President Barack Obama has saluted the outgoing Timothy Geithner as one of the best US Treasury Secretaries ever. He's surely been among the most contentious.
Not since the Great Depression had an administration inherited so many grave financial threats at once. To many, Geithner deserves credit for helping steady the banking system and helping restore investor confidence. Yet his toughest critics say Geithner's policies consistently favoured big banks over ordinary struggling Americans.
When Geithner became Treasury secretary in January 2009, the economy had sunk into a deep recession. Unemployment was surging. Stock prices were sinking. The financial system was teetering.
Geithner, whose last day in office is Friday, was an administration point man on all these issues. Here's a look at some of the crises the Treasury confronted on his watch:
- BANK BAILOUTS
In the bleakest days of the financial crisis in 2008, the Bush administration got Congress to approve a $700 billion government bailout fund: the Troubled Asset Relief Program, or TARP.
By the time Geithner took office, billions had been handed out to the biggest banks. Many were considered at risk of failing because of their huge investments in subprime mortgages that were souring.
Opponents charged that TARP, a taxpayer-funded bailout, let banks evade responsibility for reckless gambles. Geithner countered that the banking system had to be stabilised. The bailout was deemed necessary to get credit, the essential lubricant for an economy, flowing again.
In the end, the banking system was bolstered with the help of TARP and a separate Geithner initiative requiring the largest banks to undergo "stress tests." The tests calmed investors by showing that the banks could withstand an even worse downturn.
TARP distributed $245 billion to banks. So far, it's brought back US$268 billion (NZ$319b) for a return of US$23b.
Critics argue that under Geithner, the government failed to ensure that banks would use their TARP money to lend more to businesses and homeowners.
Geithner's approach won't prevent future crises, opponents further argue. They say big banks still feel free to make risky bets because of an implicit guarantee: that if their gambles fail, the government will save them, and the banks' executives won't be held accountable.
"Secretary Geithner protected the interest of the largest financial institutions, and we will pay a very heavy price for that," said Neil Barofsky, who was the government's top watchdog for TARP.
Many private economists are less critical. They say Geithner achieved the fundamental goal of stabilising the U.S. financial system without damaging the economy.
"The effort was a success and vitally necessary for ending the Great Recession and starting a recovery," said Mark Zandi, chief economist at Moody's Analytics.
- AIG BAILOUT
Geithner and the administration endured intense criticism for giving bailout aid outside the banking system to American International Group.
The insurance giant represented everything the public detested about the government bailouts: Its rescue was the costliest at US$182b. It spent US$440,000 on spa treatments for executives only days after its rescue. It gave millions in bonuses to top executives, including those who'd made the risky bets that had unravelled AIG.
Geithner, who led the Federal Reserve Bank of New York before heading Treasury, was involved in the decision to save AIG in September 2008 and oversaw its bailout as Treasury secretary. Some of the rescue money went to fully repay banks that had invested in AIG. Critics called this a giveaway to banks that should have had to accept less than full payment.
Geithner and Federal Reserve Chairman Ben Bernanke have said that letting AIG fail would have threatened the entire U.S. financial system, in part because of AIG's outsize role in selling credit default swaps. These swaps were insurance-like guarantees on mortgage bonds. They required AIG to pay billions once the housing market went bust.
Supporters note that the government ended up profiting on its investment. AIG has repaid all the bailout money, and the government made US$22.7b more than it provided.
- AUTO BAILOUTS
Government bailouts of General Motors and Chrysler became a political issue in 2012. Republican Mitt Romney opposed rescuing the two companies. Obama countered that the bailout saved jobs at automakers, parts companies and other businesses. Both companies are now selling more cars, hiring workers and earning profits.
But unlike with the bank and AIG bailouts, the government is expected to lose money on the auto bailouts - up to US$24b out of the US$80b it provided.
The auto industry rescue was begun under the Bush administration but expanded under Obama. Administration officials have said the effort saved more than 1 million jobs and came as the economy was enduring a severe crisis. Geithner was involved in crafting the auto bailout and selling it to Congress.
Private economists generally view the auto bailout favourably. "There are certainly those who argue that it could have been done in a less expensive manner, but the auto bailouts did save US jobs," said David Wyss, an economics professor at Brown University.
- HOUSING CRISIS
The Bush administration took control of mortgage giants Fannie Mae and Freddie Mac in September 2008. The two have continued under government control in what became the costliest of the bailouts.
The government has given US$187b to Fannie and Freddie and been repaid US$55b for a net cost so far of US$132b. The money was supplied so the two can continue to play a key role: buying or guaranteeing mortgages and packaging them into bonds to be resold to investors. This system expands the availability of mortgages.
The future of Fannie and Freddie remains hazy. Geithner's Treasury proposed several options for their future but didn't push any.
Under Geithner, Treasury compiled a mixed record of helping homeowners at risk. Of US$50b in TARP money earmarked to reduce foreclosures, only US$6b has been tapped. As of November, 1.1 million homeowners have received permanent loan modifications through the administration's main foreclosure-prevention program. An additional 1.5 million have been helped by the Federal Housing Administration.
The administration's initial programme to ease mortgage payments for the most troubled homeowners became a source of derision. Homeowners called it a bureaucratic mess. Treasury officials countered that the administration had inherited a foreclosure crisis for which it had to devise solutions on the fly.
Critics say Geithner should have taken a harder line in forcing mortgage servicers to modify home loans. They also say he should have pushed hard to let struggling homeowners reduce their loan principal.
But Geithner's supporters say he had to deal with congressional Republicans who felt the government shouldn't be helping people escape their debts.
- FINANCIAL REGULATION
In 2010, Congress passed what the Obama administration hailed as the stiffest restrictions on banks and Wall Street since the Great Depression. The legislation, named for Sen. Christopher Dodd and Rep. Barney Frank, both Democrats, contained proposals crafted by Geithner.
It authorised the government to break up companies considered a risk to the financial system. It created an agency to safeguard consumers. And it aimed to tighten scrutiny of complex financial instruments that had previously escaped regulatory oversight and had fuelled the crisis.
Geithner said the bill would reduce the risk of another crisis. But critics saw the legislation as flawed. Republicans said it created obstacles to the smooth operation of financial markets. And liberals said Geithner didn't go far enough to try to curb the worst abuses. They complained that he caved to pressure from banks to weaken the reforms.
The argument will likely continue long after Geithner's exit. Since taking control of the House in the 2010 election, Republicans have sought to dismantle Dodd-Frank.
Democrats are pushing for studies of how much benefit large banks enjoy from being deemed "too big to fail." Many Democrats want to require struggling financial firms to be dismantled rather than having taxpayers save them.