The New Republic

 LA: Your predecessor Hank Paulson in his book describes how at the height of the crisis he would have sleepless nights, worrying that a giant financial collapse was going to occur on his watch and that he would go down in history as the Herbert Hoover of the current era. Your colleagues all say you are remarkably calm, even in the middle of a crisis.TG: Well I was very worried throughout that period of time. Starting in August of ’07 I had moments of deep, serious concern about the future. The hardest part for me was that period between when we knew we faced an existential threat of collapse but before we figured out what we were going to be able to do. Before we figured out the contours of our plan.LA: Was that from Lehman onwards?TG: I would say from the end of December of ’07, there was a great sense of foreboding, gathering storm, forces beyond our control. Even as early as back in August of ’07. But it dramatically worsened in the fall of ’08, of course.LA: When you took office in January, we had had TARP, we had had all of those guarantees in place, and yet they still didn’t seem to be working. There was still a run on Citi, still a run on Bank of America.TG: When I first met the President in October of ’08, when he was then a senator, a candidate running, I remember saying to him that the steps that Hank Paulson, Bernanke and I and others took earlier in the fall had broken the financial panic. But at that stage the economy was still eroding at an accelerating pace and the financial system was still completely frozen. So yes, it was getting worse. When the President took office, when I came in in January, at that point we were still at the edge of the abyss. And we now know in retrospect that the economy was shrinking at an annual rate of 9 percent and the global economy was in a state of near freefall too. It felt pretty bad.LA: The way you dealt with the financial crisis will go down as your signature achievement. It turned out to be remarkably successful economically. But you yourself have said that while you saved the economy, you lost the public. Was there any way of making politics of this work?TG: I think that’s a great question. I think it’s hard for any of us to know. My own view was that it was going to be very hard, if not impossible to design a financial rescue that was going to be effective in protecting all the innocent victims hit by the crisis and still satisfy the completely understandable public desire for justice and accountability. Those things were in direct and tragic tension, never resolvable at that time. I always felt that the only preoccupation for people in policy at the time should be to fix the problem as quickly as we could, as effectively as we could, and only after that would other things be possible, including how to figure out not just how to clean up the mess, but reform the financial system.LA: One of the ways that people have figured out in the past to reconcile the politics was to go populist. That was what Roosevelt did. You, on the other hand, had been resolutely against that. You refer to it as Old Testament justice, implying that while it may be emotionally satisfying, it doesn’t serve any purpose.TG: I never used that phrase as a pejorative description. I just used it as a simple shorthand to refer to the understandable need people had for justice. But the President didn’t ask me to come do this to be the architect of a political strategy. I never felt that was my thing. I had some views on the issue, but I didn’t give them much weight. I thought my job was to figure out the financial parts.LA: Was the talk about “fat cat bankers” counterproductive?TG: I’m biased but I felt that in the basic strategy that the President embraced and that we put into effect, we did something that was incredibly effective for the broad interest of the economy and the financial system. I feel the President’s rhetoric over that period of time was very moderate relative to the populist rage sweeping across the country. And I never quite understood why the financial community took such offense at what was such moderate rhetoric relative to what we have seen in other periods in history. READ MORE >>

The verdict is in on Romney’s response to the embassy attacks in Libya and Egypt, and it’s not been kind to the former Massachusetts governor.  READ MORE >>

Sovereign Equality and Moral Disagreement By Brad R. Roth (Oxford University Press, 320 pp., $70) READ MORE >>

This article is a contribution to 'Is There Anything That Can Be Done? A TNR Symposium On The Economy.' Click here to read other contributions to the series. READ MORE >>

Mitch McConnell repeats the claim that George W. Bush left the budget in kinds-decent shape before President Obama ruined it: The last year of the Bush administration, the deficit as a percentage of gross domestic product was 3.2 percent, well within the range of what most economists think is manageable. A year and a half later, it’s almost 10 percent. Paul Krugman replies: READ MORE >>

The financial crisis in America isn't over. It's ongoing, it remains unresolved, and it stands in the way of full economic recovery. The cause, at the deepest level, was a breakdown in the rule of law. And it follows that the first step toward prosperity is to restore the rule of law in the financial sector. READ MORE >>

A sign that the unemployment rate has peaked. Geithner: 85% of the $205 billion in bank bailout money to be repaid by end of 2010. Should the Fed buy an additional $2 trillion in Treasuries? READ MORE >>

Just when momentum was starting to build for increased capital requirements as the core element of an approach that will reign in reckless risk-taking, Morgan Stanley effectively demolishes the idea. In “Banking – Large & Midcap Banks: Bid for Growth Caps Capital Ask,” (no public link available) Betsy Graseck, Ken Zorbo, Justin Kwon, and John Dunn of Morgan Stanley Research North America dissect the coming demands for more bank capital.  READ MORE >>

In my post yesterday about derivatives, I mentioned the importance of "clearing," which would help sever the interconnections between firms on either side of a derivatives trade. (The interconnections are what can put the whole financial system at risk when one firm, like Lehman, runs into trouble.) READ MORE >>

Something strange and a little disorienting is happening in the fight to reform Wall Street: It looks like the reformers are actually starting to win. READ MORE >>