Too Big to Fail [38]
During his tour in Japan, Geithner witnessed firsthand the spectacular inflation and crushing deflation of his host’s great bubble economy. It was through his work there that he came to the attention of Larry Summers, then the Treasury under secretary, who began promoting him to bigger and bigger responsibilities. During the Asian financial and Russian ruble crises of 1997 and 1998, Geithner played a behind-the-scenes role as part of what Time magazine called “The Committee to Save the World,” helping to arrange more than $100 billion of bailouts for developing countries. When aid packages were proposed, Geithner was automatically summoned into Summers’s office. In this respect Geithner was lucky; he happened to be a specialist in a part of the world that had suddenly become critical. He had also honed the diplomatic skills he had first displayed at Dartmouth, often mediating disputes between Summers, who tended to advocate aggressive intervention, and Rubin, who was more cautious.
When the South Korean economy almost collapsed in the fall of 1997, Geithner helped shape the U.S. response. On Thanksgiving Day, Geithner called Summers at his home and calmly laid out the reasons the United States had to help stabilize the situation. After much debate within the Clinton administration, the plan that emerged—to supply Seoul with billions of dollars on top of a $35 billion package from the International Monetary Fund and other international institutions—bore a close resemblance to Geithner’s original proposal. The following year, Geithner was promoted to Treasury under secretary for international affairs.
Geithner remained close to Summers, whom he used to play elaborate practical jokes on. More than once, when Summers was out giving a speech, Geithner would rewite the wire news article about the presentation, purposely misquoting him. When Summers would return to the Treasury building after his speech, Geithner would present Summers with the doctored news report as if it was real thing, and then just watch Summers blow up, threatening to call the reporter and demand a correction until Geithner let him in on the joke. The two men became so close that for years they, and other Treasury colleagues, went to a tennis academy in Florida run by Nick Bollettieri, who coached Andre Agassi and Boris Becker. Geithner, with his six-pack abs, had a game that matched his policy-making prowess. “Tim’s controlled, consistent, with very good ground strokes,” Lee Sachs, a former Treasury official, said.
When Clinton left office, Geithner joined the International Monetary Fund, and it was from there that he was recruited to the New York Fed. Despite having served a Democratic administration, Geithner was sold on the job by Peterson, a well-connected Republican.
The presidency of the New York Fed is the second most prominent job in the nation’s central banking system, and it carries enormous responsibilities. The New York bank is the government’s eyes and ears in the nation’s financial capital, in addition to being responsible for managing much of the Treasury’s debt. Of the twelve district banks in the Federal Reserve System, the New York Fed is the only one whose president is a permanent member of the committee that sets interest rates. Owing to the relatively high cost of living in New York, the annual salary of the New York Fed president is double that of the Federal Reserve chairman.
His idiosyncrasies notwithstanding, Geithner gradually grew into his job at the New York Fed, distinguishing himself as a thoughtful consensus builder. He also worked diligently to fill in gaps in his own knowledge, educating himself on the derivatives markets and eventually becoming something of a skeptic on the notion of risk dispersion. To his way of thinking, the spreading of risk could actually exacerbate the consequences of otherwise isolated problems—a view not shared by his original boss at the Fed,