Tim Geithner gets FDR very wrong (but so did Obama)

It’s necessary to correct an old canard repeated by former Treasury Secretary Timothy Geithner about Franklin Roosevelt’s behavior in the long interregnum between the 1932 election and his 1933 inauguration.

As was spotted by Matt O’Brien of the Washington Post, Geithner writes as follows in his newly published exercise in self-justification, “Stress Test”:

“Franklin Roosevelt had refused to lift a finger to help the outgoing administration relieve the suffering of the Depression, so he could draw a starker contrast with President Hoover after his own inauguration.”

Geithner’s goal is to draw a distinction between FDR’s ostensibly shocking irresponsibility and President Obama’s ostensibly laudable behavior in going along with his predecessor’s economic crisis response. Obama, Geithner says, acted properly by “rounding up Democratic votes in Congress, passing up the opportunity to run against the Bush bailouts.”

O’Brien debunks Geithner’s assertion about FDR, but he doesn’t quite do it justice. The truth is that Hoover didn’t need FDR’s help--he just didn’t want to act on his own. It’s important to set the record straight, because Geithner’s version was ginned up by Hoover himself and is cherished by Hooverite conservatives, who still walk among us today.

A fuller discussion is in my book about the Roosevelt administration, “The New Deal: A Modern History.” Here’s what really happened.

As the economic and banking crises deepened during the months between the election and the inauguration on March 4, Hoover became convinced that the downturn was caused by fears in the financial markets of the “radical and collectivist” policies espoused by FDR. He tried repeatedly to inveigle Roosevelt into disavowing these policies in advance of the inauguration.

Hoover urged FDR to make a series of reassuring public statements. Among other things he should commit to keeping the U.S. on the gold standard and promise to balance the budget, something Hoover himself never achieved.

“I realize that if these declarations be made by the president-elect,” Hoover confided to one of his political allies, “he will have ratified the whole major program of the Republican Administration; that is, it means abandonment of 90% of the so-called new deal. But unless this is done, they run a grave danger of precipitating a complete financial debacle…unless, of course, such a debacle is part of the ‘new deal.’” In other words, Hoover was insisting that FDR abandon his own program and fall into line with a Republican program that had already failed.

As Inauguration Day approached and banks across the nation were shutting their doors, Hoover got more panicky, demanding that FDR join him in a joint policy statement on the banking crisis. Roosevelt’s response remained utterly consistent throughout the period, however: Hoover was President until March 4, and had all the authority he needed right up to that date to take any action he chose. FDR wouldn’t stand in his way, but it wasn’t his place to act jointly.

In fact, Hoover’s own aides were telling him the same thing. Days before the inauguration, Federal Reserve Gov. Eugene Meyer pressed him to declare a bank holiday: “You are the only one with the power to act. We are fiddling while Rome burns.” Hoover refused.

Far from refusing to lift a finger to relieve the Depression, FDR was working assiduously on the crisis in the days and weeks before taking office. His own Treasury staff-in-waiting were meeting around the clock with Hoover’s aides. Indeed, the bank holiday ultimately imposed by FDR had been designed by Hoover’s own banking officials. Hoover had weeks to put it into place and refused; FDR did so on his very first day in office.

The bank holiday succeeded spectacularly in stemming the bank crisis in the first days of the New Deal; Hoover, incensed that FDR got the credit, petulantly complained in his memoirs that he had been prevented from taking the same steps because of Roosevelt’s lack of “cooperation.”

We should take this narrative for what it is: sour grapes, proffered by an ex-president who shunned his own clear authority to do the right thing. Yet, flagrantly ahistorical as it is, it has somehow entered the political consciousness.

President Obama, at the midpoint of his first term, was quoted as defending his handling of the financial crisis to a group of political bloggers, “We didn’t actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly.” (This may be where Geithner received his own misimpression.)

What’s overlooked in this discussion is that FDR’s action, and Hoover’s inaction, say much more about the two men’s characters than the narrators perceive. FDR had no way of knowing if his audacious program would succeed, for the outcome of the bank holiday was anything but preordained. But he had the audacity to put it into action, while Hoover had quailed. Hoover blames Roosevelt’s cynicism for his own failure, when the real cause was his own cowardice.