An in­sider’s view of the fi­nan­cial cri­sis

The Washington Times Weekly - - Culture, Etc. -

Henry M. Paul­son Jr.’s “On The Brink” is a wonk­ish fire­side chat, a mix of per­sonal and pro­fes­sional vi­gnettes be­hind the scenes of the global fi­nan­cial cri­sis.

At times slow-mov­ing, bogged down in an acro­nym-rich al­pha­bet soup of com­plex fi­nan­cial in­stru­ments, the nar­ra­tive starts with the for­mer Trea­sury sec­re­tary de­tail­ing his rise to the perch of chief ex­ec­u­tive and chair­man of Gold­man Sachs and his de­ci­sion to join the Ge­orge W. Bush ad­min­is­tra­tion in 2006. Mr. Paul­son writes that it was a dif­fi­cult choice for him be­cause of fam­ily pres­sure, in­clud­ing re­sis­tance from his mother and his wife, Wendy, a Welles­ley Col­lege class­mate and sup­porter of Hil­lary Rod­ham Clin­ton’s.

Just af­ter com­ing to Washington, Mr. Paul­son’s team ac­knowl­edged that it was im­pos­si­ble to know ex­actly what might have trig­gered a fi­nan­cial melt­down, and, un­for­tu­nately, part of their fore­cast­ing was ham­pered by fear that word of any worst-cas­esce­nario mod­el­ing might leak out to the mar­kets and spark a self-ful­fill­ing proph­esy.

Through­out “On the Brink,” Mr. Paul­son gives a staunch de­fense of Pres­i­dent Bush’s in­tel­lec­tual ca­pa­bil­i­ties and in­nate cu­rios­ity, which Mr. Paul­son says in­cludes a nat­u­ral feel for the mar­ket, thanks to his Har­vard Busi­ness School MBA (the same lau­rel held, in­ci­den­tally, by Mr. Paul­son him­self).

Mr. Paul­son weaves in fas­ci­nat­ing tid­bits about the elec­toral pol­i­tics sur­round­ing the fi­nan­cial cri­sis, in­clud­ing how then­can­di­date Barack Obama re­ceived reg­u­lar con­sul­ta­tion from Mr. Paul­son af­ter gain­ing the Demo­cratic nom­i­na­tion but abruptly stopped talk­ing to him once he had snagged the pres­i­dency in Novem­ber 2008.

Be­fore the 2008 po­lit­i­cal cam­paign got into full swing, Mr. Paul­son writes, Sen. Christo­pher J. Dodd, Con­necti­cut Demo­crat, chair­man of the Se­nate Com­mit­tee on Bank­ing, Hous­ing and Ur­ban Af­fairs, was too dis­tracted by his pres­i­den­tial cam­paign to ad­vo­cate for mean­ing­ful re­forms to the be­he­moth, gov­ern­mentspon­sored en­ter­prises (GSEs) Fan­nie Mae and Fred­die Mac.

Sarah Palin was per­son­ally an­noy­ing and grat­ing to Mr. Paul­son, he writes, a po­lit­i­cal sa­vant with lit­tle grasp of the fi­nan­cial mar­kets but an un­canny grip on the pulse of the pop­ulist elec­torate. When Mr. Paul­son spoke with Mrs. Palin about the deci- sion to place Fan­nie and Fred­die into govern­ment con­ser­va­tor­ship, rather than prob­ing for a con­tex­tu­al­ized, macro­pru­den­tial anal­y­sis, Mrs. Palin asked first whether a few GSE ex­ec­u­tives who had been fired would re­ceive golden para­chutes, a fa- vorite red-meat is­sue among the Tea Party crowd.

In­stead of chap­ter ti­tles, the no-non­sense Mr. Paul­son uses mile­stone dates as chap­ter head­ings. In­ter­est­ingly, he says he re­lied al­most en­tirely on his me­mory and travel and call logs to write the book be­cause “I have been blessed with a good me­mory, so I have al­most never needed to take notes.”

Not ev­ery­one would agree his me­mory is fully ac­cu­rate, how­ever. Mr. Paul­son’s rev­e­la­tions about Rus­sia’s ef­forts to per­suade China to dump some of its Amer­i­can debt have been de­nied by au­thor­i­ties from the for­mer Soviet Union.

In­deed, China it­self would have lit­tle in­cen­tive to disen­gage rapidly from the U.S. fi­nan­cial sys­tem, Mr. Paul­son writes, thanks to deep­en­ing ties he helped forge while at Gold­man Sachs and later at Trea­sury when he es­tab­lished the Strate­gic Eco­nomic Di­a­logue to ad­dress topics such as U.S.-China trade, eco­nomic im­bal­ances, en­ergy and the en­vi­ron­ment. His long-term re­la­tion­ship with the Chi­nese gives the reader a nu­anced look at U.S. ef­forts to force Bei­jing to cease its cur­rency ma­nip­u­la­tion, which to date have largely been un­suc­cess­ful.

Through­out the book, Mr. Paul­son tries to ex­tri­cate him­self from the grid­locked cul­ture of Washington, which he paints as a toxic at­mos­phere anath­ema to reg­u­la­tory re­form. Dis­cussing his Chris­tian Sci­ence faith — which he de­fends as em­brac­ing of med­i­cal technology — Mr. Paul­son paints him­self as a cru­sader and moral­ist for mar­ket trans­parency as a means to en­sure smooth mar­ket func­tion­ing.

But de­spite this fin­ger-point­ing, Mr. Paul­son ac­knowl­edges that his orig­i­nal di­ag­no­sis upon as­sum­ing of­fice con­tained a glar ing omis­sion. While at Camp David dur­ing his first ma­jor brief­ing to Mr. Bush, Mr. Paul­son writes, “No­tably ab­sent from my pre­sen­ta­tion was any men­tion of prob­lems in hous­ing or mort­gages.”

In­deed, Mr. Paul­son later ad­mits that un­der his chair­man­ship, the Pres­i­dent’s Work­ing Group on Fi­nan­cial Mar­kets placed mis­guided fo­cus on hedge funds, some of the most sta­ble fi­nan­cial in­sti­tu­tions amidst the mar­ket tur­bu­lence.

“I’m a can­did per­son by na­ture, and I’ve at­tempted to give the un­bri­dled truth. I call it the way I see it,” Mr. Paul­son writes. True to form, his plain-spo­ken prose is straight­for­ward and largely ac­ces­si­ble, ex­cept for his dis­cus­sions of fi­nan­cial-in­stru­ment minu­tiae. How­ever, Mr. Paul­son’s de­tails give the lay reader an in­sider’s view and shed some light on a con­vo­luted fi­nan­cial sys­tem desperatel­y in need of re­pair.

Car­rie Sh­effield, a for­mer ed­i­to­rial writer for The Washington Times, is a grad­u­ate stu­dent at Har­vard’s Kennedy School.


Bailout Bud­dies: Pres­i­dent Bush shakes hands with Trea­sury Sec­re­tar y Henry Paul­son at the Trea­sur y Depart­ment in Washington af­ter the House of Rep­re­sen­ta­tives passed the $700 bil­lion fi­nan­cial bailout bill on Oct. 3, 2008.

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