IN this first-person account of the former CEO of Goldman Sachs and who also served as Secretary of the Treasury under President George W Bush for 30 turbulent months from 2006 to 2009, we learn about the world’s most cataclysmic financial crisis of 2008 since the Great Depression. It was the period when Hank Paulson allowed the Lehman Brothers to fail and TARP to change from bringing toxic assets to capital injections into banks.
It was September 2008, a time when the financial system was increasingly shaky. Commercial and investment bank stocks were under pressure and the US Treasury was nervously monitoring the health of several ailing institutions like Wachovia Corporation, Washington Mutual and Lehman Brothers. The Treasury had seen what had happened in March when Bear Stearn’s counterparts – the other banks and investment houses that lent it money or brought its securities – abruptly turned away. At White House, the discussion was going on regarding the fate of Fannie Mae and Freddie Mac, the troubled finance giants and how to ambush them. The bold move would have been to tell them that they would be taken over and thrown out of their jobs so as to protect the taxpayer, but to the disadvantage of their shareholders. But this would have made them put up a fight and approach their powerful friends on Capitol Hill. The resulting delay would have created panic in the markets. This had to be avoided. Investors were bound to lose tens of billions, the foreigners could lose confidence in the US and “it might cause a run on the dollar”.
The first part of the book talks briefly about Henry Paulson’s early life as a farm boy, Dartmouth offensive linesman, young aide in Nixon’s White House and hand-changing Goldman Sachs banks. He is shown as an avid birder and not a golfer; he does not carry a Blackberry; he is an earnest Christian Scientist and an inconspicuous consumer. Without giving too many personal details, Paulson talks about his vacations with his wife and family. Even when he is the highest-paid executive on Wall Street, he isn’t the flashiest; his idea of entertainment is a documentary on the ivory-billed woodpecker, being a birder that he is. He is a partisan Republican (though he jokes that he is considered “a closet Democrat” by his friends) but praises Democrat Barney Frank, while criticising the House Republicans on various issues. His wife is a big supporter of Hillary Clinton while his mother hates President George Bush and votes for Barrack Obama. Throughout the book he discusses his Christian Scientist faith and love of Nature. He talks about the sleepless nights during the height of the financial crisis when he is given sleeping pills to swallow but he holds them in his palm before deciding to flush them down the toilet. Instead of taking the pills, he chooses to pray to God for guidance. Knotted by tension, he is reduced on numerous occasions to double over with painful dry heaves.
The second part of the book deals with Paulson’s shift in career when he knows very well that his move from Wall Street to Washington Treasury would be daunting and challenging. He however has no idea that a year later he would find himself at the very epicentre of the world’s major cataclysmic financial crisis. Major institutions like Bear Stearns, Fannie Mae and Freddie Mac (the GSES), Lehman Brothers, AIG, Merrill Lynch and Citigroup among others – all seeped in rich, long-standing tradition – would literally teeter at the edge of collapse. Panic grips international markets. Worst of all, the credit crisis spreads to all parts of the US economy and grows more ominous with each passing day, destroying jobs across America and undermining the financial security millions of families had spent their lifetimes in building.
After months of brainstorming and political manoeuvrings, he resorts to get the Federal Housing Finance Agency and other branches of the government to agree to put the GSES into conservatorship. Here the book contains only a few pages on the Lehman Brothers affair. Paulson’s two reasons for not saving Lehman Brothers are listed as his not possessing the authority and that it would have become a moral hazard. He portrays Richard Fuld, the fallen Lehman king, as a forlorn figure, begging the government to resuscitate Lehman even after it has filed for bankruptcy.
From the man who was in the very midst of this economic story, one gets to read about all the intense moments as he addresses urgent market conditions, weighs critical dimensions and debates policy and economic considerations with all the notable players, including the CEOs of top Wall Street companies as well as Ben Bernanke, Tim Geithner, presidential candidates – Barrack Obama and John McCain and President George W Bush. We find people, politics and economics brought together during the world’s impending financial Armageddon, which now seems a part of the past.
(Headline Publishing Group, An Hachette UK Company, 338 Euston Road, London NW1 3BH; www.hachette.co.uk or www.headline.co.uk)
Leave a Comment