On the Brink: Inside the Race to Prevent the Collapse of the Global Financial System
By Henry M. Paulson
(Business Plus, 496 pages, $28.99)
The only new piece of information in Henry Paulson's new book is that when Warren Buffett woke Paulson up with a phone call on October 11, 2008, in his initial grogginess Paulson thought that it was Warren Hansen, his mother's handyman.
The rest of On the Brink contains not a single new story from the financial crisis, and what a shame that is, considering that Paulson was more involved in those events than anyone. Instead, the book is Paulson's contribution to a growing collection of post-Bush administration memoirs written solely to vindicate the author. Although Bush left office the most unpopular president since Truman, he remains convinced that history will rehabilitate his image and is hard at work writing an autobiography that he hopes will help shape the eventual pro-Bush narrative. Dick Cheney has been holed up in a McLean attic since Obama's inauguration working on his own confessions. Meanwhile, Bush and Cheney are being beaten to the bookstands by John Yoo, Marc Thiessen, and, not least of all, Karl Rove. And those are just the most recent books, not counting any from Bush's first term or the separate cottage industry of tell-all books.
At least all the above add something to the debates by addressing critics or revealing new details. Paulson's book does not. Instead, it simply rehashes the basic historical outline of the crash, while whitewashing all the main characters so that they are perfectly PC and user-friendly -- politicians, bankers, and especially Paulson and his two innocent and gentle buddies, Ben and Tim. Even the momentous conversations Paulson had over the course of the crisis have been sterilized of all historical noteworthiness and now read like Dick and Jane dialogues, with no big words or complex sentences but lots of first names. Let me pick a back-and-forth at random:
I called Aramark CEO Joe Neubauer, who was on Wachovia's board. I'd worked with Joe and knew him to be financially sophisticated and a straight shooter [it's worth reiterating that Paulson says only good things about everyone he mentions. Toward the end of the book his resentment of McCain simmers to the top a little, but that's all].
"Joe [say this for Hank: apparently the one thing he never lost during the crisis was his ability to use his interlocutors' first names at least once per three sentences], I just want to make sure you have the right sense of urgency," I said. "The Goldman Sachs people are waiting in their offices, and no one has showed up."
"Why does this have to be done so quickly?" he asked.
"Wachovia is likely to fail soon," I said. "The market is very nervous about your mortgage portfolio. It's much better to get ahead of this."
Every exchange in the book is recounted exactly this way: huge decisions determining the fates of endlessly complex institutions are gamed out in the crudest of terms by two pals in conversations depicted with a level of detail, dramatic tension, and moral awareness that would be better suited for a Sesame Street segment about cooperation.
It is maddening to think that Paulson decided that history books would be better off with a number of these heavily edited conversations than with insights into some of the most consequential and still unexplained events of the fall of 2008. Here are two such instances, picked randomly out of dozens of possible examples:
1. Why did Treasury and the Fed allow Lehman Bros. to collapse after they'd bailed out Fannie and Freddie and facilitated the sale of Bear Stearns?
Paulson does not say. The line at the time was that Treasury had no legal authority to intervene, but that was the extent of the information officials gave out. Paulson tells a long story (which has its own problems) about his efforts to coax different banks into buying Lehman, and then concludes with this: "Some in the group asked if we should revisit the idea of putting public money into Lehman, but Tim said there was no authority to do that."
Again, note the reduction of an impossibly complicated issue -- whether regulators had the legal authority to bail out Lehman -- into a impromptu conversation with a first-name-basis friend. Does Paulson expect the reader to believe that the Treasury establishes its policy options by making a phone call to the head of the New York Fed? That "on the brink" of economic collapse he couldn't be bothered to ask one of the thousands of Treasury employees to dust off the ol' regulations booklet?
2. What did the government do to get the CEOs of the nine largest banks to agree to the initial sale of preferred stocks and warrants to the Treasury? Only two weeks after Congress passed TARP, Treasury announced its intention to use TARP funds to purchase bank shares and warrants instead of toxic assets -- a huge shift in strategy that Paulson admits he planned even before Congress signed onto the original TARP. The point of the new plan was to inject equity into banks, whether they needed it or not, in order to reassure other financial institutions. Of course, the CEO of a bank with a healthy balance sheet wouldn't want to sell the Treasury equity for no reason, and it didn't take long for rumors to arise that Paulson & Co. had engaged in shenanigans to persuade the sound banks to participate. In On the Brink, Paulson recounts inviting the banks' CEOs to D.C. without disclosing the purpose of the meeting, and then scripting the meeting with other regulators beforehand. He writes that he led off with a hard sell: "And I pointed out that we wanted them to contact their boards and confirm their participation by that evening."
This doesn't sound too far from "and I threatened them." If Paulson wanted to avoid that interpretation, he should have added some mitigating details.
It is striking how bipartisan anti-bailout sentiment has become. If Paulson wants to rehabilitate his image for the history books, he has to win over both the left and right wings. Conservatives resent him because, as far as they can see, he was a closet Democrat from the beginning and only confirmed those suspicions by helping Bush abandon free market principles in the hour of greatest need. Liberals hate him because they believe he always acted in the interests of his Wall Street fat cat friends from his Goldman Sachs days. And both fault him for an arrogance and elitism that only the truly rich and powerful think they can get away with. Unfortunately, Paulson's book will only reinforce all these beliefs.
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