What Tim Geithner Can Teach Us About Dealing With A Crisis

Tim Geithner is not America’s sweetheart.  Over the past six years, the former Treasury Secretary and central banker has been accused of being just about everything, from a rapacious capitalist working in the service of bankers to a pure unadulterated socialist.

Yet whatever you think of Geithner, his memoir, Stress Test, is a book that everybody in a position of responsibility—or hopes to be someday—should read.  It offers an excellent first-hand account of what it’s like to operate at the center of a crisis.

True crises are rare.  By their nature, they are unusual and unexpected.  Crises break out when seemingly manageable risks take on a life of their own and spin out of control.   When that happens, there is no easy guide, no clear rules to follow.  Still, you have to make hard choices and that has consequences.  Geithner offers some rare insight into what that’s like.

You Will Be Blamed

Geithner has taken withering criticism both during and since the crisis.   Some have questioned his motives, others his judgment and still others his competency.  The one thing that seems to unify his critics is the sense that he deserves blame, despite the fact that the US recovered from the financial crisis better than any other major developed nation.

I have to admit, I have some sympathy for Geithner because as he was dealing with the US crisis, I was dealing with my own.  At the time, I was running a overextended company in a country that was hit even harder than America was.  While my crisis was not as large or complex as Geithner’s, I experienced many of the same emotions and challenges he did.

While many aspire to leadership, very few understand what it entails.  You are responsible for the well being of others.  Your decisions will affect not only them, but their families and friends, who will judge you not on the basis of your circumstances or even by your actions, but because you failed to protect them from harm.

Being a leader in a crisis means that you have to make important decisions without all the facts, under uncertain conditions, in a rapidly changing context and whatever the outcome, many people will blame you for the harm that was done.  Once you understand that, everything else becomes a bit easier.

You Will Parse Horrible Options

Geithner held leadership positions throughout the financial crisis, first as President of the New York Fed and then as Treasury Secretary.  Despite the extraordinary powers of those offices, he often found himself powerless to shape events.  That’s what makes crises so difficult, everybody is looking to you for answers when there are very few to be had.

In a crisis, all of your options are bad.  There is no silver lining.  Your task is not to try to figure out how to avoid pain, but who to hurt and how much.  For every decision you make, there will be damaging second-order effects that create more problems, which lead to another set of horrible options.

Pundits have had a field day with Geithner.  Some think he should have never let Lehman fail, while others believe that he should have saved homeowners and let all the banks go down.  Whichever horrible option he chose during the course of the financial crisis, there would have been a chorus of voices that insist another path would have been better.

The truth is that, in a crisis, you never know whether you made the best decision or not.  It’s a complex world and no one can know what the future holds.  But the most important thing is continue to make decisions and plug away at the problem.  As Geithner continually repeats in the book, “a plan is better than no plan.”

You’ll End Up Doing Things You Thought You Never Would

In normal times, you draw lines.  You work according to certain principles from which you rarely waver.  But in a crisis, the rules change quickly and you need to adapt.  One continuous theme throughout the Geithner’s book is that he often ended up doing things that, in normal times, he wouldn’t even consider.

As a lifetime civil servant, Geithner believed in strong regulation and had no allegiance to the entitled bank executives he dealt with everyday.  Nevertheless, he ended up going to the limits of his authority to save them from their own bad acts.  While he personally would have been happy to let them fail, he knew that doing so would wreak even more havoc.

In my crisis I found much the same thing.  I closed businesses that we had worked hard to build, which had looked promising just a few months earlier.  I sold off a very profitable joint venture that I knew would be worth several times more in a few short years.  I had to fire good, hardworking people that I liked and respected, by the hundreds.

These were hard decisions and I felt no pride in taking part in them them.  In fact, I was ashamed that I couldn’t have found a better path forward.  But the truth is that, even in hindsight, they were the right decisions to make

There’s Nothing Good About A Crisis

Many people like to say things like “whatever doesn’t kill you makes you stronger” or “every crisis is an opportunity,” but the truth is that there is nothing good about a crisis. They are horrible, soul wrenching things.  You do what you can to minimize the damage, but there’s no way to eliminate it completely.

The one positive thing that can be said about crises is that they eventually end.  Today, the US economy is growing at a decent rate again, our financial system is well capitalized, housing prices are rising and the Bureau of Labor recently announced that there are more people employed in America than ever before in history.

And still, Geithner continues to be vilified, but he seems to be at peace.  And that’s probably the most important thing to know about crises.   When it is all done, you can look back on those harrowing days and feel some measure of pride that even when facing the worst, you can still do your best.

– Greg