Morning Must-Read: Michael Lewis: Stress Test

Michael Lewis: ‘Stress Test,’ by Timothy F. Geithner – NYTimes.com: “The story Geithner goes on to tell blames everyone and no one.

The crisis he describes might just as well have been an act of God. Basically no one noticed what was happening inside the financial system until after it happened. A few of the important people with a privileged view expressed concerns about the risks being taken, but most said nothing. Geithner counts himself in the minority. ‘I began asking questions about capital: Do our banks really have enough?’ he writes, adding, ‘I was more worried than many of my colleagues, but I was not nearly worried enough’. His role in the run-up to the crisis was a bit like that of first mate on the Titanic, after the ship has been put on irreversible autopilot, and the captain has gone off to drink with the rich guys in first class…. He is immediately faced with an appearance problem: Before he can save any women and children, he has to rescue the drunks in first class who owned all the lifeboats….

Geithner has little sympathy for those who wanted to see Wall Street bankers held accountable for whatever it was they had done. ‘Old Testament vengeance’ is his pet phrase…. He thinks it was a mistake, for example, to allow Lehman Brothers to fail in September 2008, and writes that he would have prevented it if he could have. (He claims the Treasury and Federal Reserve lacked the authority to save it.)… Geithner sees the government’s response to the financial crisis mainly as a great success… clearly thinks people ignore the facts and judge with feeling rather than reason…. He finds it silly that many people believe Dodd-Frank changed nothing important. (Yet he never explains why the roughly 5 percent capital ratio it demands of the big banks is anything like a magic number for bank safety — and he does not mention the powerful case recently made by the economists Anat Admati and Martin Hellwig that the right number is at least 20 percent.)… Geithner seems genuinely to believe that the details of the behavior inside the financial industry are largely irrelevant…. But he doesn’t begin to explain why, if investors were so numb to risk, Wall Street went to such lengths to disguise that risk…. Finally, he seems to believe that the American financial system is now more or less fully reformed….

But that’s the wrong note to end on…. I doubt many readers will put his book down and think the man did anything but his best. On his feet he might have stammered and wavered. That in itself was always a sign he was unusually brave.”