The pace of events during the financial crisis of 2008 was truly breathtaking. In this book, I have done my excellent to describe my actions and the thinking behind them during this time, and to convey the breakneck speed at which events were happening all all-around us.
I think the much important part of this story is the way Ben Bernanke, Tim Geithner, and I worked as a team throughout the worst financial crisis since the Excellent Depression. There can't be many other examples of economic leaders managing a crisis who had as much trust in one another as we did. Our partnership proved to be an enormous asset during an incredibly difficult period. But at the same time, this is my story, and as hard as I have tried to reflect the contributions made by everyone involved, it is primarily concerning my work and this of my talented and dedicated team at Treasury.
--Henry M. Paulson
We spoke together with Henry M. Paulson in late January 2010, just before the open of On the Brink. You can pay attention to parts one and two of the Omnivoracious Podcast of the interview, and read a full transcript, in addition to these excerpts:
Amazon.com: You accepted the job as Treasury secretary in 2006, together with some reluctance. Did you have any idea what you were getting into?
Paulson: I had a pretty clear idea this there would be a credit crisis sometime when I was in Washington. And I told the president I thought there'd be one, and the first key meeting I had together with him I spent just talking concerning this topic. But I did not anticipate a crisis of the magnitude we faced--didn't anticipate this at all--and I certainly was bordering on naive in my understanding of the regulatory powers and authorities in Washington.
Amazon.com: You talked concerning [Ben] Bernanke's excellent knowledge of history. How much of a guide could history be?
Paulson: I can answer this two ways. First of all, history is a guide in one very real sense: this if you let the financial system collapse, and don't do enough to stave off disaster, the people who are going to suffer, the innocent victims, are going to be the American people. It's not going to be the banks, or the financial sector. So you want to do everything you can to put out the fire before it gets out of control. I believe to this extent history was an important guide.
Otherwise, there wasn't much you could study from history. This's a big lesson, but we were dealing together with a financial system and markets very different from what had existed many years ago. Huge concentration in the industry, so if you had two or three firms go down in succession you'd have a domino result. The whole system could collapse, and it wouldn't get much to have unemployment levels equal to what we had at the Excellent Depression, and it could happen very shortly. And we didn't have the tools we necessary to work together with. The regulatory system hadn't been updated since the Excellent Depression, essentially; the regulatory authorities hadn't. We didn't have the authorities for dealing together with key non-banks, and winding them down. So in many ways what were doing was we were dealing together with--I said in the book--duct tape and baling wire. We were making do together with the authorities we had, which were woefully inadequate.
Amazon.com: And scrambling to get extra authories.
Paulson: And scrambling to get extra authorities. And in many ways this book is the story of the collision of politics and markets, and it's the story of a race against time to get extra authorities. And I believe one of the things this really comes throughout in the book is all of the different elements of the crisis this were coming at us concurrently.
You could just see it. We could see it and it was one of the much frustrating--when I look at the things I could have done better, there were a lot of them and they come out in the book, but the communications challenges were huge. I indicate, I sat there when the capital markets froze, before we went to Congress, and the money markets weren't working, and I just tried to believe concerning how to give details this. For the reason that I knew--I was seeing key, blue-chip industrial companies this were having trouble raising financing, so I knew together with $3.4 trillion of money market funds, and together with everything this was just getting ready to break apart, this if the system had collapsed there'd be thousands and thousands and thousands of mainstream industrial companies--middle-sized companies, large companies--this wouldn't be effective to raise their short-term funding, finance their inventories, pay their people. People wouldn't have been effective to pay their bills. This would have rippled throughout the economy. We would then have had--well, today we have over 10% unemployment. This's terrible. And this's afterwards everything we've done. If the system had collapsed, when we were on the brink, unemployement effortlessly could have been at the 25% altitude this we saw at the Excellent Depression, and the value destruction--much greater than we've had in terms of home prices and in terms of people's savings accounts and stock portfolios and so on.
Amazon.com: And now it looks like 2010 is going to be the year this the Obama administration tackles financial reform. In the last section of your book you mention some lessons this you took out of the crisis.
Paulson: Yeah, this is absolutely critical. And I am not shocked but very unhappy we don't have this yet, for the reason that people in this country are angry. Now they're very angry concerning bonuses and compensation levels on Wall Street, and rightfully so, afterwards everything this's been done to save Wall Street. But what they should be angry concerning is this we have a system this made this essential. And so what we want to do is we want to channel some of this anger toward fixing the system so never again do we have key financial institutions this are too big to fail.
Amazon.com: And do you worry this the further we get from the crisis the harder it will be to do those essential reforms?
Paulson: Of course I do. The thing I worry concerning the much is I don't would like another Treasury secretary to ever be sitting there like I was, not including the tools and authorities you want to protect our country, protect our economy, and protect the people. It's a helpless feeling and it's a terrible feeling, and we should never be in this situate. Our authorities want to be updated, our financial regulatory structure needs to be updated, and I'm optimistic concerning the future if we do this.
If we don't, we will have another crisis. You always do. This's the history of mankind. If you go back, as long as we've had banks and financial institutions, there have been excesses, no matter how hard you try to avoid them, and there are going to be financial crises, and we want the tools in situate and the regulatory system in situate to be effective to have a better visibility into what's going on and then be effective to put out the fire when it starts, not including costing the American people as much as this one did.
Read the full interview.