Hank Paulson’s Dry Heave

Former treasury secretary provides incomplete explanation of financial crisis in autobiography

By Max Abelson

It’s October 2008, the middle of the global financial apocalypse, and Treasury Secretary Henry Paulson has kayaked to a private island. The most expensive government spending act in American history passed a day earlier, but now he’s hunting redfish. “I felt like myself for the first time in a long while,” he sighs in On the Brink (Business Press, 2010), the memoir released Monday, Feb. 1. “Just Hank Paulson, out fishing.”

It’s not clear what Paulson was angling for when he decided to publish a 477-page autobiography. If he wanted to burnish a legacy, to get himself removed from the list of the crisis’ great villains (he’s No. 6 on Time’s), it didn’t work. The phrase “we had little choice” is actually the best he can come up with to justify the bailouts.

And he couldn’t have wanted to simply provide a good inside look at his life and times, because On the Brink is a portrait of the bureaucrat as a nauseous and drowsy man. He solemnly describes how he dry heaved in front of an American flag, in a bathroom stall, and in front of Sen. Judd Gregg, R-N.H. Other hour-by-hour details (especially a chronicle of his work-related sleeplessness) would be autobiographical triumphs if they didn’t contrast so grimly against the book’s void of thoughtful analysis. With the exception of a short and intensely dry afterward, On the Brink lacks any dissection of the intricacies of the crisis, its causes or its aftermath.

What’s much worse is the sense he gives that there also wasn’t much fussing over detail as the crisis unfolded. He and his colleagues “had no choice but to fly by the seat of our pants,” Paulson concedes, “making it up as we went along.” He says he realized on Sept. 12, 2008, that AIG was “one more institution to put on our watch.” The government spent $85 billion to bail it out on Sept. 16.

His memoir is like Tolstoy. It gives the spectacularly unsettling sense that world history is decided by an assortment of guys who are improvising, and may not be particularly good at it. Except, unlike in Tolstoy, there’s a lot of dry heaving.

About the problem of rococo Wall Street greed, he admits that he “pushed back hard” against the Troubled Asset Relief Program’s pay restrictions, then says that he “was as appalled as anyone at Wall Street’s pay practices,” and then jogs away from the mess. Eventually he shuffles back to describe a conversation with a Democratic senator—“once again my ear was being chewed off about compensation.” He doesn’t mention that he sold half a billion dollars worth of Goldman stock when he came to the Treasury, reportedly saving more than $100 million in taxes thanks to new IRS rules about federal service.

The book makes the circumstances of Lehman’s fall even more convoluted. Paulson says that he and Tim Geithner, despite their public stance against more bailouts, agreed just a few days before the bankruptcy that “a Lehman failure would be more expensive for the taxpayers.” He writes that he would have helped the firm by supporting a takeover, as he did with Bear Stearns, but that the government’s “hands were tied” because no suitors wanted Lehman. That makes no sense: Bank of America and Barclay’s were both interested, and both shrank away when the government said it couldn’t help.

Last weekend, two days before the release of the book, TARP’s inspector general released a report to Congress outlining the program’s neon-colored shortcomings: “It is hard to see how any of the fundamental problems in the system have been addressed to date.” Many of the program’s goals have simply not been met: Home foreclosures remain at record levels, unemployment is the highest it has been in decades, and lending to American businesses and consumers continues to fall.

As far as that last point goes, the only thing he says on the matter is: “I didn’t think I could tell the banks how much to lend or to whom.” That’s because his message, which he can’t help but eventually make explicit, is: “I make no apology.”

Bear Stearns was rescued but Lehman wasn’t. Citigroup was going to buy Wachovia until Wells Fargo swooped instead. Cancerous Fannie Mae and Freddie Mac were given clean bills of health by their regulator just before their nationalization. And AIG was given a gruesome amount of money that will almost never be returned. And that’s just the way it is, On the Brink says.

Not only did Paulson “not have time for regret, recriminations or second-guessing,” but he doesn’t use the newfound power of hindsight. He even calls it a pandering “political approach” to criticize the rating agencies, which were essentially paid to say all was well with a diseased system.

Surely he has more sophisticated and subtle insights into
the ugliness of the American financial system, but he keeps them to himself. “I don’t mean to minimize our troubles,”
the book’s finale declares, “but every major country has more-significant problems.”