus bill should be and how to structure that and its composition, and that was going to be essential.

But on the financial side, where all the political risk was still, I think part of our challenge was we had already thrown trillions and trillions of dollars at the problem. The bailouts at that stage were at peak intensity in many ways, but we hadn't gotten traction yet. The system was still broken. Internally at that point we were still very divided and uncertain about how to craft that strategy. I think all we knew was it was going to take more, and that was going to be politically difficult for him.

He had, of course, promised and hoped for bipartisan support. You talked earlier about the political will or what politicians' roles are in it. Were there discussions about how to bring the Republicans along?

I don't have a good, textured memory of that piece of the history, I think mostly because I was overwhelmingly preoccupied by the design of the next stage of the financial rescue at that point. Although [Director of the National Economic Council] Larry Summers and [Chair of the Council of Economic Advisers] [Christina] Romer and [Director of the Office of Management and Budget] Peter Orszag and I, we bore most of the burden of trying to think what the economics was in that context, our view was, get as much as you can. We knew we had to be sort of agnostic or flexible in the composition because we didn't have a hand to dictate the terms.

But what I remember most is how supportive the president and [Chief of Staff] Rahm [Emanuel] were--they were going to carry most of the political burden around this; how supportive they were of the imperative of trying to get as much as they could. I think the rest of us, we definitely deferred to Rahm on how to think about what were those limits--not just Rahm, not Rahm alone, but Rahm as embodying that responsibility for negotiating.

... We've reported in the past that [Republicans] were meeting at the Caucus Room, at the restaurant where these guys all said, "We're going to say no." Mitch McConnell says, "We're going to say no." Did you have a feeling that that was perilous? What was your view on what it meant when you heard back that these guys are not going to play?

... I felt at the time reasonably confident we were going to get something fiscal through, some large, Keynesian thing through, and I think that the political leaders around the president were, I would say, hopeful and reassuring to us that we would be able to come out of this with something large relative certainly to what we had done before and large, hopefully large relative to this scale of problem.

But I think from the beginning, it wasn't clear how strong our hand was going to be on overall size and on terms. You saw the foundation at that point for the debates that followed, what the opposition was able to deliver--sorry, what Republicans were able to deliver in terms of votes for something tangible. There was a large faction of their party that was deeply ambivalent about anything Keynesian or fiscal. You had a country that was--maybe you could say more so today--that was deeply disaffected by government and the quality and institutions and judgments, uncertain, nervous, anxious.

And you had the Democrats. Democrats represented a broad range of views, too. They had their own views about what should populate a fiscal view, I would say with a lot of pent-up frustration from eight years without a Democratic president.

So you had a pretty toxic mix of constraints and ambition and aspirations on both sides that were going to end in a muddle. I think realistically, they were going to end in a muddle, and the muddle was going to be short of the perfect.

... He decides at that moment to start to push health care reform. We've reported and a lot of people have told us that there was a real difference of opinion between you and the president and some others about whether that was the wisest course. Could you litigate that for me right now, about what your arguments were?

I feel like that argument was settled in terms of what was the initial core, economic agenda of the president. I think that was settled pretty early in the transition. I will tell you just one story. ... There was a conference call of that initial team of White House officials and what would become the economic Cabinet, and it was about what should the agenda be, what is the imperative, how to think about strategy in that case.

I remember I spoke first and said: "Well, Mr. President, you've got one obligation, which is to prevent a second Great Depression. Unless you do that, nothing else is possible." And he spoke back, I would say quite sharply, and said, "I'm not going to be defined by what I prevented." And I remember being struck by how ambitious he was in some sense. I admired that confidence in the face of the storm at that point, because I was consumed by the depth of the crisis. But, I mean, I completely support that judgment. None of us knew what would be the political cost of achieving that.

That's really the question, isn't it? Of course you did, and of course you would, and of course you had to. You could make your argument, but you had to go along. But did anybody, including him, foresee the next 10 months, everything from the Tea Party summer to being stuck in Congress to everything else you guys were up against?

There were slightly different calculations, but in some ways we had the same basic choice on the financial rescue you could say at that stage because we were certain it was essential. We were certain it would be terribly politically costly to him. At a time when capital was not infinite, you would have to spend a lot of political capital on this. And of course we wanted to make sure he understood that and what those costs and risks were. But I think he felt, and I think we felt, the responsible choice, even if it was short-term painful, was to take that pain now.

... So spring comes along. The bankers are coming to the White House. Just before that, there is lots of talk about the bankers' bonuses.... Are you guys being harsh enough, tough enough on the American banks and on the bankers? We talked to Ken Lewis [of Bank of America] and all those guys around that time. They were just plain shaking in their boots before they came to that meeting. What was the plan for what to do with those guys when they came and sat down? What was the president's position? Do I spank them? Do we get involve in, what was it called, Old Testament justice? And where were you on all of that?

We had a challenge at that moment because we were trying to lay the foundation for preventing the failure of the financial system and trying to get the economy back as quickly as possible. And that was going to require, at least in our view, was going to require another wave of potential support for the financial system, and it was killing us. And as you remember--

What do you mean, killing you?

Politically it was killing us.

You were setting the stage for why the bankers might be nervous and what your problems were and what you were trying to do about it in those early stages.

Remember, he comes into office at a time when the economy is really falling off the cliff, and the country is outraged by the scale of the bailouts that preceded him, his election. We make the judgement, which I'm certain is right and which he shares, which is that we're not done; it's going to take more, because at that stage the economy, as I said, was falling off the cliff, and the system was frozen, and it was in spite of the scale of things that were done, it was just not enough.

So we lay out the next stage of the strategy. That sparks another wave of understandable human aversion, anger. And at that same, really in that period, January, February, the people who run the financial system of the United States preside over another wave of large bonuses, [and that] feeds the anger. We're still living at a point where, although the second tranche of TARP had been legislated before he was inaugurated, before he took office, [was] sworn in, we still thought there was some substantial risk [should] we have to go back again.

We're trying to figure out how we preserve some political capacity to continue to throw as much firepower at this crisis as we could. We were terribly worried about that eroding the foundation of support you need to govern, eroding further. When we had that meeting, he was trying to appeal for some understanding of how damaging to the political fabric of the county and how damaging to his capacity to govern and to do what it would take in some sense, how damaging it was that you had a set of people presiding over a set of, I would say unjust rewards for the privileged.

How did you feel about that?

I thought that was inherent in the dilemma we faced, and there was no solution to that except for--my view was that the honor of the moral imperative that he faced and we faced was to fix the economy as quickly as we could, get the economy growing again and get the people back to work as quickly as possible; try to repair the damage to people's basic sense of security and then try to go reform the system, put a set of constraints on risk taking as quickly as we could before the memory of the crisis faded.

That is what seemed to me the foundational minimum of a responsible approach to governing, and I feel like we did that as best we could. It was messy and inadequate but--it's interesting, the debate on the financial reform that followed. Even that debate, you'd think in that moment, unemployment 10 percent, memory of the crisis still acute, even that was tremendously difficult to legislate, even though we had thin majorities for the president's party in both houses of Congress.

... [The bankers] all thought they were just going to get spanked, right?

I don't know what they thought. Who knows what they thought? It was hard to figure out what they thought.

That's what they thought.

The debate we were having internally was what do we do in the event these guys can't raise the capital they need to survive this? What do we do? How do we figure out a way to prevent the damage to the system? Remember in the Great Depression, unemployment went to 25 percent. We thought this was a shock greater than the Great Depression. But there was a plausible risk that was our future.

We were debating internally what would happen if they couldn't raise enough capital, and that's where that debate came from. But ultimately we designed the strategy that meant we had to nationalize a relatively limited fraction of the financial system, which was a lucky thing for us.

One of the things that is, of course, working here is that the Republican Party itself is toughening up. There is the Tea Party thing about to happen in August. When the Tea Party summer happens, there is a congressional recess; health care reform is stuck. Were you surprised by that? I know you are busy, but were you surprised by that movement and what the implications of that movement might be?

Do you think a Tea Party summer in retrospect as being--

August of '09.


Yeah, when all the town meetings were happening.

I remember it kept getting worse, so however bad that fever seemed at the moment, the fever didn't break, I don't think, at least not during the time I was there. I felt like it intensified. It's hard for me to look at that moment and say: "Gee, that was particularly memorable," because it seemed to me it kept getting progressively worse. And of course a lot of people would say it was born of not just the financial rescue and health care, but that sense of a populist aversion to the unjust or undesirable expansion of the government in the crisis.

Something is being shoved down our throats, and that is the first eruption of what is going to await--

The scale of the economic damage was going to be transformative in terms of the political landscape for some period of time, unavoidably so. Even without the divisiveness of the prescription, that was probably going to be the case. But the thing about, financially, [an] economic crisis, is that there is no way through them without a temporary expansion of the emergency authorities of governments. It's inexorable. But that comes with it, this risk at least in the short term, perceiving that you're exacerbating the populist fire.

But think about the alternative. You're not making this case, but it's hard to know. We don't know what the counterfactual is except we've watched it across the country since the crisis, because it's been a generalized, not global, but I would say a generalized political phenomenon. But the political divisiveness, I think you could argue, and elsewhere has been worse, and would have been worse without a more aggressive response to the government. You would expect me to think that, but I'm very confident that's the case.

This is, in fact, the truth of the matter. I mean, they're angry. Too much government. You're saying, I've got to do it, or you're going to be more than just academically angry at us. The country is going to be in a shambles in some way.

In some ways, we were so lucky that we came through without more damage to the political fabric of the country, because I think if you look at the political costs in other countries caught up in this crisis, who went through a much worse recession, much longer recession, the damage to the political fabric is, I think, much more dramatic than here.

... The 2010 midterms, 87 Tea Party people arrive in Washington with--I don't think anybody, including [John] Boehner and [Eric] Cantor, believed this. They think they will slide right in like everybody else and eventually adapt. They are there to shut things down, to make government not work. One of the weapons that they are told that they have is the debt ceiling. Your thoughts as secretary of the Treasury when you hear, if you heard, that this was potentially on the agenda as a weapon they were talking about.

We found it terrifying. Of course it had been used as a political football in the past. It was sort of a part of the basic theater of Washington that people would occasionally use this as a way to try to extract concessions from the other party and the president, and most of us who were there had been through previous episodes. But this felt different and more scary, absolutely more scary.

In what way?

People talk about the main challenge facing the political system was the divide between the two parties, but that misstates, in some sense, an equally challenging divide, which is within the Republican Party, because there was something on the left, too, but the difference between the various wings of the Republican Party had broadened dramatically. It wasn't clear to us at that time, although we should have been more scared than we were about whether the leadership would be able to command the votes to carry something important, to make sure we could continue to make our obligations as a country.

I don't think we were scared enough about that, but we certainly learned as we went through the summer in that period when they were flirting actively with default. The leadership kept saying to us: "Look, we know we can't default. We know we can't default. We may have to take it pretty close. We won't let it get too close to the edge." But if you watched how they were acting, they seemed uncomfortable and nervous, too, to us about whether they ultimately would be able to get people to come along in their caucus.

We know from talking to Boehner, it was a horrifying moment.

I would say very hard for them. And I really believed the leadership understood that not just was it untenable for the economy and for the financial system, but it was deeply damaging to them as a party. I think they believed that, understood that, but they did not have as much scope over the choices of their members as they had become used to.

Can you give me a sense of how the president--did he understand how tenuous Boehner's hold over his caucus was? Was he worried about that as well?

I don't think we had a real sense for it until we went through the course of the summer and those negotiations. Remember, we were trying to figure if there was common ground for a very large, complicated fiscal agreement that would--

Grand Bargain.

--Grand Bargain that would help make some of our long-term commitments more affordable but give us some room in the short term to help strengthen the economy. And you deal with the expiring Bush tax cuts. That framework, we spent a lot of time trying to figure out whether there was enough room, whether the center would be strong enough to build a legislative coalition around that. We found it challenging. They found it challenging.

The president was in the position of--you know, he lost a big part of his party in the attempt for a set of things that ultimately the Republican leadership in the House weren't sure they wanted or could deliver.

... So Obama, Boehner, dueling press conferences between two guys who, from your perch, needed to get along, needed to work this out. What are you thinking then?

We had a bunch of cliffs in those negotiations where we sort of felt we were out of time and it wasn't coming together, so I was really terrified. I would say more worried than I think I felt even in the fall of '08--


--early '09, because the foundation of what we did in the period when we were in the midst of a complete run on the financial system, the world was really falling apart. The foundation rested on the ability of the United States to step forward and say, "There is a set of commitments we can make." We made trillions and trillions of dollars' of commitments to try to hold things together, not just in the United States but around the world. And that foundation rested, in some sense, [on] our ability to borrow. That was what was at stake.

I think I felt that the consequences if we lost, that ability would have been existential, much worse in many ways than what we faced in the fall of '08.

This is a question we're trying to deal with inside the film. Maybe you can help me understand how to deal with it. It's Occupy Wall Street as a thing that happened. What was up with that?

I felt it was the understandable, human response to a traumatic economic crisis with a deep loss of faith in the credibility of public institutions, just a revulsion against the quality of outcomes that the country delivered. [There are] lots of precedents for this throughout history. I don't think it seemed surprising to me at the moment at that time. In some sense, you could say what is surprising is that it didn't really dissipate as a force, but the manifestation did dissipate temporarily.

I think partly what was surprising at the time was it never coalesced around ... an affirmative, concrete agenda for specific policy changes. But it didn't go away.

What did the president think of it?

I don't know. I can't speak to that.

Did you ever talk to him about it? Probably not.

... Obviously, McConnell and Boehner had their challenges on the right, but the president was facing really difficult challenges in his party, too, and there was a substantial fraction of his party that was animated by the same sense of unfairness, injustice, same fear. The center was eroding. We used to say that we occupied no-man's-land; that the things we were for were not powerful, strong enough to mobilize the left, unify the left, but they were strong enough to lose the right. And that sense of no-man's-land, that we were occupying no-man's-land by necessity, not by choice, was a common feature of our internal debates.

Can you delineate those things, just so that I understand what you were for?

Well, I'll give you an example. Let's just go through the three big, transformative economic things at the beginning. ... A lot of people on the left felt that the stimulus program itself was too tax-cut-heavy and too infrastructure-spending-light. That's an example [of] disappointment on the left. There were a large group of people on the left who wanted a health care reform plan that included a public option. There were definitely people on the left in the financial reform debates that were enthusiastic, that wanted a more radical solution to reform in each of those areas, maybe on financial reform more than any.

A lot of Democrats viewed what we were proposing as being too moderate, not radical enough. But the Republican critique was that we were going to end capitalism.

The meeting on Wall Street: The president goes, gives a speech, and a lot of the heads of Wall Street who were the beneficiaries of your work and his work were not there for the speech that said, "Wait a minute, you guys, we've got to toughen up." How disappointing was that to him and to you?

Well, I don't think it was surprising and disappointing. He wasn't looking for the affection of the financial establishment. And there was no way that the reforms that we were going to propose, however disappointing on the left, were going to be viewed with enthusiasm by the financial establishment. There was no chance of that, no risk in that, no hope on our side, and frankly, it would have been discrediting if they had embraced it.

In 2012, when the re-election comes around, it feels to us, and from everybody we've talked to, like he's really decided to take the gloves off. Bipartisanship clearly is dead as a functional legislative arrangement. How are you feeling? How are the people at the highest levels of the administration feeling about that reality, the fact that Washington really was divided by then, heading into the "Let's let the people decide," that kind of moment?

You're talking about late '12 or late '10?

Late '12, exactly, during the re-election.

I guess I would feel at that point it was the accepted reality of Washington. I think it was a reality first established in the summer of '09, but I think it intensified over the period of time. It was a terrible dilemma for a sitting president in many ways. We face a huge number of challenges that you can only legislate a solution to. In our system of government, the president is not vested with meaningful authority over the basic tools of economic policy. Those all run through Congress, the power of the purse.

So if you care about those, whether it is the incentive for investment or the quality of the safety net or how well we do in education or how we invest in--all those things have to run through the Congress. That basic challenge--could you re-establish in the no-man's-land we operated in?; could we re-establish some capacity for a legislative majority on things with both parties so far apart and so internally divided?--that was the dominant challenge of the time. I felt like that challenge was beaten into us and established pretty early in his first term.

That it wasn't going to be easy.

Here's another way to think about this. One of the big tests of governing is, do you define your aspirations by the constraints you inherit or your system imposes, or do you try to relax those constraints? And, you know, he is due his credit. [He] said: "Well, I'll keep saying, 'I'm for this. We're for this. This is what we should try to aspire to,'" and keep trying to improve the odds that would happen, rather than accepting those constraints as given and trying to optimize with those constraints.

When he wins, he says, "I think we broke the fever," right? Boehner says: "Here's my neck. Let's go. Let's do immigration. Let's do whatever you guys want." You were on your way out the door, but as you looked into the rearview mirror, did you think the fever had broken? Did you think things might be getting better, or were you--

It's hard to say. Even today I feel like a real optimist about this country. We did things in the crisis no country was able to do at a time when we were in that most delicate and dangerous of times, which is a political transition between two presidents of different parties. We'd found a way to [do] some messy and uncomfortable, really essential things. So I like to cling to some basic optimism about the capacity of the country. I believe the Churchill basic view of America. I don't feel like I'd lost at that point. I think we were all scarred by it.

Leading up to the TARP mode in the fall of '08, when you're at the Fed, how bad is it? How bad are the markets when you're watching things? How scary was it? What led to that legislation?

At that point we thought, to use the phrase someone used in my presence, we thought the rivets were coming off the submarine. We really thought the system was past the point of no return. It was going to collapse. It would be like the Great Depression. ... We thought that was a very plausible outcome at that point because the force of the run, not just in the United States but around the world, was so powerful at that point we weren't sure what it was going to take to turn it back.

As we discussed, we threw a lot at it. ... [There was] no modern precedent for interventions around that, all sorts of different things, effectively nationalized a large part of the financial system. But that was just the beginning of it. We stopped, slowed the run, but we didn't reverse it.

I remember when I first met the president, our first meeting in the fall in October before he was elected, after he was the nominee. I said: "We've broken the fever, the run on the financial system, but it was still broken." The system was still broken. The economy was just at the early stage of the adjustment, so it was terrifying.

... There was talk of, "Do we need to fire some of the heads of the banks as a symbolic gesture against Wall Street?" Could you just bring us into the White House? What are the different camps, and where are you, and what decision does the president make, and why?

My experience, and you can say this was a virtue or a limitation of that era in policymaking, my experience was that he was overwhelmingly motivated by a simple test of, you could call it a pragmatic test or whatever test you want, which is, what was going to be the most effective strategy to prevent unemployment from going to 25 percent and us being stuck in a decade-long loss of economic activity opportunity?

I think he ran everything through that basic test. He was admirably reluctant to engage in a bunch of parallel strategies around what would take the sting off of the economic imperative, what might satisfy people's natural, understandable hunger for some Old Testament justice. Bill Clinton said to me substantially later, he said: "You know, you could have taken Banker X out into the alley and slit his throat, and it wouldn't have stemmed the anger. It would have just fed it."

I can't speak for the president in this case, but my sense is he was deeply aware of and pained by the basic sense of injustice, the sense of, the immorality of what the bailouts meant in that case. But he also felt like you had to try to keep your eye on the fundamental moral obligation about what set of policies were going to produce the fairest outcomes in terms of getting people back to work and repairing some of the damage. There would be a time for reforming the system and fixing the system. We're a nation of laws, and the laws that existed, people who were responsible, would go and enforce those laws against the people that were the architects of fraud and perdition. That would come.

But you had to make sure you kept concentrated focus on the core basic imperative that was going to affect the fortunes of hundreds of millions of Americans, not get too wrapped up in trying to design political theater that might create the hope of taking some of the sting out of that. It was valid, understandable, but try to focus on the moral imperative of what was going to be the quickest path to getting the economy growing again.

Just to be clear, your argument--

Can I say, by the way, this is an interesting argument? I think it's hard to say. It's hard to make the argument that those things were in conflict. You know, why couldn't there be some Old Testament justice and a set of policies that would prevent the system from collapsing and get it growing again? I don't think we thought there was, except in some specific areas, like an opportunistic approach to nationalization or a political strategy to nationalize as a way of doing that, there are not many areas where those things were in historic contrast. Maybe some of the reform debates were in historic contrast.

But I think our view is, we have a set of laws, and we had a system with very strong institutions and a set of people responsible for enforcing those laws in the Department of Justice, in the army of attorneys general across the country. We had the right incentives to make sure they went out and tried to figure out their measure of justice, and that would come, and accepting that imperative. There was no conflict between that imperative and letting that play out and the strategy of trying to rescue the economy from a failing financial system.

But I think this is very admirable. I think he didn't spend a lot of time trying to figure out, could we design a political strategy? It would have been excellent if we could have. Could we design a political strategy that would have softened and taken some of the sting out of the fundamental sense of unfairness that the financial crises inflicted on the country?

... Was that an argument that was going on about firing CEOs? Was there another side, and you were on one side?

I think I can describe that debate with a fair amount of vivid recollection in some sense. ... What we're debating is what do we do in the event that these major institutions can't go out and raise the capital they need to survive this, which is what we forced them to do in the stress test. We weren't sure they would be able to do it. What happened if they didn't? Because if they didn't, we were going to have to put the taxpayers' money at risk at a larger scale.

In that context, as we had done in a set of institutions already, we were obviously going to replace management and the board and do what you would expect to do to make sure we could protect our interests going forward.

But the debate people described over that period of time about scalps was a debate about what we would do in the--it seemed like a plausible situation at that point that we come out of the stress test with the need for taxpayers to take a whole bunch more risk and take a larger stake in these institutions. At that point it would change the rules of the game, And we might have to do in a set of institutions where we had already done in Fannie and Freddie and AIG and a set of individuals where the government already had to step in with a massive scale.

That's what that debate was ...We were debating what would happen if things got dramatically worse. We had to do it another way.