Mr. Geithner was a relatively green CEO—only several months into his first major executive role as New York Fed President. In our pick-up games, Geithner proved to be a fantastic player, routinely flashing the best shooting touch. Despite this prowess, however, Geithner invariably shied away from taking the big shots. At the moment of truth, his gaze often became curiously unsteady, his hands seemingly shaky.
Little could I have realized then that the inherent risk aversion I was witnessing would come to shape the course of U.S. history.
I worked for a total of nine years at the New York Fed over two separate stints. In the aftermath of Lehman Brothers’ 2008 collapse, I returned there to manage the centerpiece program of the experimental stimulus program known as “Quantitative Easing” or "QE." Several months ago, I apologized publicly for my role in QE, suggesting that it had become the greatest backdoor Wall Street bailout of all time. But I've never spoken openly about why I left the Fed in the first place: It was mainly because of Mr. Geithner.
Inside the New York Fed, I wouldn’t actually realize how cautious a leader Mr. Geithner was until 2006 when I transferred to a mid-level management position in its “Bank Supervision” department—arguably, the Fed’s most important regulatory division.
The department I now joined was in complete disarray. Rife with politics, the only thing it seemed to excel at was demoralizing the bright, idealistic minds it was recruiting from the nation’s finest graduate schools (staggeringly, up to a quarter of the 600-plus person department was leaving each year). Even more tellingly, in the period directly preceding the largest U.S. banking crisis since the Great Depression, the New York Fed’s bank regulators were obsessively focusing on the systemic risk from hedge funds—not banks.
Mr. Geithner’s response? He seemed to float above the action. Far too often, in the senior-level regulatory strategy sessions I attended, Geithner simply peppered the room with questions, rather than providing any concrete direction. And, instead of making any serious attempt to straighten out a chronically underperforming bank regulatory division, Geithner had instead begun filling various, key New York Fed positions outside of the regulatory function with trusted advisors from Wall Street firms like Goldman Sachs, J.P. Morgan, and American Express.
In early 2008, after a few too many months of waiting for more forceful leadership from Mr. Geithner, I finally opted to become just one more demoralized ex-Fed bank regulator, accepting a job on Wall Street.
For as poorly as his New York Fed was regulating its banks, though, it would be unfair to suggest that Timothy Geithner (or any other U.S. bank regulator) was primarily responsible for what metastasized shortly thereafter: the 2008 financial crisis. Fueled by a potent mix of greed and mismanagement, the U.S. banking sector did a bang up job of blowing up itself—and the American economy along with it.