>> charlie: welcome to the program. tonight, former treasury secretary timothy geithner, his new book is called "stress test reflections on financial crisis." >> financial crisis are not like national security. we don't equip the government, the president of the united states or the central bank with this standing power to protect the country immediately from existential threat. we do it in wars, for obvious reasons, but in the financial crisis, we don't do that because we don't want the markets to live with the expectations we'll protect them from their sentence. so we went into the crisis with limited tools. if there had been a willing buyer for lehman, we would have had better options. >> charlie: tim geithner for the hour, next.

>> there's a saying around here: you stand behind what you say. around here, we don't make excuses, we make commitments. and when you can't live up to them, you own up and make it right. some people think the kind of accountability that thrives on so many streets in this country has gone missing in the places where it's needed most. but i know you'll still find it, when you know where to look. captioning sponsored by rose communications from our studios in new york city, this is charlie rose.

>> charlie: tim geithner is here. he was treasury secretary for president obama from 2009 till january 2013. he became the president's longest-serving economic adviser. he was also a constant force throughout the financial crisis. in 2007 as president of the new york fed, he orchestrated controversial bear stearns, following year the government's response to the fall of lehman brothers leaving the economy teetering on the brink. he writes about that experience and much more in this book called "stress test: reflections on financial crisis." i am very pleased to have tim geithner back on this program. welcome. >> nice to see you, charlie. >> charlie: do you see it differently, what you went through, because you've had the benefit of time? >> i don't think there's enough distance for me to see it dramatically differently than what i did. i would like to claim to have more distance but i wrote this quickly when i left and the crisis peaked about four or five years ago, now. i was still very close to those

decisions. but i feel, looking back over that period of time, even with the benefit of hindsight, obviously, i made some mistakes, we got some things wrong, but i feel very good about the core decisions we made to protect the country from the risk of a great depression, very confident in the judgments and fortunate to be making the judgments. >> charlie: what mistakes did you make, do you think? >> i think there's a lot. i try to write very candidly about these in the book. i think the most important things that affected initially the depth of the crisis and the strength of the recovery were these -- we were late to figure out how to martial enough financial force to prevent the panic from hurting the economy, and that's because we went into the crisis with weak tools, no standing set of authority to act, for example, to independently rescue a big firm,

any big firm, from its sentence, to prevent the damage from spreading to the economy. ultimately, we figured out a way to do it, to martial -- you know, after congress passed t.a.r.p., to marshal a set of tools to break the pang. it took it a while to do it and we were late and that's why the crisis was so damaging. as we were coming out of it, we cooled the fires of the income financial crisis and trying to get the recovery stronger, the country moved too quickly to embrace an austerity that sucked the wind out of any recovery there should have been and we were unsuccessful of trying to convince congress of the virtue of sustained program of larger program of infrastructure or more generous tax tucks to have a stronger recovery than we did. those two, you can call them failures of policy, were the most consequential ones and not

just determining the magnitude of the crisis but the weakness of the recovery. >> charlie: are you surprised so few people saw it coming? so few people saw how overleveraged we were? >> i like the way you framed the question. it's the right way to frame the question. the reason we had such a devastating crisis is because we had this long period, people call it the quiet period or the great moderation, where growth was relatively stable, house prices were rising. there was no memory of crisis, no memory of financial panic. so there was this basic level of confidence. there is a famous book called "manias in incomes." minske said stability beat instability and what happened is, over time, people became more confident the risk was small, so they were willing to lend more, borrow more. it was the absence of memory of

crisis that helped feed that. in that sense, it's not surprising. it's a paradox to have a really devastating crisis like this, a system very vulnerable to panic, you have to have a long period where people lose the memory of crisis. so it's not surprising. more specifically, we had a decade-long period where after the great depression our financial system outgrew the constraints we put in place after the great depression. in 2007 -- >> charlie: they've changed. they have been changed. but in 2007 before the crisis, the banks -- you know, banks are risky, but banks at that point were maybe 40% of credit to the economy and a huge amount of the rest of the credit the economy needed to survive was provided by a set of largely unregulated financial institutions and were doing things that banks typically do, borrowing other people's money and lending it to financial liquid assets and our system was vulnerable to panic

because of that deep change over time. the system outgrew the safeguards of the great depression, left us a system prone to panic. that's one reason why our tools were so weak initially because we didn't go into the crisis with a broad framework of protections you need to protect economies from. >> charlie: i hear everything you just said, but people, because their memory did not have a time in which they didn't believe that homes were a good investment because they always had been so, whether there was a cacanary in the room, you said this is overleveraged. i remember saying to an investment banker, what could go wrong? he said we're too overleveraged in and we've become -- too much stuff is on credit. >> i tell a story in the book about when i was at the new york fed -- i went to the new york fed in late 2003 -- and how,

with my colleagues, i sat around tables like this and kept looking at this basic question, do banks have enough capital, do we think they have enough capital. we looked at what would happen if house prices fell, how large would the losses be. >> charlie: but it was a hypothetical. >> i wasn't just a hypothetical. unless you force people to say, okay, you may not think it's likely but what if there was another great depression, what would happen then? most people would say, we're not going to have another great depression, we learned the lesson. it's not possible in that context. so the set of losses large enough to shake the foundations of our system was so inconceivable. we started in the early stage of "stress test," the title of the book, the policy was so decisive in our rescue, we started the early stages of that in 2006, 2007, and we would go to investment banks and say you need to plan for a dark world, you need to build in greater cushions against a risk of a

severe crisis and they were very dismissive about that because they thought it was unconceivable we would experience a crisis large enough to shatter confidence in the system as a whole. that's sort of inherent in the behavior that leaves you vulnerable to a crisis. so you ask for canaries in a coma, so in that period of 2004 through 2007, you could observe the vulnerabilities and worry about whether the system was becoming too fragile to risk a panic. you could see them but it was had to lean against them. >> charlie: do you believe the c.e.o.s of the major banks knew what was going on? >> i think if they would be honest, a lot of them took on risks they didn't understand. but, again -- >> charlie: even members of their board didn't understand. >> of course. but if you say to people -- in that market, in that period of confidence, excess confidence, if you said, i'm going to go buy protection against the risk of a great depression or build a cushion of resources against that risk, people would have

said, you're crazy, that's way too conservative. >> charlie: so here we are in 2008, and you look around and everything is happening to you, and you have said to others that -- if somebody said, what was the worst moment, you said they're all bad moments. tell me how you saw -- which has often been discussed -- bear stearns first. bear stearns told you what? >> let's go back a little further. >> charlie: okay. this crisis started really at the end of july in 2007. that's when you started to see what looked like a classic run on the financial system. like the movie "it's a wonderful life" in the great depression, jimmy stewart's movie, where people were lined outside his bank, but you couldn't see it because it was in the modern financial world, you could see

it did on the screen but not in the streets. it gained momentum over that period of time. the weakest institutions, the most exposed to risk, got caught up in the leading edge of the run, bear stearns being the largest in the united states. so by march of 2008, they were just -- you know, people were pulling money out of them as fast as they could and no firm, no bank can survive that. just as a reminder, just to describe a little about why we have such an antiquated system at that time, you know, bear stearns was an investment bank, had no framework, really, of comprehensive safeguards against risk. >> charlie: i remember you said the thing that struck you most was how fragile the system was. >> finance is inherently risky. if you look at what's caused huge damage to economies over history, most of the time it's not war and peace, though that's

terribly damaging, it's the trauma when financial systems fall apart. i grew up watching failures of financial systems across the markets in the early '90s and if i repeated that exposure to that basic letson and you let them get to a point where they're panicking and that gains momentum, it can be damaging. a lot of people think the financial system is divorced from the economy, removed from it, doesn't really affect our interests, that's not really the right way to think about it. we don't like to admit it. but the financial system is like the power grid, it's like the lights, or to mix metaphors, it's like oxygen to the body, and if that turns off, the damage to people's livelihood is immediate and powerful and traumatic and that's what the great depression showed us. >> charlie: bea can you tell me

what it was like when no one found someone to rescue them. >> if you look at the weeks before lehman, the overwhelming consensus in washington, in a lead opinion -- and it's a natural human view, which is these guys have taken all these risks, they should bear the consequences of these risks, you should let them fail. we don't want the government to step in and protect them from that, and that moral hazard conviction, which is completely an understandable conviction and should guide policy in most states of the world, that reached fever pitch in the days before lehman. so after hank paulson, to his enormous credit, convinced congress to give him the authority to help rescue the housing market from the risk of a goral of the gscs, fannie and freddie, they didn't want to

take any more risk. the general view in washington is we don't want to see the government do another bear stearns because they believed the biggest risk was a moral hazard. hazard. hank paulson and ben bernanke and i, we were completely committed and worked well together. we debated but were on the same page. going into that weakened, you could hear the pressure they were under politically from their political advisers to try to stand back and not step in preemptively and create more failure. ultimately, i think we were completely on the same page and we worked very well together and took enormous risk in protecting people from the risk of a great recession in that context. >> charlie: was there an idea after bear stearns we have to say to this wall street community we're not out here to rescue everybody?

>> it's the right thing to say because you don't want people living with the expectation they can expect -- >> charlie: and how powerful an argument in terms in your own mind was that in terms of the decision not to rescue? >> it's the paradox of the crisis. it had no relevance to lehman. in lehman's case, the problem was we had no willing buyer. financial crisis aren't like national security. we don't equip the government, president of the united states or the central bank with the standing power to protect a country immediately from exotential threat. we do it in wars for obvious reasons, but in the income, we don't do that because we don't want the markets to live with the expectation we're going to protect them from their sins. so we went into this crisis is very limited tools. if there had been a willing buyer for lehman, we would have had better options. >> clearly, you would. that's basic and fundamental.

>> but what happened was, because the world was so fragile and lehman appeared to have so much risk is in the end we had no willing buyer so, at that point, we had no option and that's why ultimately president obama and hank paulson went to congress and said we need bigger fire power. until that weekend we had no material difference on strategy and our basic common limitation was in the absence of a willing buyer no good options to protect the system from lehman's failure. >> charlie: do you look back now, having a little bit of time, saying i still believe we had no options until we could find a buyer. >> i very much feel that way. >> charlie: secondly, do you believe looking back if we had gone to the united kingdom that they ought to let barkley's bank do this -- i'm assuming you didn't say we really need for you to let these guys do this, otherwise lehman's going to

fail. >> that friday night, we brought together the leaders, the people running the largest firms in the world together with hank paulson and the first thing one of the bankers said at that meeting, which was the correct thing, which is to say, you know, this is not just about lehman, this is about merrill lynch, about a.i.g. -- >> charlie: they're lined up to fail. >> -- the perception is they would all fail by monday or tuesday if nothing was done for them and if they did, the rest of the system would teeter over. in retrospect, people look at lehman as the spark that lit the fire. that's not true. it just accelerated dramatically. >> charlie: what would have happened if you had saved lehman? would it will be a case of a.i.g. and -- >> yeah, you still have to say what to do about merrill and the other investment banks and a.i.g. so there's no plausible story to say, if somehow we found a

willing buyer for lehman, it would have been okay. >> charlie: you cover both these in depth and the biggest two decision points come with lehman and the t.a.r.p., and those are the two big decision points. you would think with all the fire power in that room, you would think they could figure out a way. you've got to understand what's happening here but we have to do something, guys. this is not time. you and you get together and buy lehman. >> that's right. we basically locked them in a room for a long period of time. but let's go back -- >> charlie: this meeting is mind boggling. >> remember, at that point, the world was falling apart. the strange thing about this crisis, again, it wasn't still visible to people. but if you were in the markets or the financial system or running a major company, you could see the world running away from you, and you knew the country was coming to the close of the edge of the abyss at that time. i saw that just because it would have been one thing if you had a

growing economy, people not worried about a recession, and you have a large investment bank managing to get itself at the edge of failure. you have plenty of options, lots of large financial institutions. but with the world at the edge of collapse and in retreat, it's hard to say if you twist their arms and force them to come in and buy lehman they would be leaving themselves stronger rather than weakened because of that. that weekend we spent much of the time in ants pax we have a willing buyer to get some investment banks to take racing, and they were willing to say, we'll take ace rk, but it didn't work without lehman. >> charlie: and the federal reserve, did jp morgan take over bear stearns? >> my view was if there was a willing buyer buzz the fed had to take some risk to make it happen, that would have been a good thing, like in the bear stearns case. but harder in the lehman case because the perceived hole was so much greater and the world was more fragile. >> charlie: you watched a.i.g.

and the rest of them. was there a moment in which you said, we are, at this moment, as close as we ever are to this financial system collapsing? >> those two weeks after lehman -- what's called lehman weekend -- >> charlie: worried about morgan stanley, j.p., goldman and everybody. >> it was an existential moment. at that time, we believed and i think they're right that what was going to happen in effective action by the government is the complete failure of the large parts to have the financial system. money markets were already experience -- that's a trillion and trillion dollar business, they were experiencing massive runs. the paper financial markets were shutting down. the basic breakdown failure of the core of the financial system. hank paulson said we were three days away from people's atms not working. >> charlie: three days away.

three days away. and, you know, people were buying gold and talking about burying it in their backyards because to have the expectation that they would have to rely on that. >> charlie: and what was europe and asia saying? what were the chinese saying? >> in some ways it was worse around the world. you know, we're a very strong country, and the run we experienced here was being replicated around the world. you saw trade finance stop like this. >> charlie: you saw it in the global economy. >> immediately. >> charlie: yeah. in some ways, it made our crisis much harder, too, because with the world much weaker and the world, you know, fading as we were wrestling with our crisis made it that much harder. >> charlie: then comes t.a.r.p. as you know, people look at this and they say the problem was you had to do this to save the financial system, and the other view is that, you know, the

arsonists got away with it -- they set the fire and we took care of them. how do you see that in terms of whether you created, because of your mind set, where you had been and your experience and the people you knew, that there was a better way of rescuing the financial system? >> you know, i've listened to these debates in retrospect a lot. >> charlie: you have a list of quotes from people. >> yes. i have not yet heard a plausible argument that there was a better option available to us or a more effective strategy for protecting the average person in america relative to what we did. what we did in those weeks after t.a.r.p. authority and after president obama was elected, you know, it was creative and dramatic and unpopular and offensive to many, but it was remarkably effective against decades and decades of history in trying to design a set of things to protect people. we didn't do it to protect the

bankers from the error of their ways. we did it because there was no other option to avoid the risk of mass unemployment. that's what the great depression taught us. that's what every major financial crisis illustrated at that period in time. because we did what we did, however unpopular, we protected the innocent victim from the risk of much, much greater losses. >> charlie: you'd rewrite t.a.r.p. the same way you wrote it? >> t.a.r.p. was a -- you might want to say an unpleasant substantial grant of discryings discretionary authority -- discretionary authority in an emergency to the president to make sure he could move quickly enough to save the system from collapse. you could ask yourself, could you have done a more elegant thing? i don't know, it's possible. >> charlie: tell me about confidence in a crisis. >> it's everything. if you leave people with the fear that they have to behave on

the expectation that they're going to face depression-level unemployment,less of output, then they will make that inevitable. >> charlie: because they'll take the money out of the bank. >> or if you're a business you will fire everybody to protect yourself. or if you're a bank, you will cut loans in a defensive retreat, and those actions feed on themselves and produce the reality you're trying to avoid. you have to break that vicious cycle. you have to break that incentive to run. you have to break the incentive to defend yourself. in a panic, in a crisis, what's rational for the individual, what's rational for you and i individually is collectively, deeply irrational and damaging to the company. and there's no way to break that in a panic except the government and the central bank taking a lot of risks the market won't take a. >> charlie: there was talk about nationalizing banks. >> there was. >> charlie: even larry summers. >> larry was a great personal advocate. >> charlie: no, but he suggested it. >> there was a risk we would

have to do substantial nationalization. the book is called "stress test," and the strablg we adopted was to bring capital into the financial system, force them to hold capital against risk of great depression and maximize the chance the taxpayer wouldn't have to own all the risk. but after the stress test, we imposed the stress test on them and dispose the losses bank to bank, if they were unable to raise the capital in the public markets, we would have to put the capital into the institutions and it would look like nationalization. so there was a risk of nationalizing if the strategy wasn't effective. what happened is we put out a level of transparency and disclosure and it was credible enough, you know, against -- in the context of all the other forces we were deploying that private capital came in and we didn't have to put in a bunch more taxpayer money. >> charlie: for those who questioned t.a.r.p., whether

elizabeth warren and others, when they questioned it, do you think there's a misconception about you in terms of the questions they raise? >> oh, they -- >> charlie: obviously, one of the misconceptions is he had a tie, formally worked at goldman sachs. >> it was very hard to talk people out that i spent my life at goldman sachs instead of a public servant in the treasury or any other investment bank. it's true that the treasury had a successor of leadership that came from goldman sachs. but people looked what we were doing and looked like we were rewarding them and they would say, naturally, why are they doing that? why does that make sense? why is that necessary? it must be because they have personal interest or are captured by them -- >> charlie: or they perceive the world -- that's really what it is, but they look at the world through the eyes of an investment banker.

that's who they have been associated with, what they did and know. even you, you could argue, i mean, the people at the fed or when you were a treasurer, you're dealing with ph finance s around the world -- >> that's a perspective. but the alternative perspective is i grew up watching financial crisis happening outside the united states, watching how damaging they could be, watching with people playing with the hope the fire burns itself out, watching where they're not prepared to take risk, watching politicians having aversion to the rescue and the impact it had on the countries, watching how fragile systems are. that's a dominant lesson i learned and people should learn from financial crisis. one thing i admire about

president obama, he had around him a pretty diverse mix of people not just his political advisers but people on the economic side from the left, not just from the center, and he, like any great leader, what he did to us, or to me in some sense, he would say, it includes in my job to come with the recommendation of what to do, but he subjected the proposals to brutal debate. >> charlie: give me an example. >> we sat in the white house for eight hours with him -- of course, we did this over weeks and weeks and weeks -- where we sat down and i presented our options and our recommendation, and he asked a bunch of questions about it and then he sat there and watched my colleagues debate, criticize from, you know, again, a pretty broad spectrum of political opinions in that context. of course, what was great about him is he wasn't paralyzed by

that. he could see. my view, i used to say plan tell me what you're for. >> charlie: plan b. and tell me why is it you believe your idea, your criticism, your concern, what's the policy associated with it you would embrace and why is it you think that would be more effective that you're proposing, and ultimately what happened is none of those ideas, alternatives, however well motivated, these people are very principled, smart people, what happened was in that terrible period of bad choices, there were no alternative ideas that could survive 30 minutes of debate. >> no idea to do anything that could survive 30 minutes of debate with this group? >> and the people sat there and wanted people to have that debate because he wanted to make sure he as president was not in the position of being vulnerable to whatever limitations i brought to the table, whatever

limitations and perspective. again, you're in that environment -- you have to choose, you have to make a choice, and what most politicians do -- >> charlie: not to act is to act. >> it is. and most politicians -- the u.s. is a very strong country. we're very lucky in the country. most politicians sit there and they say, i don't want to protect those guys. i'm going to get killed if i protect them. i don't want to take any risk. maybe it will burn itself out. when you do that, when you have a system that fragile, that vulnerable to panic, then it's going to be the great depression. >> charlie: it was palpable in the room and elsewhere of where the country's attitude was and you could feel it. >> it was in the room. it wasn't like it was a remote thing. this basic instinct is why should we help the arsonists. >> charlie: and was that the presidency? >> no, the president was worried about the substance, what was going to work, and he was very aware of the very damaging poll

things around all the positions. >> charlie: did bill clinton tell you when you went to see him and ask him what to do, and you might go out in an alley and slit lloyd bankfein's throat, it would satisfy the public and two days later the blood lust would return, only a temporary satisfaction. >> yes, but he was making an important point and i think this guided theth's instinct and certainly mine in the crisis is the moral obligation of those governing was first to try to figure out how to land the plane in a way that protected as many lives as possible. you know, the plane's on fire, the cockpit's full of smoke, you've got this moral imperative to try to safely land the plane with as least damage as possible and then you can figure out at that point how to hold people accountable, try to figure out how to fix the system or reform the system, and the best leaders have that instinct, even though

it feels counterintuitive. >> charlie: i'm fascinated and reading the book. there are people in the room, or were there in the room, but there are people who believe the system isn't worth saving. >> they did. >> charlie: in the room? yeah, but not just that room. if you read the debates in the federal reserve over that period of time, a lot offof people came into the crisis -- i'm trying to be charitable to them -- no memory of the banks or experience -- >> charlie: there were debates of future capitalism and all that. but something where the system would find its own level. >> they had an illusion that somehow the interest of the average person were independent of and could be unaffected by and protected from the failure of that system, that financial system, and it's just -- >> charlie: that there was some immunity from the average person to the failure of the system they were a part of. >> yeah, and i want to come back

to it again, the great depression is the best counterexample we have of the embrace of that strategy because, in the great depression, among other things, the people presiding over the country at that time decided they would let massive bank failure across the country happen, not step in to prevent that. that was the market doing its work, that was just. >> charlie: spouse you're not going to run the firm that you're going to run in new york, and i have the capacity to send you on this mission, go tell me how we fix this system. did dodd-frank do that or is there enough more we need to do to make sure that this system of this proud democracy is as good an economic and financial system as we can have? >> let's do the financial system first because that's where a lot of the focus of this unease is and it's understandable still. >> charlie: to provide the capital for businesses around america to exist. >> in my view, and i think the evidence supports this, that

financial system today is a much safer, much more stable system than it was inkh decades before the crisis. >> charlie: because of? can you give me an awareness of what happened, and dodd-frank? >> i'll give you the list. first of all, we allowed -- people don't remember this, but we allowed a lot of failure to happen. in some ways, we let the market crush the weakest, the worst parts of the system. a lot of that has been washed away by the crisis or the actions we took in the crisis. second, we forced institutions to raise massive amounts of capital so they could withstand a much greater storm in the future. so what the stress test did was say you have to go out and get capital or we're going to put it in you so you can survive the great depression, not an average recession, but the great depression. it's now the law of the land and the law globally for financial institutions. we also supplied the constraints on risk taking much more broadly

across the system. i told you the banks were 40% great, the safeguards were applied more broadly across the system and we have much better tools to manage messy failures, to -- jamie dimon called it bankruptcy for large sum banks. you want to design the system not so there's no failure, you want the system to withstand the consequences of failure and we're closer to that than in a long time as a country. now, we have a lot of things to worry about in the united states, but i wouldn't put the stability of the financial system very high on the list of concerns. >> charlie: are you reasonably confident that what happened will or will not happen again? >> at some point in the future, hopefully the distant future, we are absolutely vulnerable, if not in this country, other countries to the risk of major panic again. it's inherent in the financial system. you can't eliminate it. you can't ban it or prevent it. it's, like, you can do a lot of

things to reduce your vulnerability to it, and there are reforms we put in place in dodd-frank, however messy and perfect, they are a powerful set of reforms against the basic risk. but problems we have in the financial system not captured by reform still, they haven't reformed the housing finance system, haven't figured out what to do about fannie and freddie, that's one example. another example, in the populous fever of the aftermath of the crisis and the rescue, congress did take away authority o the f.d.i.c. had in the crisis and they have to come to us again to approve it. that's a dangerous thing to do because politicians in the crisis as we saw in our crisis are reluctant to act quickly and fast enough. they like to see the damage be acute before they're scared

enough to act. that's a consequential mistake. in some ways the fire station is weaker than before the crisis. one last thing, you know, risk in finance tends to migrate around the constraints you set, so even these constraints we put in place in risk are more conservative, they're applied pore broadly, over time, as people are more confident, risk finds its way around these things. the book entitled "it's a forever war," it's never over. >> charlie: you can't rule out too big to fail over the long run because you don't know what might happen that might make it necessary to do something in order to save a larger good. am i right about that? >> yeah. remember, in the great depression, it was a failure of small banks across the country that caused the mass panic. so there were some states that hopefully don't come but once in a century where you don't be

indifferent to the smaller institutions. but you should always be worried about moral hazard. it should never go away. for people who say we've solved it, you should worry about them. you should always be on it and after it. it's a relentless challenge, but even on that metric, we're, i believe, in a better position today than before the crisis. >> charlie: let me get back to t.a.r.p. basically, some people would say, did it work? well, look at the return. return moves that it worked. >> i don't like that example. >> charlie: what's your example? >> that's a good question. what's the measure of success for this? again, i think it's important to recognize that people focus on t.a.r.p. because it was concrete. it looked like an unconstitutional and unjust gift. but it was a piece. the fed was aggressive. the stimulus obama supported, what roosevelt did in the great depression in relative terms, very important. the emergency programs in t.a.r.p., very effective. but it was that suite of things

we did that ultimately made our outcomes so much better than they otherwise would have been and so much better than what most countries were able to produce in this. again, not that popular. you know, a little messy at the edge, but very effective. >> charlie: president obama, he wrote you, i think at some point, in 2013 when you were leaving and basically said alexander hamilton would be proud -- am i right about that? >> well, again, that's kind of a gracious, undeserved -- >> charlie: okay, fair enough. i'm not making the point -- why would he say alexander hamilton and you? >> we were both young. (laughter) >> charlie: he could have said james madison, but, you know... but i'm interested in that hamilton -- you spent a lot of time with this man. you probably know him better

than most people in his cabinet. >> i spent a lot of time with him. >> charlie: give me a measure of him and how he saw you because your story is replete with times you suggested maybe somebody is better able to do this job that you should quit. all of that and stories about being there or about to be there. >> i talked to him about it in the beginning. >> charlie: rahm emanuel came back and said this was not a drag, he was there because he was interested. >> let me tell about this. i don't think i talked to rahm about this until my meeting with the president. when he asked to see me in 2008, the president, he said, i might ask you to come to washington. i said it was my view that he

needed to understand i would come with a lot of baggage and limitations, but i also felt if i had done my best to explain these to him, he was aware and checked me out and he still decided he wanted to ask me to do it, i felt like i had no choice. i felt like, country in cry skis, your president asks you to work for him, you have to do it. >> charlie: in the end, did you want it? you knew it was going to be no picnic. >> my wife was against it. >> charlie: yeah. i was definitely proud to be asked. i believed in the cause. it's what i'd done all my life, and i felt like if he asked me, i would be all in, completely committed and would see it through, and i got a chance to do that, which was such a great privilege to me. >> charlie: i'm going to try to pin you down here. did he ask you, would you be interested in -- what was the language the president used when he talked to you about

succeeding ben bernanke? >> oh, well, charlie, that's kind of between me and him. >> charlie: but, i mean, you know, you slip away from that. did he want you to be chairman of the fed, or did you, knowing that you had other things you wanted to do or you say, you know, it's not for me, i need to do other things. >> that's what i said to him. i said, i didn't want to do it -- let me say, generally, throughout these conversations, i did not want to do that. i felt i had my time in public life. we're the united states, there's a country of 3 million people, there's a lot of people, a lot of talent and i've had more than my share of consequential jobs. >> charlie: but if he had offered, you would have taken it? >> no, i don't want to leave you with that impression. >> charlie: but do you know want to leave me that impression because you don't want it to come to you? >> no, i just want to be accurate. i was very clear with them from

the beginning that i did not want to the that and they would be fine, had lots of good choices,. >> charlie: that's basically saying, don't pick me. >> that's correct. >> charlie: i don't want to do it. >> that's correct. >> charlie: so it didn't come to the point of saying -- >> i learned you have to be preemptive. >> charlie: just him for a moment again, then i want to talk about a couple of other critics of this. bob gates told me and has written a book basically that he thought the president showed extraordinary leadership and had the power of an inquisitive mind and was relentless in trying to find it. gates said he was asking the people in front of him and go back to the aide of the aide and say, what do you think? were you impressed with his leadership, management, command of the consequences? >> all those things and, you know, gates is very eloquent. i have huge admiration for the

president and saw him very close up over a long period of time in a huge diversity of problems, problems with no good solutions, and he was tremendously impressive as a decision maker. you know, he wanted to get deep without getting in the weeds. deep enough to understand the choices. he wanted dissent, he wanted people to push back and tell him where he was off -- might be off. and those are great strengths, and to not be paralyzed by those things. >> charlie: yes, because in the military, this question comes up with respect to afghanistan. he was concerned about the options offered him, and isn't there another option? the military said either do or don't do it, rather than how do we ask the questions and figure out isn't there a better way, because back to my question about t.a.r.p., there were people who would say, why do we want to save the system, so they let them fall and found another

way. and others said, geithner is right, we have to save the system, ailed paulson and all those guys are right but there has to be a better way to save the system. we just don't like the way they executed the saving. >> remember, president obama was not president when t.a.r.p. was passed and when the decision was made by that group of people ino deploy the financial strengths of the united states in that way. >> charlie: i understand that. those weren't his choices. >> charlie: but left a huge issue. >> what the president faced when he came into office was sometimes a greater challenge because at that point the government of the united states had guaranteed, provided capital investments on a massive scale. if you measure, it was trillions and trillions of dollars to assistance, and at that point the economy was falling off the cliff. so he had to come in fresh and say, okay, you've done all the

massive financial rescue, this economy is still terrible, what's it going to take to solve that, and he went through an incredibly exacting process of strategy with the team of advisers over the course of transition and the months that followed to try to figure out what should be the next wave of strategy, and the things he supported, the stimulus act, however unpopular, what was done in the great depression in relative terms by president roosevelt, and the stress we created in the financial system, et cetera, along with what the fed did, it was those things ultimately that pulled things around, and he was excellent in the rigor and depth of examination he brought to those choices. he forced it to be a divers divy of opinion, a lot of debate, and said i want better options. but he didn't sit there and say, let's not decide. he was going to decide, which

you have to be able to do. >> charlie: as he was on osama bin laden and other issues of national security. there are those who have said to me, or at least one person -- it wasn't those, it was one -- who said to me, and maybe this conversation proved them wrong, they said, if, in fact, he sees it as he does, why isn't he prouder? >> i'm very proud. >> charlie: okay. i'm very proud. i feel enormously privileged that i got to be a part of those judgments and very comfortable and at peace in that moment with so much at stake, we made the best of our authority to deliver outcomes. i think they're dramatically better than what would have happened without those decisions. what's the best evidence of that? you asked the question a few minutes ago is how should you judge this. >> charlie: that's exactly right. >> you shouldn't judge it solely by whether we made money on the tax investments. a tiny financial crisis, cost

the government 3.5% of the entire income of the country in one year to solve the crisis. we earn money for the taxpayer. but what's the right test? we got the economy growing again within six months. it went from falling at a 9% rate to growing to a 3% rate in six months. those are tests. >> charlie: that's a test -- some people would argue the unemployment numbers that lingered as long as they did is a negative test. >> no, because you can look at that and say, well, let's go to that question, why has growth not been stronger and why did unemployment not come down faster. very good question. the explanation to that -- answer to that question is in two things -- one is the government decided to bring deficit down too fast, too quickly, cut spending too salve

annually and pulled about 1% point of gdp and growth out of the economy for three delicate years after the crisis. unavoidable. they should have come done more gradually over time so more people had the benefit of the jobs and infrastructure or jobs than they did. >> charlie: has anybody gone to jail for the decisions that made that resulted in this catastrophic impact on people's lives? >> there was a huge amount of fraud, predation, abuse, misleading financial stuff in this crisis, and i think americans deserved a strong enforcement response to that. now, people look at what's happened, look at the scale of fines, the number of people that went to jail and still think -- i think this is the dominant perception still, they say it wasn't enough. and i think i understand that, but i didn't get to make those judgments. if you listen to prosecutors answer that question across the country, they had the right

incentives, the prosecutors, enormous public pressure, it was their job to figure it out. >> charlie: they probably would have liked to have seen the evidence they could have gone to trial on. >> i think they would have liked to. they have to follow the evidence. if you listen to them -- >> charlie: what do they say? they say it's hard, it was complicated, a lot of the stuff that was 2k578ging was not illegal. remember, this was a crisis partly born out of a system, there was a big frabdz of the system where it was the wild west, no rules. so they have to be guided by the evidence of law breaking behavior and if the laws were weak or bad, it's hard to prove that. i can't speak for them. they get to make those judgments. >> charlie: i assume you think that prosecutors couldn't find laws broken that they knew how to prosecute then nobody should have gone to jail? >> no, i'm just saying they should be working hard at it and they are. we did something as important in many ways as creating a strong

enforcement response was we changed the rules of the game. we passed laws that, in their practical impact over time, will make americans much less vulnerable to that kind of fraud. >> charlie: what's interesting here is you show with respect to local rule, people change their minds, you, for example, and with respect to davis, what could come out of dodd-frank. >> there's a lot of evolution. >> charlie: there's an evolution there. >> yes. >> charlie: but you think they ended up in a good place in. >> the reforms, i do. it's not perfect. but at its core, very powerful and very important and will endure for a long time. >> charlie: this book is how long? with index, 580 pages. this is the book you intended to write? >> it is, yeah. >> charlie: this is the story you wanted to tell? >> it is. you know, write this because i wanted americans to have a better understanding for why we made the choices we made, you know, what we missed when we got

right, and i wanted that not just because it was important, a devastating crisis, but because i wanted to do what i could, however modest, and improve the odds that in the future our successors make good choices, confronted with a threat like this. you know, i came into these jobs, there's no memory, no natural institutional memory of crisis, no standing army, no war college for financial crisis, no memory of panic -- >> charlie: and no general standing around teaching you about it. >> and even if you don't like our choices, you have a better feel for what you thought our options were and you can make your own decisions that, with the benefit of that knowledge we made the best choices we could. >> charlie: and you had to make decisions under enormous pressure and make them then because there were a danger of things spinning out of control. so did you leave anything else out here that's too interesting

to tell or looking like you had assassination in your eyes or something? >> you know, i tried to write -- you know, i had to tell the story of our decisions, but i wanted to frame them in discussion of the substantive craft, really pretty neglected craft which is how to fight financial fires more effectively. so i didn't try to write a comprehensive history to every conversation. i tried to write a story about this neglected consequential craft of how to build better firefighting capacities for financial systems. >> charlie: in the end, when you read this and you read other people who write memoirs of their time in government, how often it's a story of people. >> it is. there are some remarkable people making judgments. >> charlie: and not knowing. and not knowing. i tell the story about how there's a central banker in india who gave me a book in

2007, i think -- maybe early 2008 -- and it's a book called "complications: notes from a young surgeon " and he said it's the best book to read about financial banking because it's a book about making decisions without being able to see the consequences on the other side, huge risks in mistakes, and you have to know you can't wait for certainty. you have to make mistakes and have to decide which mistakes are the most catastrophic and which mistakes are the easiest to correct for. that's the discipline you have to learn in this context because if you sit around and try to wait for perfect knowledge or husbanding your risk, te tentate in everything, you will cause much more harm. >> charlie: perfect can never be the enemy of good. >> don't make perfect the enemy of good. >> charlie: the book is called

"stress test: reflections on financial crisis," timothy geithner. i thank you very much. >> nice to see you. >> charlie: thank you for joining us for the hour. see you next time. captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.org this is "ni

report" with tyler mathisen and susie gharib. brought to you in part by -- >> thestreet.com featuring herb green who reminds investors risks is reality. researching stocks in terms of risk. you can learn more at thestreet.com/reality check. >> record setting day. dow and s&p catapult to new highs. how solid are the gains. can this rally really be trusted? >> he was one of the most pivotal and controversial figures during the financial crisis. tonight former treasure secretary timothy geithner defends his actions and reveals what he would do over if company. love a sale? not everybody does. the big promotions could p