Tim Geithner’s legacy: an unpopular bailout that helped save the economy

Geithner has faced consistent critiques about his record. During his tenure, the Fed was among the regulators that did not act aggressively enough to stem the building risks in the financial system. He faced accusations that he did not appear sympathetic to the public frustration that bailed out American International Group was paying its traders extravagant bonuses — feeding a perception of closeness with the financial industry that he has acknowledged has been “damaging” to the Obama administration. He and others in the administration failed to get enough support for passing enough measures to foster more rapid economic growth.

Geithner, who first broached the subject of stepping down in fall 2010, agreed to stay on for the remainder of the term after aggressive lobbying by Obama. Friends say he will take a year or more off, probably write a book and is unlikely to take a job on Wall Street. In an interview, Geithner said the factors that have driven him to spend a life in public service remain compelling.

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“I have no idea what I’m going to do,” Geithner said. “For all my professional life, I’ve made basically one choice about what kind of work I want to do. And the reasons that led me to that are very powerful and are very enduring.”

The best possible plan

In the dark days of early 2009, when it seemed the nation’s banks could still collapse, Obama was weighing whether to side with Geithner in an internal debate over how to stabilize the financial system. The president’s political advisers wanted to harness public anger against banks and introduce punitive measures, like limiting pay. Some economic advisers wanted to seize struggling firms and turn them into wards of the state.

But Geithner, who had supported a massive bailout of the financial sector in the final months of the Bush administration, advocated a different approach, a series of tests to see if the banks could survive a greater downturn. In the Oval Office, Obama asked his little-known Treasury secretary, “This plan of yours, is it going to work?”

“I said, ‘You know, nothing is certain in life.’ ” Geithner recalled Jan. 16 in private farewell remarks at the Treasury. “But I knew that our plan was better than any and all of the alternatives before us.”

Obama went ahead, the plan worked and before too long, it became clear that most of the banks that received bailouts would pay them back, winning Geithner the president’s admiration.

“When you go through that kind of crisis together and come out the other side, you forge a bond of trust and they certainly did,” said David Axelrod, Obama’s longtime adviser.

But Geithner also became a magnet for criticism. The biggest financial firms had been rescued with hundreds of billions of dollars of taxpayer money, while many ordinary Americans languished, often stuck in homes worth less than what was owed on them.

Given that unequal outcome, Geithner was seen as someone standing in the way of proposals to punish bankers who had caused the crisis. But Geithner’s allies say that he had different motivations.