Geithner tackles demons in gripping new book

The main takeaway: History still haunts the banking sector, which remains a terrible investment.

By Jim Cramer May 14, 2014 11:29AM

U.S. Secretary of the Treasury Tim Geithner testifies before the House Committee, March 21, 2012 © Gary Cameron/ReutersAfter you read "Stress Test" by former Treasury Secretary Tim Geithner, you may never want to buy a bank stock again. That may be my chief takeaway from this newly indispensable book about the financial crises that plunged this country into the Great Recession. I certainly intend to ask Tim, when I sit down with him at the Barnes & Noble in Union Square after "Mad Money" tonight, why anyone would even contemplate investing in one of the behemoth banks that were so integral to the near-collapse of the U.S. -- not just the banking system but the whole country.


If you are as enthralled with the turmoil of that period as I am -- seeking every nuance of what went wrong, who went wrong and what was done to stem the collapse and what could have been done better -- then the aptly named book will become your quick-turning bedside reader.


TheStreet.com logoThey are all there: Bear Stearns, Lehman Bros., AIG (AIG), Washington Mutual, Citigroup (C), Countrywide, Bank of America (BAC), Merrill Lynch, Wachovia, Fannie Mae (FNMA), Freddie Mac (FMCC). They're depicted not so much in living color but in stark reality -- as the true ne'er-do-wells of the era.


The behind-the-scenes denouement or near-death of each is detailed with an exactitude that makes me feel Geithner is a totally honest broker, even as I am sure he would be the first to admit that he lacks a dramatic hero-villain flare -- not that there weren't any.


In fact, we've got bums galore. They almost seemed drawn to the industry. It's impossible to imagine a group of trucking-company executives -- or retailing CEOs or health care professionals -- systematically performing as horrendously and as heinously as these bank bosses have done. They are, at times, laughably villainous, as in one anecdote about John Thain. According to the book, in an incredibly tense meeting regarding the Troubled Asset Relief Program (TARP), Thain -- who was at that point running Merrill Lynch and is one of the richest men in the world -- inquired about assurances on his executive compensation during a discussion of the government's program to save the financial system. Good grief!


I know Geithner didn't write the book as an investor guide to banks. But as with any good book, you can extrapolate what you wish from the rich composite of regulators and the regulated populating the text. For me, this has got to be one of the most cautionary tales about a subset of an asset class. Lightly buried within "Stress Test" are the reasons, both before and after the crisis, that bank stocks are valued as low as they are these days.


First, going into the Great Recession, bank financials and non-bank financials were meaningless, as we now know. Everything you saw on paper was pretty much a lie. You simply could not look at anything publicly issued by these banks and make a judgment of what they owned, what exposure they had, what they even really were.


Second, if you think you were clueless but the regulators had a handle on it, remember: Going into the meltdown, Geithner was running the New York Fed and didn't know, either. Whose fault was that? This is unanswered by the book. But it sure didn't help that some of the biggest and most important scofflaws in the book, like Richard Fuld, who built and ran Lehman into the ground, served on the bank board.


Third, look at the eventual consequences of that period. Coming out of the Great Recession, many of these bankers belonged in handcuffs -- and I say "belonged" because the statute of limitations has sadly run out on these ne'er-do-wells. Yet we know these bankers' actions were so egregious that the government, led by Geithner, had no choice but to put the whole system in handcuffs via the aptly named "stress test" regimen that now prevails.


Put simply, I know now that banks are far more enslaved and straitjacketed than I had realized. The ability for them to earn a real return on anything other than fees and conservative lending may be gone for the foreseeable future -- the only real punishment meted out from the era. Given the boneheaded mistakes that have been made since the crisis, like the London Whale at JPMorgan Chase (JPM) or the $4 billion error just discovered in Bank of America's bond portfolio, I don't expect the rules to change anytime soon.


The bottom line? The demons of the past haunt this group far more than we realize, and when you read "Stress Test," you might want to thank Geithner for recognizing that someone had to check the greed, or at least grade it and flunk those institutions that just don't get that the world has changed. Unfortunately, the whole class gets held back because of the errors of a few -- hence why the group is just such a terrible place to put your investment dollars.


Jim Cramer headshot


Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio to see the stocks Cramer thinks could be winners. The portfolio is long JPM and BAC.






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24Comments
May 14, 2014 11:41AM
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What?  All the gov intervention only made the problem worse?  Say it isn't so.....

Anyone heard from John Corzine lately?  Anyone?  Anyone?
May 14, 2014 1:12PM
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"The banks lobbied to get rid of Glass Steagall which came out of the Great Depression to hold banks in check. Clinton got rid of it and now we are all paying the price because it was never put back."

Sandy Weil of Citi bribed Congress to suppress Glass Steagall and allow his bank to buy the Traveler's Insurance Group. It was approved by a REPUBLICAN CONGRESS. That same group in Congress voted in the Gramm Leach Bliley Act (slid into other legislation) to get the job done. Are you familiar with the Traveler's Insurance Group? It's a thriving component of Citi, right? Weil served time for his role... authors Gramm, Leach and Bliley DID NOT, but they did get ****s in major banks after leaving Office. COME ON PEOPLE, KNOW YOUR CROOKS. Clinton was a fool, not a crook. Some of the candidates running AGAIN the Fall voted this mess into Law. Use your VOTE, CAN THE DOPES.  
May 14, 2014 1:06PM
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NO ONEwants to read a book by Geithner, Bernanke, Yellen or any other shyster who insisted that QE was intelligent and buying crap assets from bad banks, beat shuttering them and forcing their management into GITMO for waterboarding. Geithner remains a crooked alumni from Goldman Sachs and aider/abettor in the biggest financial CRIME the world should ever know.
JUMP, Geithner. Head first. POP that bubble that brought us SO MUCH TROUBLE. 
May 14, 2014 12:47PM
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Gee, just a month or two ago, everybody was touting how undervalued B of A was, I think including Mr. Cramer if I remember right.  It has gone nowhere and has sold off a bit... now he seems to be saying that it's likely to go lower. 
May 14, 2014 1:18PM
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His new book?

 

"Get Rich Quickly"?

May 14, 2014 12:46PM
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Jimmy states, "Second, if you think you were clueless but the regulators had a handle on it, remember: Going into the meltdown, Geithner was running the New York Fed and didn't know, either. Whose fault was that? This is unanswered by the book.'

Jimmy, all these lying SOB knew exactly what was going from the Federal Reserve to those in Congress. Now they all want to behave as if everyone one was completely clueless. The First Defense of a Criminal is to LIE. The Second Defense is to make sure all the Criminals involved spread the same LIE.
May 14, 2014 1:00PM
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Jimmy, Folks don't have to pay up to buy no stinking Book, all the details, past and current are already available in Black and White via the Web. The Main Stream Media is reluctant to Talk about a problem which was never solved, only Delayed for a future date.

The Talking Heads of Wall-street are terrified to tell folks that the Main Problem which cause the Great Recession, Scam Banking Derivatives, has only gotten Worse. All anyone has to do, just look at the information freely available from sites via the Fed Reserve and the Bank for International Settlements (BIS) 2014 site.

Big Banks basically cooked up phony investments aka scam Derivatives and Sold them to anyone and everyone. These Scam derivatives have been sold to individuals, corporations, governments and municipalities worldwide. The truly terrifying part, they are still there waiting to once again wreck havoc throughout the global Economies.

May 14, 2014 1:22PM
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Poster states, "The banks lobbied to get rid of Glass Steagall which came out of the Great Depression to hold banks in check. Clinton got rid of it and now we are all paying the price because it was never put back."

override of a veto - The process by which each chamber of Congress votes on a bill vetoed by the President. To pass a bill over the president's objections requires a two-thirds vote in each Chamber. Historically, Congress has overridden fewer than ten percent of all presidential vetoes.

Repeal of Glass Steagall was passed by a 90% margin in the Senate, do the freaking math. 52 Republicans voting Yes along with 38 Democrats voting yes. There was only 8 Nay votes with 1 voting present and 1 not voting.

Repeal of Glass Steagall was passed by a 83% margin in the House, do the freaking math. 208 Republicans voting Yes along with 152 Democrats voting yes. There was only 57 Nay votes. with 15 not voting.

How is it that Clinton received a Veto Proof Bill but a posters for the nth time tells everyone how Clinton was at fault for getting rid of Glass Steagall. You can shout to the Mountain Top how you voted 50 plus times to Repeal the ACA but you are quiet as a mouse on your vote on this Bill.
May 14, 2014 1:04PM
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"Portfolio manager Patrick O’Shaughnessy was talking with friends last year when he told them he invests only in stocks. “They thought that this was an incredibly risky proposition,” said O’Shaughnessy, 29, of O’Shaughnessy Asset Management in , , which has about $7 billion under management. “I found pretty universal skepticism.”


They don't have stability, Patrick. You don't either. In fact, financier isn't a career so how will you fare starting over at the burger flipper level... Patrick? Your RACKET has destroyed everything. Why are "smalls" hurting? Because "bigs" are well-funded by the same future everyone except YOU see as indentured by today's DEBT, Patrick. Your "generation" has plenty of commonsense by staying out of the markets. Being in them means they will be paying the tab for today's stupidity. Staying out is the only way they will achieve a replacement currency for the one being ruined now and firm regulatory CONTROL over your sector. Forget writing the book... Patrick... open your eyes, gain a skill set and join the REAL world.  

May 14, 2014 1:26PM
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My take-a-way on your explanation....NTU..


Is most PHD's don't know shidt, or are all liars.....Which is it..??


Maybe good at Philosophical discussions, questions and broad non-specific answers.

And horrible at Practical Applications, outside of meaningless trial and error attempts.

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The banks lobbied to get rid of Glass Steagall which came out of the Great Depression to hold banks in check. Clinton got rid of it and now we are all paying the price because it was never put back.

There are still more greed crisis out there just waiting to be realized when the ponzi schemes collapse

Like I have been saying the dollar collapse is going to be on Sept 15, 2015

May 14, 2014 3:57PM
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CGT11 can you share with us what these scumbags control "off the floor"? Just curious.

 

I mean do they yell out "Give Me 50" and you drop down to do push ups?

May 14, 2014 12:48PM
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cramer is recommending the book as his buddy Geitner did not mentions his "Bear Stearns is safe ...Lehman is safe ...countrywide is safe.." rants !

One must wonder if cramer is so well connected why was he not warning his "public" of the problems as one by one they fell by the wayside.

Telling us they are not good investments 6 years later is useless!
May 14, 2014 12:06PM
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Hard to believe this is an ah hah moment Jim.  This all started with the S&L fiasco and nothing was ever done to punish the banksters over that one. Just wait until we have the mass fraud uncovered in China and emerging markets.  Who will pay for that one?   Yes the three foolish to be Trusting American Taxpayer as usual.  Everything about Banking needs to be out in the open.  But like most Guberment activities they get away with either hiding their actions or telling the R & D believers a line and getting away with it.

May 14, 2014 3:59PM
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NTU....I tend to think you understand little of my so-called liberal values....


A miss-calculation, that sometimes confuses conservatives or some over the top...?

THINK MY WAY, or YOU ARE COMPLETELY WRONG...


Being judged a liberal, I find somewhat humorous, and it may be apparent that others use a wide brush out of their tool boxes..


Also a fact to me, that many and everyone that thinks an education is the only pathway to success,

have sometimes been mislead down primrose paths...?

Although degrees and sheepskins are potential door openers...

Schools, Colleges and Universities; Cannot teach "Intelligence and Common Sense"...IMO


Along with the a miss-conception, with myself not understanding or maybe even being jealous of others having educations, actually not true...I encourage all to partake of schooling and experiences in life as much as possible.

Many in our Family have and most are quite successful in life, even when they haven't.

I'm proud of that, and content with what we have.


Oh yeah, almost forgot, I don't go to my Garage Mechanic to have my Heart diagnosed or worked on....But I've seen many Cardiologist, that are very POOR at what they do...

And others that don't understand what ABS brakes do, or what a carburetor is... 

May 14, 2014 1:05PM
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Be sure to read those financial statements closer now. Check that DEBT out. All these claims of and for profit but the DEBT is beyond comprehension. We're losing retailers this quarter. There should be more but as long as the Fed keeps printing, banksters will bob for what throbs and rob Peter to put more game tokens in Paul. 
May 14, 2014 2:54PM
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Well, no need to wait till the close really...At 1440 hrs these scumbags called to accelerate the selling so down we go, do not be surprised if they drop us triple digits; they are pretty much in control on and off the floor....Oh well, those are the breaks when you have a bunch of cheating crooks.
May 14, 2014 12:51PM
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I wonder who or what cramer was "gripping" as he read this book ......

I would bet he will ask geitner for a plug on his next book !! 

Bunch of f*ckin scummy crooks the whole bunch !! 
May 14, 2014 1:38PM
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Not a whole lot has changed since the opening bell, manipulators in control doing their thing which is not a surprise since they are tripping because the Dow has been up 5 days in a row...Hopefully we can keep things like they are, more towards the flat side of course but, doesn't look too promising at the moment and they will probably accelerate as time goes by....More after the close.
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