{"id":286736,"date":"2010-02-06T12:39:09","date_gmt":"2010-02-06T17:39:09","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/02\/06\/what-i-learned-from-hank-paulsons-book\/"},"modified":"2010-02-06T12:39:09","modified_gmt":"2010-02-06T17:39:09","slug":"what-i-learned-from-hank-paulson%e2%80%99s-book","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/286736","title":{"rendered":"What I Learned From Hank Paulson\u2019s Book"},"content":{"rendered":"

David Wessel, The Wall Street Journal\u0092 economics editor and author of “In Fed We Trust: Ben Bernanke\u0092s War on the Great Panic,” recently finished “On the Brink<\/a>,” the new book by former Treasury Secretary Henry Paulson<\/strong>, which covers much of the same time period from a different vantage point. Wessel says he\u0092ll leave the book reviewing to other more neutral observers, but offered this list of nuggets he gleaned from Paulson\u0092s account.<\/em><\/p>\n\n\n\n\n
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Former Treasury Secretary Henry Paulson (AFP\/Getty Images)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

1.<\/strong> Paulson says that ever since high school he has had occasional bouts of \u0093dry heaves\u0094 at moments of exhaustion, of which there were several during his tenure as Treasury secretary. During contentious September 2008 negotiations on Capitol Hill over the Troubled Asset Relief Program\u0092s restrictions on executive compensation, he recalls: \u0093Exhausted, I went back to the small office I was using and had a bout of the dry heaves in front of Judd Gregg<\/strong> [a Republican senator from New Hampshire.] I wasn\u0092t that sick, but I made a lot of noise, which seemed to galvanize Rahm Emanuel<\/strong>. ‘We need to get everyone back together again and get this thing done,\u0092 he said. Harry Reid<\/strong> [the Senator majority leader] came in and asked if I needed a doctor. I said no, I was just tired.\u0094<\/p>\n

2. <\/strong>When Bank of America<\/strong> bought Countrywide Financial<\/strong>, the subprime mortgage lender, for $4.1 billion, it expected to get some relief from regulatory capital requirements from the Federal Reserve for saving Countrywide. But in September 2008, the Federal Reserve Bank of Richmond instead was putting pressure on Bank of America to redo its capital plan and cut its dividend. When Paulson encouraged Bank of America CEO Ken Lewis<\/strong> to buy Lehman Brothers<\/strong>, Lewis asked for help in getting the Fed off his back. Paulson agreed to talk to Fed Chairman Ben Bernanke<\/strong> and New York Federal Reserve Bank President Tim Geithner<\/strong>, though the issue became moot when BoA decided against buying Lehman. Bank of America went on to buy Merrill Lynch<\/strong>. In October 2008, after the government had pumped money into BofA, Merrill and other big banks, Lewis confided to Paulson that he was worried Merrill CEO John Thain<\/strong> would try to wiggle out of the deal; he wanted Paulson to insist that Thain go through with it. Paulson says he never mentioned the call to Thain. Less than three months later, of course, Lewis would talk about backing out of the deal, completing the purchase under pressure from Paulson and Bernanke.<\/p>\n

3.<\/strong> The day after Lehman went into bankruptcy, Paulson told the press: \u0093I never once considered it appropriate to put taxpayer money on the line in resolving Lehman Brothers.\u0094 But with the benefit of hindsight, he says, he realizes \u0093I ought to be have been more careful with my words,\u0094 he writes. \u0093Some interpreted them to mean that we were drawing a strict line in the sand\u0085 and that we didn\u0092t care about a Lehman collapse or its consequences. Nothing could have been further from the truth. I had worked hard for months to ward off the nightmare we foresaw with Lehman. But few understood what we did — that the government had no authority to put in capital, and a Fed loan by itself wouldn\u0092t have prevented a bankruptcy.\u0094<\/p>\n

4.<\/strong> Paulson is full of praise for most government officials with whom he worked — with a couple of exceptions, among them Chris Dodd<\/strong>, the Connecticut Democrat who chairs the Senate Banking Committee, among them. About Dodd and his House counterpart, Barney Frank<\/strong>, Paulson writes, \u0093Barney was scary-smart, ready with a quip, and usually a pleasure to work with\u0085.Dodd was more of a challenge. We\u0092d worked together on Fannie and Freddie reform, but he had been distracted by his unsuccessful campaign for the Democratic presidential nomination and seemed exhausted afterwards. Though personable and knowledgeable, he was not as consistent or predictable as Barney.\u0094<\/p>\n

5.<\/strong> Another exception is Sheila Bair<\/strong>: \u0093I respected Sheila\u0085 (B)ut sometimes she said things that made my jaw drop. That morning she had said she wasn\u0092t sure that Citi\u0092s failure would constitute a systemic risk,\u0094 the threshold for extraordinary federal action. \u0093She spoke as if Citi were just another failing bank and not a world leader — with $3 trillion in assets, both on and off its balance sheet — imploding in the midst of the worst economic conditions since the Great Depression\u0085 Although I believed she was simply posturing, I replied, ‘If Citi isn\u0092t systemic, I don\u0092t know what is.’”<\/p>\n

6.<\/strong> Toward the end of the Bush presidency, Paulson heard more than once from Bob Rubin<\/strong>, the former Clinton Treasury secretary and former colleague of Paulson\u0092s at Goldman Sachs who was then among those at the top of Citigroup<\/strong>. \u0093Bob Rubin\u0085 called to tell me that short sellers were attacking the bank\u0085 Always calm and measured, Bob put the public interest ahead of everything else. He rarely called me, and the urgency in his voice that afternoon left me without doubt that Citi was in grave danger.\u0094<\/p>\n

7. <\/strong>The federal rescue of Citi led directly to the rescue of General Motors<\/strong> and Chrysler<\/strong>. \u0093Nancy Pelosi<\/strong> [the speaker of the House]… told me point-blank that it was politically impossible to rescue Citi and not help the automakers. She had until recently opposed bailouts for the car companies, which she considered poorly managed.\u0094<\/p>\n

8.<\/strong> Jeff Immelt<\/strong>, CEO of General Electric<\/strong>, frightened Paulson in early September by calling to say GE, which Paulson describes as \u0093an American business icon,\u0094 was having trouble borrowing money by selling IOUs known as commercial paper, and visited Paulson several days later in person. In mid-October, Paulson called Immelt to discuss imminent plans for a Federal Deposit Insurance Corp.<\/strong> guarantee of all new bank debt, but not GE\u0092s. Immelt told him not to worry, GE would manage and would benefit indirectly by a more stable banking system. The next day, Immelt called back and said the bank guarantees were hurting GE\u0092s finance unit because banks could borrow with U.S. government guarantees and GE couldn\u0092t. And on Oct. 16, 2008, Immelt came in person to press the matter with Paulson. Over the following weeks, Paulson and Treasury official David Nason<\/strong> \u0093worked hard to get Sheila [Bair] comfortable\u0094 with extending the guarantee to GE. In November, she did. GE\u0092s finance unit, along with Citi, became one of the biggest users of the program.<\/p>\n

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David Wessel, The Wall Street Journal\u0092 economics editor and author of “In Fed We Trust: Ben Bernanke\u0092s War on the Great Panic,” recently finished “On the Brink,” the new book by former Treasury Secretary Henry Paulson, which covers much of the same time period from a different vantage point. Wessel says he\u0092ll leave the book […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-286736","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/286736","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=286736"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/286736\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=286736"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=286736"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=286736"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}