Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

With Geithner at the helm, the Treasury’s response to the crisis was not to tackle “too big to fail” by breaking up the biggest banks. Nor was it to bring the interests of wider society to bear by way of politicized oversight. Instead, the Treasury’s solution was to increase the oversight and managerial capacities of the state’s regulatory agencies—the Treasury itself, the key regulators and the Fed. If capitalist finance was a given, then one would have to accept the necessity of dealing with gigantic banks and complex, fast-moving markets. One had to accept also that this system was crisis prone. Crises, indeed, were inevitable. All one could hope to do was to build a crisis-fighting capacity at the national and international levels that was adequate to cope. In 2008 the Fed and the Treasury had acted on a spectacular scale with effects well beyond the boundaries of the American national economy. At the London G20 the IMF had been given the firepower it needed. What the Treasury aimed to do in 2009 was to continue the consolidation at the national level. As it had done since October 2008, this would revolve around recapitalization. As they recovered from the shock the banks were champing at the bit to repay the TARP funds. To further force the pace the Fed and the Treasury cooperated to introduce a new regime of regulation and oversight known as stress testing. This would be followed by a major political effort to get legislation through Congress that would legitimize an...