Stress Test: Reflections on Financial Crises

 Stress Test: Reflections on Financial Crises by former Treasury Secretary, Tim Geithner, is one of the most fascinating books I've read. (I've also listened to the audio version.)

Stress Test is one of those You Are There* books where you're taken beyond the headlines and invited to see what really happened.

The most memorable takeaway from this book is the actual stress test that Geithner applied to the largest banks in America. 

During the Great Recession we watched as global financial powerhouses seemed to be teetering on the edge of collapse.

It was an environment of fear. So much so that once Geithner spoke with the CEO of a top financial firm. After he hung up, he could tell that this man was clearly, obviously very afraid. So he called him back and told him not to speak with anyone. 

Ultimately what Geithner did was to get the staff in the Treasury department and Federal Reserve to examine the books of the major financial institutions of America.

This took some time, but once the work was done, he knew which banks could withstand future economic shocks, which might need some financial support and which were in such dire straits that the only way they could be saved is to be merged with a financially strong firm. E.g. Countryside Mortgage with BOA.

On page 349 of this 500+ page masterpiece, Geithner shares how he walked into the Oval Office and shared Daily Observations a publication of Bridgewater Associates, the world's largest hedge fund and most credible source of private sector economic analysis.

The headline was "We Agree." "The Stress Test numbers and ours are nearly the same." "The regulators did an excellent job of explaining exactly what they did for this stress test, and showing the numbers that produced the results."

The ultimate test was whether private investors would invest new capital in banks. BOA's stock price was up 63% that week and Citi's 35%. Now nearly every financial indicator was heading the right way.

This was a horrible time for Americans, some more than others, yet it could have been a lot, lot worse.

When asked why Geithner had this job, it was said that unlike others, Geithner did not lose his head when the world seemed to be falling apart.

*You Are There

You Are There is a 1947–1957 American historical educational television and radio series broadcast over the CBS Radio and CBS Television networks. Created by Goodman Ace for CBS Radio, it blended history with modern technology, taking an entire network newsroom on a figurative time warp each week reporting the great events of the past.

About the Author

Timothy Geithner is an American former central banker who served as the 75th United States Secretary of the Treasury under President Barack Obama from 2009 to 2013. He was the President of the Federal Reserve Bank of New York from 2003 to 2009, following service in the Clinton administration. Since March 2014, he has served as president and managing director of Warburg Pincus, a private equity firm headquartered in New York City.

As President of the New York Fed and Secretary of the Treasury, Geithner had a key role in government efforts to recover from the financial crisis of 2007–08 and the Great Recession. At the New York Fed, Geithner helped manage crises involving Bear Stearns, Lehman Brothers, and the American International Group; as Treasury Secretary, he oversaw allocation of $350 billion under the Troubled Asset Relief Program, enacted during the previous administration in response to the subprime mortgage crisis. Geithner also managed the administration's efforts to restructure regulation of the nation's financial system, attempts to spur recovery of the mortgage market and the automobile industry, demands for protectionism, tax reform, and negotiations with foreign governments on global finance issues. ~ Wikipedia