Twenty Questions Tim Geithner’s “Stress Test” Should Answer About His Tenure at the Treasury: Early Tuesday Focus: On May 12 for May 13, 2014

Twenty Questions Tim Geithner’s Stress Test Should Answer About His Tenure at the U.S. Treasury:

1. Why was the “Rubin Question” not asked? Why didn’t every meeting end with: “What do we need to do today in order to create room to maneuver in case our assessment of the economy is wrong?”? Why was there no contingency plan for what to do if the administration’s view of the economy turned out to be wrong, and if the recession was either not relatively shallow nor followed by a strong, rapid recovery?

2. Why did the Treasury’s loans to banks via the TARP come with neither bankruptcy-control rights (i.e., the ability to throw the organization into the courts if the government was displeased) nor shareholder-control rights (i.e., the ability to replace the boards of directors and the top management if the government was displeased)? He who pays the piper should call the tune, right?

3. Why was the Treasury’s first priority in January 2009 not filling the post of Director of the FHFA with somebody smart who understood the depths of the housing finance crisis, the housing finance crisis’s role in causing and maintaining the catastrophe, and the potential macroeconomic benefits to be gained from resolving the housing finance crisis?

4. Why was the Treasury’s second priority in January 2009 not filling the Federal Reserve with Keynesian macroeconomists to balance the austerity-minded regional reserve bank governors, and not thus giving Ben Bernanke and his successor room to maneuver to pursue technocratic dual-mandate policies?

5. Why was the Treasury’s third priority in January 2009 not setting-up the game table to make enacting a second round of fiscal stimulus easy, should the Recovery Act turn out (as it did, and is Christina Romer warned at the time) to be less than half as large as it should have been?

6. Why did the spring 2009 PPiP program never go much of anywhere? It seemed to me at the time to be a very wise way–albeit a very risky way–to utilize TARP money.

7. The Treasury senior-executive team that was assembled seemed to me to be relatively light on all of (a) Wall Street trading and management experience to actually interface with the financial firms to which the TARP money had been committed, (b) Fed-watching experience, (c) macroeconomic policy expertise, and (d) health-care finance expertise. Given that running the TARP, attempting to bring the Federal Reserve’s FOMC to a state of understanding of the economy, spurring a strong and rapid recovery, and implementing health-care reform were the administration’s top priorities, why were the Treasury’s senior executives–excellent people, all–who they were?

8. Former Obama OMB Director Peter Orszag has said if he had properly understood and internalized the lessons of work like Rinehart-Rogoff on the likelihood of slow recovery after financial crises he would have taken a significantly different position in the Obama administration NEC’s policy debates in 2009-10–a position closer to Romer-Summers than to Geithner. early 2009 and would have argued that the Recovery Act should have contained significantly more long-run insurance against an “L”-shaped recover.[1] How many of what clearly were, in retrospect, unforced macroeconomic policy errors by the Obama administration due to this failure to understand the likelihood of a prolonged, slow “jobless recovery”?

9. What were the three biggest unforced macroeconomic policy errors of the Obama administration, and why were they made?

10. The Obama administration began with two among the most-senior policymakers–Lawrence Summers and Christina Romer–having deep understanding of the macroeconomics of full employment and inflation and of the two episodes, the Great Depression and Japan’s “lost decades”, thought to be relevant to the U.S. situation at the end of the 00 decades. When they left in 2010 that expertise was not replaced at the most senior level. Why not? Why no Blinders or Tysons?

11. What was the thinking behind the decision that Ben Bernanke should–after 2007-9–be offered a second term as Federal Reserve chair? In retrospect, is that thinking still defensible? If not, why was that thinking convincing at the time?

12. I understand that Neil Barofsky at SIGTARP was regarded by the Treasury as somewhat of a loose cannon, but why was that relationship handled so badly?

13. I understand why the Treasury might think that Michael Barr was a better choice to run the CFPB than Elizabeth Warren, but why was that relationship handled so badly?

14. Why did the Obama administration in 2011 think that the way to strengthen the economy was to pursue a long run “grand bargain” rather than to pursue short-run expansionary exchange rate, bank regulation, housing finance, and monetary policies?

15. Why was the Obama administration so certain in 2011 that Boehner wanted to come up with a reasonable long-run entitlement reform and tax increase deal, and that its key negotiating strategy should be to make anticipatory concessions in order to make sure the deal was sweet enough for Boehner to be able to convince his troops to take it?

16. Why was there never any explanation of what would happen in the event of a potential breach of the debt ceiling other than “default is unthinkable”? That line put Obama in a very poor bargaining position. The Republican leaders in the House could then pass what they wanted and adjourn–leaving the Senate with no option but to endorse it or to breach the debt ceiling. Obama would then have no option but to sign the House bill or breach the debt ceiling. Can anybody explain to me this throwing-away of the administration’s power to threaten not to sign whatever was on the president’s desk when the click ticked down to zero?

17. I understand that there was no macroeconomic policy between July 2009 and April 2010 because health-care reform soaked up all the oxygen. But why was there no macroeconomic policy in the Obama administration between April 2010 and November 2010?

18. I remember a phone conversation with Tim Geithner about Obama’s decisive turn to and endorsement of “austerity”–the passage in Obama’s 2010 State of the Union address that went: “Families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year.Starting in 2011, we are prepared to freeze government spending for three years…” Geithner told me: “I know that [senior administration official X] and [senior administration official Y] really think that I was an [expletive] for not strongly opposing that, but I did not support it.” If the Treasury Secretary did not support it, how did it get approved by the NEC? If it did not get approved by the NEC, how did it get into the State of the Union text? Who did support it? Why did they support it?

19. I remember a phone conversation with Tim Geithner in which Geithner said that entrenched and incumbent FHFA head Ed DeMarco would “push the limits of the reasonable envelope” with actions to accelerate and encourage the refinancing of underwater mortgages. Why did Ed DeMarco not do so? Why did Tim Geithner think he would?

20. Why was it not the first priority in deciding on the Federal Reserve chair to pick somebody who had had a substantially-correct understanding in 2007-9 of what was happening to the economy?

[1] Peter Orszag writes in to correct the record…