I just finished reading Stress Test and I was going to write a review of it. Michael Lewis did it for me. I will let you read the review by Lewis, without comment, and provide some of my own impressions of the book. I had a rather negative view of Geithner before I read the book. I was tempted to read the book because Warren Buffet, who is my favorite billionaire, praised the book. I'm glad that Buffet's praise caused me to read it. It changed my mind about Geithner. We were lucky to have had him in a position of power at the onset of the financial crisis. We were very close to another Great Depression. We had a 16% decline in household wealth in 2008 compared with only a 3% decline in 1929. Corporate borrowing costs increased by 2.2% in 2008, while they only increased by 0.3% in 1929. The government made things worse in the Great Depression; the economy declined by 26% from peak to trough, and unemployment peaked at 25%. Thanks to the government programs that kept the financial system from collapsing, and the aggressive use of monetary and fiscal policy in the Great Recession, the economy only declined by 4%, and unemployment peaked at 10%. Left to its own devices, the economy would have been much worse after 2008 than it was after the shock in 1929. It would have been impossible to deal with the shock to the financial system and our economy after 2008 without a powerful and resourceful government. Moreover, even though we are still not out of the woods, the US economy has outperformed the major developed economies in Europe during the extended recovery. The US GDP is 6% higher than it was before the crisis. Germany has seen its GDP increase by 2% during this period. Europe and Japan are still below their 2008 level.
For those of you who do not want to read the whole book, there is an Epilogue that captures much of what Geithner learned about financial crises and the imperfect tools that we have for correcting a global financial collapse. The rest of the book provides a lot of detail about Geithner's interactions with the team that was patched together to fix the broken system, and its efforts to make it less likely to collapse in the future. It provides valuable insights into our dysfunctional political system as well. It was not designed to deal well with major economic problems. Politics trumps everything. The only good thing that Geithner had to say about our political system is that it is more effective than the system that has been put in place in Europe. He interacted with most of the European leaders, and he offers his views about them and the system that they have to work with.
In summary, the book provides valuable lessons about our political and economic system and I fully agree with the conclusion in the review by Michael Lewis. Geithner is much more likeable than one might imagine. He comes across as a straight shooter who is quite humble about himself and his accomplishments.