Lee Sachs

Tim Geithner gets the nod for the [Treasury] secretary job. Why him? ...

... I actually think he was the perfect choice. We were in the middle of the worst financial crisis since the Great Depression, and as far as I'm concerned and in my experience, there's nobody better to handle that crisis than Tim Geithner was at that time.

He had been one of the key people in wrestling with all the international financial crises back in the '90s. He had been the president of the New York Fed and dealing with these complicated problems from that seat. That experience is invaluable. These things are very hard to learn on the fly, frankly, and I think that experience couldn't be replicated.

... You were on the crisis management team. ... What did that mean?

We were asked to put together the financial stability plan. What were we going to do to stabilize the banking system, reopen credit markets, and get credit flowing again? Remember, at the time markets were falling hundreds of points a day. If you step back, the overwhelming objective was to stabilize the economy, turn the economy around. ...

Many people were saying we're headed toward the second Great Depression, and that was a very real fear and a real possibility. So our piece of it was how do you stabilize the financial system? Not because anyone had any great love for banks. It was all about making sure that we stopped things from going off a cliff. ...

... The public's perception is often very different than the realities on the ground. Your team and the president need to define the programs, the answers to questions in a way that the confidence levels remain high so that you don't go down on the slope. ...

It was tremendously complex, and each individual problem was complex in its own right. The combination of them was kind of like three-dimensional chess. ...

Early on, the president said, "Look, we are going to have to make some very difficult, unpopular decisions, but we're going to do things in a way that we think has the best chance of success, even if those decisions are going to be unpopular."

So we -- and this includes the secretary and others -- started to figure out what each of the necessary elements was going to be and make sure that each of them worked with the others.

One of the great challenges we have in all this has been explaining what we did and why we did it. I've reflected on that, tried to figure out why is it so difficult, and the only thing I can come up with is that there's no magic bullet, there's no silver bullet, there's no one big thing we can point to and say, "We did X, and that's what turned things around."

It actually was a series of programs and plans and policies designed to feed on each other and reinforce confidence across the board.

For instance, we had a plan to get capital back into the banks. It involved the stress tests and a capital backstop that we made available. We had a plan to deal with reopening credit markets. Something on the order of 40 or 50 percent of all credit before '08 was generated by these markets. The third thing we had to focus on was how do we deal with the legacy assets, the old loans that were on the books and clogging up the system.

If we left out any of those three, our judgment was that the whole plan would fail. So you had to have detailed plans to deal with the banks, you had to have detailed plans to deal with reopening credit markets, and detailed plans to deal with the legacy assets.

We announced the broad outlines of our plan in I think the second week of February [2009], and continued to fill in details each week after that until the markets finally saw all the details and saw how it all fit together. I think when the markets realized that, confidence began to come back.

You can look at price charts of various instruments that indicate the health of the system, and you can see the announcement effect each time we put out details, how things would bounce off of that. That confidence started to feed on itself, and at a certain point it took hold. That's when the fever broke.

... Let's start with the stimulus. So Dec. 16, '08, was when the famous Chicago meeting took place. Were you at that meeting?

I was linked in by video.

There's this 57-page memo put together by [Director of the National Economic Council, 2009-2011, Larry] Summers with all the help of everyone else. ... What is that document? ... What are the goals [of this meeting]? ...

... This meeting was designed to begin to put together the various plans to deal with each one of the items on his plate, with respect to the economy. A great deal of the time was focused on what to do with the stimulus. Less of this particular meeting was on the financial crisis, because we were still pulling together information that we needed before we could present a detailed plan.

... What happened with the banks' part of the debate?

... What was decided was that we would have a separate discussion about that. It was a broad enough subject in its own right.

... Why was how to deal with the banks such a complicated and hard issue to deal with, to come to conclusions about?

... To have a plan to deal with the banks, you really need a lot of facts. There was a lot of noise, frankly, and speculation about the magnitude of the problem, the scope of the problem, where the problem lay. And before presenting to the president-elect a half-baked idea -- and "half-baked" is the wrong word -- you want to make sure that you have the facts. ...

... What was the debate? As far as the banks, what were the positions, and who took what position?

I'm not going to get into who specifically said what, but I can give you the contours of the debate.

It wasn't really a matter of whether you're harder on the banks or easier on the banks. ... The way I would frame it is, what is likely to be the most effective in stopping this boulder from rolling down the hill?

The first rule is, to borrow from medicine, the Hippocratic Oath, first do no harm. And there were a lot of ideas out there, frankly, that some of us thought might do harm. ...

The real challenge was that every idea you could come up with, there were a dozen reasons why you wouldn't want to do it. This was truly an imperfect world where every idea had downsides.

So the debates that we had really revolved around what's the best combination of policies that have the greatest potential for success, the least probability of doing damage and have the least cost to the taxpayer. And those debates were vigorous, no doubt.

And constant, I would assume.

Constant. And look, Larry is terrific. I used to purposely go into his office when I had an idea, or someone on the team had an idea, and have him beat the heck out of it, which he does like nobody else can. But when you do that, you inevitably come out with a better product, because he'll find all the holes, every single one, plus a dozen you hadn't thought of, and he really challenges you, and then you have to figure out what's acceptable and what's not.

But at a certain point, decisions have to get made. You have the debate, you discuss pluses and minuses, but at a certain point you have to go with something.

One of the big issues, of course, is the stimulus number. ... Take us a little bit into the debate of what number, why there was a disagreement over what the number could be, and how the political realities play a role in what you guys figured you could do.

... I was not in a lot of these conversations. My sense was there were differences of opinion as to a, what was necessary, and b, what was politically feasible at the time. ...

What's he like, the president, in this type of discussion? He was there at the Dec. [16, 2008] meeting?

Oh, yes.

So what's he like in that room? ... What's Obama's role? How does he work?

... He asks very good, very insightful questions. He pushes everybody to make sure that he's hearing what's on everybody's mind. He makes sure that all sides of a debate are heard and argued vigorously. He led that meeting; there was no question about that. ...

... When did you first get to know [Tim Geithner]? What was his role in the Clinton administration?

He headed up the international side of Treasury and really was one of the key architects, if you will, of the United States government's response to the various global financial crises at the time. He and I ended up working together on some of that.

It's been written that he learned quite a bit from his time in Japan. Did he learn quite a bit that he used later on in this crisis?

Oh, sure. Each one of these financial crises has its own specific elements. They're all unique, but there are certain lessons which do translate. And one of the key lessons, one of the key takeaways was the sooner you act and the greater force with which you act, the better the outcome and the cheaper the cost to the taxpayer.

That's a hugely important lesson. It's very hard to execute in reality, because acting early, while it's clear that it's most effective and cheapest, it's also politically the most difficult, because the pressure hasn't built to the point where there's overwhelming popular demand for you to do some of the difficult things you have to do. But at the end of the day, it's clearly what works best.

I think as [Geithner] was involved with the other countries during that period, you could see that. ...

... There's this argument that the economists that were around Obama during the campaign -- the [Paul] Volckers, [Austan] Goolsbee and others -- were more progressive economists, and that once he got elected he brought into power Summers and Geithner and others, more conservative economists that would look at things in a different way. In fact, [he brought in] some of the team that had been involved during the Clinton years looking at deregulating, and the irony now was that this was the same team that was really looking at re-regulating.

... I can tell you that putting myself aside, the rest of the team that he brought in was an A-plus team. I don't think you could have had a better group to deal with the set of challenges that the president was facing at the time. ...

The riff is that the team would be more passive on pushing the banks too much, compared to folk that would have come in -- the [Paul] Krugmans or [Joseph] Stiglitzes of the world -- who would have come in and said, "This is our opportunity to change the financial system." Is there any truth at all to that? ...

We viewed every decision, and the president viewed every decision, and the secretary viewed every decision through the prism of, what is going to stop this from going off a cliff? How are we going to prevent Depression 2.0 with the least cost to the taxpayer, the least downside risk and the greatest chance of success? ...

There were tons of opinions about what we should do, different courses we should pursue, but I think the question that has to be asked is, "Would the outcome have been any better had we gone down a different path?" I think the answer to that is clearly no.

Different people were advocating that we act much more aggressively. Others were arguing the other side, that we were doing too much. The question was: What's the right balance?

It's not about did you push the banks hard enough. What we were dealing with was a house on fire. How do you put that fire out? If you want to reform the banking system, you do that through the regulatory, through things like Dodd-Frank [Wall Street Reform and Consumer Protection Act], but when you're putting out the fire, you need to put out the fire. It's not about whether you were hard or easy on the banks. ...

Volcker at some point he said that he wished that the crisis had gone on longer because more change could have occurred. ... This question of were there opportunities missed early on to leverage the power that the government had because they were saving the butts, basically, of the banks to make them do some things that in fact politically would have certainly been more helpful down the line and perhaps would have moved the system in ways that would be productive. Was there debate about that?

... In terms of wishing that the crisis had gone on longer, I can't imagine anyone actually really wished the crisis would go on longer, because while the house was on fire, we were losing millions of jobs, and it's all about stopping that as quickly as you can. That's what we were focused on.

This question about were we too easy on the banks is one I find a bit frustrating. ... Of the 15 largest financial institutions in this country before the crisis, only nine exist today as independent entities. The institutions that took the most risk, that got into the most trouble, are basically gone, whether that's Lehman Brothers, Washington Mutual, Bear Stearns.

AIG still exists, but in a very different form. Fannie Mae, Freddie Mac -- there are others. Wachovia, Merrill Lynch. These were big institutions that took big risks. They don't exist in the form that they did before.

So the notion that we saved, bailed out all these institutions I don't think really is right.

... Probably the low point for Geithner was the February [2009] speech. ... Tim Geithner goes before the cameras, and it's not one of his shining moments -- he has said so as well -- and it shakes confidence levels in the fact that there is no plan. ... Did you watch the speech? ...

I watched it kind of out of the corner on my eye on a TV, because we were preparing to do backgrounding with reporters after the speech, so we were preparing some notes.

Since I've been out of government, I went back and I actually looked at the speech. It's actually a pretty good speech, and it's unfortunate that the market didn't fully appreciate what was in it and what was behind it. ...

But did Obama understand that when he laid this responsibility in Geithner's lap?

There were a couple things that happened running up to that speech. One was the president's remark the day before which got people's attention. Also, the markets had run up quite substantially. Expectations got way out of control. We shouldn't have let that happen, frankly. I think with hindsight, we should have done a better job at managing those expectations.

There were leaks about different ideas that we were debating, some of which would have been like the Treasury walking into the markets with a wheelbarrow full of cash, handing it out to people.

I remember, maybe it was the week of the speech or the week before, there was a discussion of something called an aggregator bank, one of the ideas that we had been considering where the government would buy up all these legacy assets.

Many people read that as we're going to just take all this off the hands of the banks, so they bid up the prices of the assets, of the banks, the market overall. And we weren't going to do that. We just weren't going to transfer wealth to these institutions, but the market was expecting it. So the secretary gives his speech, and we got the reaction that we're all familiar with.

... Is it fair to say that the plan was still being developed and there wasn't the total plan that people were expecting, and that's why expectations were so high?

All the details were not worked out; we were still working through some of those. A lot of the details were there, but we hadn't settled on the final package until the week or two before the speech. ...

... This was not the best couple of weeks for Tim Geithner. ...

... It certainly wasn't the most pleasant, but during that period, he was unflappable. If you think about what was going on in the markets, what was going on in the economy, the pressure that you can imagine, he didn't miss a beat. It really was remarkable. I was very impressed. ...

How did Obama react?

... The president stuck with the secretary. He stuck with the plan that the secretary laid out, and he was under tremendous pressure to change course. We had announced this plan on Feb. 10. The markets reacted in a way that none of us would have hoped.

The crowd that was arguing that we should do more, that we're not being aggressive enough, was remarkably vocal, but the president stuck with it.

Why?

The plan was the best of a bad set of options. Every option had a downside, every one.

The secretary used to have a saying: "Plan beats no plan." We had a plan. Some outside voices had sound bites but not a plan, and as we were talking about earlier, these plans are very detailed, highly complex, interconnected, and not easily explained at a 60,000-foot level. Some of the other things sounded really good at a 60,000-foot level, but when you get down to 30,000 feet or closer to the ground, they just didn't hold up.

The president was excellent at pushing and making sure that the secretary and all of us thought we had the best plan possible, asked great questions, continued to push.

At the end of the day, ... I've got to believe that this decision to stick with this plan was one of the hardest decisions he had to make at that time. That's my own guess. ...

[The New Yorker's Washington correspondent Ryan] Lizza also writes about a February memo, ... [which] basically argued that TARP [Troubled Asset Relief Program] was not enough, there was a realization of that, and that there was a debate begun over this question of nationalization of some sort. ... What's the debate, and why is it had?

Again, we had put forward a complicated set of plans. There were those who were arguing that we were doing too much, and there were those who were arguing that we weren't doing nearly enough.

In that camp, there was those who argued that the best course of action would be to nationalize the banks. This often took the form of "We should do what Sweden did, not Japan," which sounds great. Sweden, before our crisis, was kind of the poster child that people would point to and say, this was a great resolution of a financial crisis.

There were a lot of key differences between what was going on in Sweden and what was going on here. In fact, Sweden only nationalized the banks ... after they tried everything else. And the outcome, while it was good, was not as good as the outcome that we had here.

What defines success in these exercises in my mind -- and everyone will have his or her own set of criteria -- but what happened in the economy, what happened to employment, what happened to the cost of borrowing and what was the cost to the taxpayer, by any of those objective measures, the results of what the president and the secretary did here in our country are better than the outcome in Sweden.

What was the debate in this February leading up to March about the question of banks? And would it become at some point necessary to nationalize or pull apart some parts of these banks?

There was quite a bit of debate leading up to Feb. 10. At that point, we had to freeze the policy, and you had to make a decision and go forward.

Even though the president had only been in office for two weeks, the world wasn't going to give you the luxury of any more time. The markets weren't going to cooperate with that, and they needed to hear what the new team was going to do.

There had been debate about whether or not we should nationalize the banks among dozens of other ideas. That was the one that was the most prominent. But on Feb. 10, we announced what the plan was. That included a plan to strengthen the banking system, including the stress test, a plan to stabilize the credit markets and a plan to deal with the legacy assets.

The market reacted the way it did, and continued to react negatively, so the debate picked up again. Is what we announced enough? Is it good enough? Did we go far enough? Should we revisit?

That culminated in that meeting on March 15, where it kind of all came to a head, and the president led the meeting. This was a six- or seven-hour meeting. He was deeply engaged, pushing us very hard. The whole team was under tremendous pressure, and the question was, should we change course?

After pushing us for hours, he made the decision -- I think it was a courageous decision, and I think it played out in the end to be the right decision -- to stay the course and to stick with the plan.

If you remember, the plan we announced in February had as one of its components a stress test on the largest banks. Basically all banks that had assets in excess of $100 billion had to go through a detailed stress test that was designed to show us -- and the world, frankly -- how much capital each of these institutions might need in an economic scenario much worse than what we were already facing.

That was a process that when we launched it, we knew there was going to be some uncertainty injected into the markets, because markets tend to expect the worst.

It was a three-month process. You had all the examiners, all the bank supervisors working together in an unprecedented fashion, digging into the books of each one of these banks.

They were coordinated. They made sure that similar assets at different institutions were treated the same, and they made draconian assumptions as to what would happen to those assets in the unlikely scenario [that] the economy turned out to be even much worse than we expected.

We needed the results of those stress tests, and we felt that we could give a clear picture to the world as to what really was in these institutions in detail, not hide anything, disclose everything and let the world judge for themselves whether or not these institutions were strong or weak.

But when we launched it, it did start this period of uncertainty, because no one knew what the results were going to be. We didn't know; the world didn't know.

Alongside those stress tests, we announced the capital plan. This is one of the least appreciated pieces of the overall financial stability plan. What we said was, we're going to do these stress tests. At the end of those tests, we'll find out which banks, if any, need injections of capital.

Then we're going to give them a six-month window where they can go out to the private markets, private investors, and raise that capital from private sources; i.e., not the government. If at the end of that period they have not been able to do it, then they have to take an investment from the government.

It was a multistep process, because we were of the view that if we can do this without government money, or with as little government money as possible, that's a better outcome for the taxpayer. We felt that the banking system is healthier and more effective if held in private hands. Governments historically have been terrible owners of banks, and we thought this was the best chance to allow that to happen.

At the end of the day, the Obama administration did not have to put one penny into any one of those large institutions, not a dime. Most people you ask today think we put hundreds of billions of dollars into each of those institutions. It's not true. ... They raised hundreds of billions of equity capital privately.

If you had asked people -- market participants, economists, folks who were arguing for nationalization, other side, us -- in January or February or March of '09, "Would these banks be able to raise hundreds of billions of dollars' worth of capital on their own?," if you asked 100 experts, I don't think you'd have gotten two yes votes. But they were able to. ...

... Bloomberg made a big to-do a month ago when they reported that $7.7 trillion had been open to the banks and financial institutions through the Fed. Not that they were given that money, but over a period of time that amount of money flowed out. There's of course a lot of debate over the figures, but the bottom line that people eventually say is that trillions were certainly opened up and given at different points to different banks at different periods of time, all in secret. ... So put that into perspective for us.

What I was referring to a moment ago was essentially the TARP money, money that the Treasury controlled. The Congress appropriated $700 billion for the TARP program, most of which never got used.

From the time that President Obama took office, the money that we used from the TARP program didn't go into the big banks; it actually went into the smaller banks. It went into the other programs we've discussed, which were designed to open up the credit markets and to deal with the legacy asset problem. We allocated some of the money for housing programs and for the auto resolution, but not into the big banks. ...

The Fed was tremendously effective in what they do. I think Ben Bernanke and his team deserve a ton of credit for keeping us out of the second Great Depression, and I think it's unfortunate and unfair for people in hindsight to be attacking them.

This lending program was a very important component of what helped turn around the system. The figures I think were grossly distorted. If I lend you a dollar today for 24 hours, you repay it tomorrow, and I lend you another dollar, and you repay it, and I lend you another dollar. That's not $3; it's $1.

But if these loans were overnight loans, you're double, triple, quadruple counting. I don't know what the multiple is, but you're greatly exaggerating the numbers is the first thing.

The second thing is these were loans made against collateral. One of the Fed's roles is a lender of last resort, and they lent against good collateral; they didn't lose any money. They made a tremendous profit for the taxpayer.

I think I read a couple weeks ago they just sent a check to the Treasury Department for $74 billion, a lot of which was as a result of programs that they put in place to try and prevent the economy from going into the abyss. ...

The issue ... still remains that it was done behind closed doors. People didn't know the programs were that extensive and the number of loans that needed to keep on going out. What's your take on that?

I actually think the information was out there. I haven't gone back and looked at the website and things like that, but these programs I thought were public. The Fed's balance sheet is public, so the amount of loans that they have outstanding in any given time is freely available. ...

The [Ron] Suskind book [Confidence Men], the story that is told is what the president really thought he was agreeing to was that there would be some partial breaking apart of Citigroup while the stress tests went ahead, and that basically he was end-run around him and he was slow-walked by Geithner. What do you say of that?

There's no chance we slow-walked the president of the United States. There was nothing slow about what we were doing. There were times where I think all of us wished we could have pushed the pause button, but in terms of slow-walking the president, it just didn't happen. ...

There's anger in the streets, and there's this feeling that Wall Street was bailed out but Main Street wasn't. What was the attitude about how do we deal with this perception? And ... they weren't dealing with one of the hearts of the issue, which is the problem of housing and the mortgages under water. What is the debate within the halls of the Treasury building and White House?

There was no question it was incredibly frustrating that so shortly after repaying the government that compensation started going up as quickly as it did. I thought that showed poor judgment on the part of the banks. ...

We did not bail out Wall Street and leave Main Street hanging. Everything we did, we did with the purpose of helping Main Street, we did with the purpose of preventing the economy from turning into the second Great Depression. And some of the things that we had to do were terribly unpopular, and our predecessors, terribly unpopular. We knew it was going to be, but it was necessary.

We all had that recent experience with Lehman Brothers, where on the day that event happened, everyone's 401(k), everyone's IRA, businesspeople saw their businesses freeze; home values went tumbling. Every citizen of this country was deeply, negatively impacted by that event.

So if you're going to take steps to prevent that kind of pain for the country, the unfortunate fact is that you have to do certain things which are going to stabilize the financial institutions. If there had been a way to prevent the economic pain and the pain to households and businesses without taking these steps to stabilize those institutions, we would have done it. No one could figure out a way to do that.

... One of the things I think the administration is battling now in the election is that there is this perception out there that the banks were coddled and in ways that were unnecessary. One of the main ones that comes up was the plan about AIG, that the counterparties did not take a haircut for the money that went into AIG. ... Even in a case where the banks were expecting to take a haircut, they weren't. It was deemed that that was unnecessary.

... These really are battlefield decisions. The people who were making those decisions had to do so within basically 48 hours of finding out there was a problem, and it's a lot easier to sit in judgment months later and say, "Ah, you should have done this," but when you're in those seats and things are happening at lightning speed and you have imperfect information, you make the best judgments you can.

With AIG, here's a company that insures ... a huge percentage of businesses in this country. Those guarantees are what's called pari passu. They're equal in seniority to other creditors of the company.

So if you decide you're going to default to Goldman Sachs or someone that the public might want you to give a haircut to, you trigger a whole series of other outcomes which would have impacted not the Goldman Sachses of the world, but would have affected Main Street, small businesses, large businesses.

Again, think about being in those rooms when these decisions are made. You get as many facts as you can. You don't know which businesses are impacted; you just know that there are thousands of businesses, households that will be impacted if you trigger that set of events. So you swallow hard and you say this is going to be brutally painful, but what is the right thing for the economy?

But the billions and billions of dollars that went to Goldman Sachs, for instance, ... it was a hard one for the public to swallow.

Brutal, and nobody was happy about that. ...

You were there when it became public and the blowback came. Did Geithner talk about it? Was this maybe one of those decisions that in hindsight, if they had had more time, a different outcome might have been decided upon?

I don't know. You'd have to ask him. One thing we do know is the government did not have what was called "resolution authority." It had no authority to deal with the failure of an institution like AIG. There was no way to resolve it in a manageable fashion.

So one of the most important reforms, frankly, came in Dodd-Frank, and this is something that the secretary was adamant about, was that the government had to get what's called resolution authority, the ability to take apart these large, failing institutions. ...

But in that situation, you wouldn't have brought AIG down; you would have just given a haircut to the counterparties.

It's hard to speak hypothetically. I can't tell you what the resolution would have been. These are incredibly complex institutions, and any time anyone talks about "bringing one down," or "nationalizing one," or "taking one over," that's the sound bite. The substance behind it is, you have to drill down and figure out what you're going to do at every level of the organization. ...

Dodd-Frank. ... What's your take on it?

... I [personally] thought there were three or four things that if we could have changed would make a difference. One of those was mandatory clearinghouses for derivatives. We don't want to crawl into that rabbit hole and the details, but I thought that was tremendously important and something I'd certainly been for for years. And that made it into the bill.

Two, I thought that it was important that loan originators retained what was referred to as "skin in the game." That got changed in Congress to be loan securitizers. And what skin in the game means is I lend you $100,000, I can't just sell that loan. I have to keep enough of that loan so that if something goes wrong with it, you default, it's painful to me.

In the run-up to 2008-2009, fewer and fewer loan originators were retaining any skin in the game, so if a loan went bad, no skin off their back. If we had had in place a set of rules that made it so that if the lender had to keep some of that, I think lending standards would not have deteriorated to the point that they did. ...

Clearinghouses for derivatives, skin in the game, resolution authority. Those I think, at least in terms of financial stability -- there are other things like the Consumer Protection Bureau which are obviously important for a variety of reasons, but this package I thought would make a difference in the future, and that's all in there. So I think that that bill has made a real contribution to future stability. ...

One of the people we talked to was [Financial Crisis Inquiry Commission Chair] Phil Angelides, who did the report that looked into it all. The majority view of the commission was that it failed in some important ways. ... That there was not a real rethinking of the financial markets, that we missed an opportunity. There were a lot of things that were missing. ...

Oh, sure. Look, the regulatory agencies still have an awful lot of work to do to work out the details of what Congress passed. Congress said derivatives that can be cleared have to be cleared; derivatives that can trade on an exchange have to trade on an exchange. CFTC [U.S. Commodity Futures Trading Commission], you go work out the details.

Those details ... are incredibly complicated, and they have a lot of work to do to make sure that those are done right. But it was necessary for Congress to pass the law that gave them the authority to do it.

Same with resolution authority. I think resolution authority is remarkably complicated. I'm not in these discussions anymore, but my sense is they still have an awful lot of work to do to make sure that it's a workable authority.

... Maybe one of the biggest failures is that "too big to fail" banks have not been dealt with. That can was kicked down the alley, and the result is that we are still in a situation where, if we have another crisis, the government is going to be again needing to bail out these companies.

I think that's an easy thing to say. I don't think any of us could know that right now. No one knows what future crises are going to look like.

The "too big to fail" problem is complicated, it's challenging, and defining what's too big to fail is equally challenging. ... But saying it's hard doesn't mean it doesn't have to be dealt with. My sense is there's an awful lot in Dodd-Frank that did deal with this. ...

Many of you leave in 2010. The team leaves. Geithner is the last man standing. ... What does it say that Geithner is still there?

I think he's got more stamina than anyone else I know. Honestly, I don't know how he does it. It was an exhausting time, a tense time, and the fact that he's able to stay there and continue to do what he does is remarkable and impressive.

And the fact that the president wanted him to stay on, ... what does it say about Obama's belief in the program and in Geithner?

... In all my interactions with them both, it was clearly quite a strong relationship. They obviously have a lot of respect for each other.

The president did say toward the end there that the results of this financial stability plan, which really was the secretary's plan, which had many more detractors than supporters to say the least, worked in ways that very few would have imagined.

I think that exercise and that result built a tremendous amount of confidence in the secretary. ... We, the secretary, the president set out to put in place a set of plans that would stop the economy from rolling over, help on the employment situation, that would make borrowing more affordable for households and businesses across the spectrum and then would have the least cost to the taxpayer.

On every one of those fronts, I think the results are much better than anyone anticipated. Now, unemployment is still way too high. No one is satisfied with that, and I wouldn't suggest for a minute that we should be. I know no one on the inside is resting on their laurels on that.

But if you take each one of those four criterion, borrowing costs are lower than they've been since well before the financial crisis struck. This is for households, businesses, municipalities, etc.

In terms of the cost to the taxpayer, the IMF [International Monetary Fund] did a study in 2009 or '10, and they examined the 42 systemic financial crises throughout the world between 1970 and 2007. The average cost to taxpayers in each of those situations was I think 13.3 percent of GDP [gross domestic product]. For us, that translates into something like $1.8 trillion.

This will end up costing zero in my judgment. Not a penny. And the programs for the banks will generate a meaningful profit in billions of dollars for the taxpayer. ...

... Did the administration get taken off on a route that they would have preferred not to go on? Did they have to deal with issues like the deficit in ways that were not the directions they wanted them to do? Were they prevented from going down routes, like a second stimulus to some extent, to try to work on this issue of jobs? ...

... There are always so many moving parts in these decisions. There are lots of policies which are being balanced and weighed, and everything is viewed through the prism of what is going to get more people to work and what's going to strengthen the economy.

There was certainly this notion that we did have to address the deficit question, not because Republicans were saying you've got to look at the deficit, or anybody was saying you have to look at the deficit.

Fact of the matter is, confidence is important, and the government has to demonstrate some credibility with respect to deficits. Doesn't mean you have to make cuts today that have a negative impact on today's economy, but you need to put in place a credible, viable plan to address those deficits.

And not because you care about deficit specifically, but it's because it's the end result you're trying to have an impact on. If the world loses confidence in our ability to deal with these deficits, then we will have greater employment problems and a weaker economy.

In terms of a second stimulus, ... I don't know what the drivers were that were impacting that decision. A second stimulus isn't necessarily inconsistent with a credible plan to deal with the long-term deficits. I think finding that balance is the challenge. I don't know why they decided they couldn't pursue it; I wasn't part of those discussions. ...

... What do you think the public needs to hear from [the president] to better understand why so much was done that was important? ... What do you think he has to accomplish out there on the campaign?

... I think no one's better at this than the president. ... I think he has a lot to be proud of with respect to what he accomplished in the first handful of years of this administration. ...

The challenge is it is a very hard message to deliver, that we've accomplished all this. It's not nearly as much as we wanted to accomplish with respect to employment, although that's heading in the right direction, but without us, it would have been so much worse.

[Ranking member of the House Financial Services Committee] Barney Frank [D-Mass.] has that wonderful saying, that "It would have been worse without me" is not a great bumper sticker. It's true. You wouldn't get out there, I don't think, and say, "Independent studies suggest that there would have been 8.5 million fewer jobs."

It may be true and highly relevant, but people don't care about that. They're like, I don't have a job, or my brother doesn't have a job, or my neighbor doesn't have a job. So it is a hard message to deliver. ...

... Any part of this story that you think is essential to understand if you want to understand what you guys went through, what was accomplished?

... Some of the decisions that we had to make, that the president had to make, the secretary had to make, that were deeply unpopular and ... that people are to this day deeply angry about, those decisions were only made in the interest of what's best for the economy, Main Street, businesses, households. Everything we did, ... we viewed it through that prism.

I think if we could go back and correct some things with hindsight, I wish we had figured out a better way to communicate that that's what was driving us. ...

When we talked to Professor [Joseph] Stiglitz, his attitude about the stress test is that they were a con game, that in fact they were basically a softball sort of test, that all they were doing was trying to create confidence and then kick the can down the alley. ... What's your response to that?

With all due respect, it's just patently false. The notion that we could have arranged these stress tests and pulled the wool over everyone's eyes is nonsensical.

What we did is we put the banks through the stress tests which made certain assumptions. It assumed that each of these, I think it was 14 different types of loans, 14 asset classes, would suffer losses due to nonpayment, worse than at any time since before and including the Great Depression.

The Fed put out a white paper when we released the results of these stress tests which has this wonderful chart which shows what the losses would have been in this adverse economic scenario for each one of these asset classes.

The fact of the matter is, it was a two-year, forward-looking study. Guess what? Those two years are over. We know the results. They weren't nearly as bad as what was discussed in the stress tests. So the facts are the facts; the losses are the losses.

We released these results, institution by institution, asset class by asset class, because we knew there would be skeptics out there. We knew there would be people who would say, this is just a whitewash; it's ... a con game. We knew there would be that kind of skepticism and cynicism.

So we said: "Here it is. You take a look. Don't take our word for it. Here are the results." And trust me, everyone, every hedge fund on the face of the earth was plowing through that, trying to find the holes, wanting to see, aha, this was a cover-up.

It just wasn't the way it was, and the actual results, with the two years having expired, show that without a doubt. The markets believed it. When the results came out, everything bounced off those results, not because we fooled anybody, but because we said: "You do the calculations. You figure it out. If you think we were too easy, you're going to go short." And that is not what happened.

In today's global, transparent world, there's no chance even if you wanted to fool people that you could, and that never crossed our minds.