Book review
ON THE BRINK
Inside the Race to Stop the Collapse of the Global Financial System
By Henry M. Paulson Jr.
Illustrated. 478 pp. Business Plus/Grand Central Publishing. $28.99.
Mr. Goldman Goes to Washington
When offered the job of Treasury secretary in the spring of 2006, Henry M. Paulson Jr., who was then the chief executive of Goldman Sachs, turned it down. President Bush had half a term in office left, the economy appeared strong, and there seemed little the next secretary could accomplish. But then, Paulson had second thoughts Do you really want to be 75 and telling people, I could have been Treasury secretary? a friend asked and finally agreed to take the job on condition he be granted more power and visibility than Bushs previous secretaries.
He was sworn in on July 10, 2006. Thirteen months later, the country was in the throes of a financial crisis. By early 2008, Paulson was stage-managing the rescue of Bear Stearns. And in his final, madcap four months of service there was barely a week in which this lifelong free-marketer was not rescuing somebody (the bailouts continued through his final day).
Abandoning the laissez-faire principles he espoused during his more than 30 years at Goldman, Paulson bailed out Fannie Mae, Freddie Mac, A.I.G. and Citigroup, among others; lobbied Congress to enact the Troubled Asset Relief Program, or TARP, and invest public dollars in private banks; guaranteed money market funds; and, most controversially, declined to rescue Lehman Brothers, which filed for bankruptcy in September 2008.
Along the way, he was racked with self-doubt. As Lehman tottered, Paulson admitted to his wife, I am really scared. He was tortured by insomnia; on the verge of taking a sleeping pill, a violation of his Christian Science faith, he flushed a bottles contents down the toilet. Knotted by tension, he was reduced on numerous occasions to doubling over with painful dry heaves.
Paulsons On the Brink: Inside the Race to Stop the Collapse of the Global Financial System zips through his career (including an early stint as an aide in the Nixon White House) and concentrates on his extraordinary 30 months at Treasury. Reflection is not Paulsons strong suit. As he is one of a raft of authors on the financial crisis (I am another), the primary, and sizable, contribution of this book is the inside view it affords of the often limited powers of the federal government.
Paulsons account is replete with blunt sentences (Im a straightforward person; Im a hands-on manager), as one might expect of a plain-spoken former Eagle Scout. Born in 1946 and bred on a farm in Illinois, he milked cows and baled hay as a boy. Even when he was the highest-paid executive on Wall Street (a fact he omits when taking credit for an enlightened approach to pay), Paulson wasnt the flashiest; his idea of entertainment was a documentary on the ivory-billed woodpecker. Despite such homey touches, On the Brink is not especially stylish. Paulson, known in his Dartmouth College days as the Hammer, slams us with fact after fact; its a pretty good approximation of the pace he maintained on the job.
As Treasury secretary, he had to devote as much energy to politics as to finance, and the two agendas did not mix. He was repeatedly forced to demonstrate to Congress that the economic situation was dire, at the risk of further panicking the markets. His political sympathies, too, may come as a surprise. The Democrats controlled the House after 2006, yet his biggest troubles were with Republicans who reflexively opposed his every attempt to put a safety net under the banks. The facts didnt seem to matter to some in this group, Paulson writes. He formed an effective alliance with Barney Frank, the Democratic chairman of the powerful House Committee on Financial Services. Early on, when Paulson wanted to seek broader powers through legislation, Frank cautioned that he didnt have the votes but urged him to interpret his existing powers broadly. Im not going to raise legal issues, Frank assured him.
Paulson paints an admiring portrait of President Bush and depicts him as asking simple but sensible questions and supporting Paulsons often politically unpopular remedies. Future historians will have to grapple with the contrast between the presidential courage attested to by Paulson and the image of a pliant president, manipulated by Dick Cheney and Donald Rumsfeld on Iraq, and by supply-siders on tax cuts. Perhaps Bush was capable of being just as good, and just as bad, as those who advised him.
Barack Obama was in frequent touch with Paulson during the 2008 campaign and impressed him as an informed, thoughtful candidate. John McCain, on the other hand, seemed so intent on scoring political points by railing against bailouts that Paulson threatened to hold him to public account. Dishing gossip isnt Paulsons style, but Sarah Palin was clearly not a favorite. When McCain introduced her on a conference call, right away she started calling me Hank, he writes. Now, everyone calls me Hank. . . . But for some reason, the way she said it over the phone like that, even though wed never met, rubbed me the wrong way.
Paulson gives short shrift to a subject that has much occupied the press: his penchant for hiring and relying on former Goldman cronies. But he makes clear that even the Treasury secretary often depends on independent channels for information. It took a call from Jeffrey Immelt, the chief executive of General Electric, to warn Paulson that the Wall Street crisis was spreading dangerously. Also surprising is the extent to which Paulson had to plead with China and Japan to keep faith in United States banks and government securities perhaps a harbinger of Americas future as a weakened power.
Paulson portrays Richard Fuld, the fallen Lehman king, as a forlorn figure, begging the government to resuscitate Lehman even after it filed for bankruptcy. Otherwise, Paulson is too kind to his banking chums. Of Robert Rubin Citigroup executive, former Treasury secretary, the authors former boss at Goldman Paulson ventures, Bob put the public interest ahead of everything else. Ahem: Rubin, at the time, was lobbying to enlist taxpayer support for Citi.
Paulson also seems blind on executive pay. His reflection that I guess its fair to say that the excesses of investment bankers were just an extreme example of conspicuous consumption in a disposable age is simply dimwitted. Eight-figure bonuses illustrate Wall Streets singular corruption. A more serious flaw is Paulsons vastly overstating his effectiveness in staving off home foreclosures. He calls the Bush administration policy an overall success. In fact, the foreclosure rate soared to a record on his watch.
I expected that Paulson would defend the A.I.G. bailout on the basis that A.I.G. was a solvent firm suffering a temporary liquidity problem, and he does. I also expected him to say there was no way the government could have rescued Lehman, and he does. Neither argument is convincing. Indeed, Paulson admits that his no-bailout stance on Lehman was partly a bluff to induce a bid from private parties: If we had to reverse ourselves . . ., so be it.
These chewed-over cuds matter less than it might seem. While he had the stalwart help of Ben Bernanke and Timothy Geithner, Paulson had to wrestle with more, and more burning, crises than any Treasury secretary in history. Some less-than-perfect decisions were hardly to be avoided. His account bolsters the view that however little he anticipated the bust, he did his earnest best to restore order. And who can deny, as Paulson writes: It could have been so much worse.
Roger Lowensteins book The End of Wall Street will be published next month.
(Source: http://www.nytimes.com/2010/03/21/books/review/Lowenstein-t.html?nl=books&emc=booksupdateema3)
ON THE BRINK
Inside the Race to Stop the Collapse of the Global Financial System
By Henry M. Paulson Jr.
Illustrated. 478 pp. Business Plus/Grand Central Publishing. $28.99.
Mr. Goldman Goes to Washington
When offered the job of Treasury secretary in the spring of 2006, Henry M. Paulson Jr., who was then the chief executive of Goldman Sachs, turned it down. President Bush had half a term in office left, the economy appeared strong, and there seemed little the next secretary could accomplish. But then, Paulson had second thoughts Do you really want to be 75 and telling people, I could have been Treasury secretary? a friend asked and finally agreed to take the job on condition he be granted more power and visibility than Bushs previous secretaries.
He was sworn in on July 10, 2006. Thirteen months later, the country was in the throes of a financial crisis. By early 2008, Paulson was stage-managing the rescue of Bear Stearns. And in his final, madcap four months of service there was barely a week in which this lifelong free-marketer was not rescuing somebody (the bailouts continued through his final day).
Abandoning the laissez-faire principles he espoused during his more than 30 years at Goldman, Paulson bailed out Fannie Mae, Freddie Mac, A.I.G. and Citigroup, among others; lobbied Congress to enact the Troubled Asset Relief Program, or TARP, and invest public dollars in private banks; guaranteed money market funds; and, most controversially, declined to rescue Lehman Brothers, which filed for bankruptcy in September 2008.
Along the way, he was racked with self-doubt. As Lehman tottered, Paulson admitted to his wife, I am really scared. He was tortured by insomnia; on the verge of taking a sleeping pill, a violation of his Christian Science faith, he flushed a bottles contents down the toilet. Knotted by tension, he was reduced on numerous occasions to doubling over with painful dry heaves.
Paulsons On the Brink: Inside the Race to Stop the Collapse of the Global Financial System zips through his career (including an early stint as an aide in the Nixon White House) and concentrates on his extraordinary 30 months at Treasury. Reflection is not Paulsons strong suit. As he is one of a raft of authors on the financial crisis (I am another), the primary, and sizable, contribution of this book is the inside view it affords of the often limited powers of the federal government.
Paulsons account is replete with blunt sentences (Im a straightforward person; Im a hands-on manager), as one might expect of a plain-spoken former Eagle Scout. Born in 1946 and bred on a farm in Illinois, he milked cows and baled hay as a boy. Even when he was the highest-paid executive on Wall Street (a fact he omits when taking credit for an enlightened approach to pay), Paulson wasnt the flashiest; his idea of entertainment was a documentary on the ivory-billed woodpecker. Despite such homey touches, On the Brink is not especially stylish. Paulson, known in his Dartmouth College days as the Hammer, slams us with fact after fact; its a pretty good approximation of the pace he maintained on the job.
As Treasury secretary, he had to devote as much energy to politics as to finance, and the two agendas did not mix. He was repeatedly forced to demonstrate to Congress that the economic situation was dire, at the risk of further panicking the markets. His political sympathies, too, may come as a surprise. The Democrats controlled the House after 2006, yet his biggest troubles were with Republicans who reflexively opposed his every attempt to put a safety net under the banks. The facts didnt seem to matter to some in this group, Paulson writes. He formed an effective alliance with Barney Frank, the Democratic chairman of the powerful House Committee on Financial Services. Early on, when Paulson wanted to seek broader powers through legislation, Frank cautioned that he didnt have the votes but urged him to interpret his existing powers broadly. Im not going to raise legal issues, Frank assured him.
Paulson paints an admiring portrait of President Bush and depicts him as asking simple but sensible questions and supporting Paulsons often politically unpopular remedies. Future historians will have to grapple with the contrast between the presidential courage attested to by Paulson and the image of a pliant president, manipulated by Dick Cheney and Donald Rumsfeld on Iraq, and by supply-siders on tax cuts. Perhaps Bush was capable of being just as good, and just as bad, as those who advised him.
Barack Obama was in frequent touch with Paulson during the 2008 campaign and impressed him as an informed, thoughtful candidate. John McCain, on the other hand, seemed so intent on scoring political points by railing against bailouts that Paulson threatened to hold him to public account. Dishing gossip isnt Paulsons style, but Sarah Palin was clearly not a favorite. When McCain introduced her on a conference call, right away she started calling me Hank, he writes. Now, everyone calls me Hank. . . . But for some reason, the way she said it over the phone like that, even though wed never met, rubbed me the wrong way.
Paulson gives short shrift to a subject that has much occupied the press: his penchant for hiring and relying on former Goldman cronies. But he makes clear that even the Treasury secretary often depends on independent channels for information. It took a call from Jeffrey Immelt, the chief executive of General Electric, to warn Paulson that the Wall Street crisis was spreading dangerously. Also surprising is the extent to which Paulson had to plead with China and Japan to keep faith in United States banks and government securities perhaps a harbinger of Americas future as a weakened power.
Paulson portrays Richard Fuld, the fallen Lehman king, as a forlorn figure, begging the government to resuscitate Lehman even after it filed for bankruptcy. Otherwise, Paulson is too kind to his banking chums. Of Robert Rubin Citigroup executive, former Treasury secretary, the authors former boss at Goldman Paulson ventures, Bob put the public interest ahead of everything else. Ahem: Rubin, at the time, was lobbying to enlist taxpayer support for Citi.
Paulson also seems blind on executive pay. His reflection that I guess its fair to say that the excesses of investment bankers were just an extreme example of conspicuous consumption in a disposable age is simply dimwitted. Eight-figure bonuses illustrate Wall Streets singular corruption. A more serious flaw is Paulsons vastly overstating his effectiveness in staving off home foreclosures. He calls the Bush administration policy an overall success. In fact, the foreclosure rate soared to a record on his watch.
I expected that Paulson would defend the A.I.G. bailout on the basis that A.I.G. was a solvent firm suffering a temporary liquidity problem, and he does. I also expected him to say there was no way the government could have rescued Lehman, and he does. Neither argument is convincing. Indeed, Paulson admits that his no-bailout stance on Lehman was partly a bluff to induce a bid from private parties: If we had to reverse ourselves . . ., so be it.
These chewed-over cuds matter less than it might seem. While he had the stalwart help of Ben Bernanke and Timothy Geithner, Paulson had to wrestle with more, and more burning, crises than any Treasury secretary in history. Some less-than-perfect decisions were hardly to be avoided. His account bolsters the view that however little he anticipated the bust, he did his earnest best to restore order. And who can deny, as Paulson writes: It could have been so much worse.
Roger Lowensteins book The End of Wall Street will be published next month.
(Source: http://www.nytimes.com/2010/03/21/books/review/Lowenstein-t.html?nl=books&emc=booksupdateema3)
