Auletta and Cohan Discuss Greed and Geithner

You had access to Tim Geithner. What did you learn about him that's relevant to the kind of job he has as secretary of the Treasury?

His ego is in check. Unusual in this book. Unusual in Washington milieu. Unusual among powerful people. You can see the way he carries himself. He's not boastful. He doesn’t seem to be prideful. His ambition seems to be in check, which is so refreshing. Washington is filled with people of huge egos, especially around the president. I get a lot of comfort at night thinking that Tim Geithner is there.

He understands all of the risks that were built into the system. You can criticize him for not trying to deflate the balloon a little beforehand, and even he questions his own decision-making in that regard and correctly says, "Is that really my role as a regulator to deflate the balloon?" But he understands derivatives. He understands the risks in these securities. He understands all of the risks these firms are taking and how they finance themselves.

He's also a guy who was at the table when they decided to let Lehman go. Some people believe that Lehman Brothers probably had more impact on subsequent events with the crisis we're in now than Bear Stearns did.

It's like asking a question where you'll never know the answer because they didn’t let Bear Stearns fail. A lot of Lehman people especially are quite critical of the decision-making that led to letting Lehman fail.

Are you?

I think about it a lot. I mean, on the one hand, I'm very sympathetic to the human cost. And there was substantial financial cost. On the other hand, the firm was bankrupt, as Bear was, as AIG is, as Merrill was. And the question is why they saved some and not others, and that's why I'd like to know the answer to that.

The big moment, I think, was, of course, when Congress voted down the first TARP bill when the market fell 780 points. That was calamitous, and then we had to dig back out. I think the logic here is that the failure of Lehman alerted—was Paulson's little gambit to get the $700 billion bill in front of Congress, and then Congress called his bluff and rejected it, and that was—the combination of those two things really created the crisis. The crisis of confidence.

One last question. When I ask what's the lesson you will tell your sons, and you said it was greed. Overwhelming greed. That would suggest if I posed the question to you, "How do we prevent this from happening again?" Greed is eternal.

It's human nature. I don't know whether the first recorded bubble was the tulips in Amsterdam. I'm sure there were others before that. We have a very global economy, human nature—it's a capitalistic economy. It's a very efficient way of allocating resources and capital. Unfortunately, it gets out of control. Every 20 years or so—25 years, it just—history repeats itself. The problem is that most Wall Street firms kill off their institutional memory.

As people get to be 40, 50, they get rid of them. So, anybody who's lived through these before is gone because they're too expensive. They're potential rivals to the top. So, they get rid of 'em. They all do it. You have people who are running the firms 20 years later who don’t know what happened 20 years before.