Bush Treasury secretary Hank Paulson gave a semi-endorsement to the pending financial reform bill to the New York Times‘ Andrew Russ Sorkin yesterday. Sorkin writes that Paulson initially hesitated to judge the bill but then argued that the bill would have prevented the Wall Street collapse had it been implemented before the housing market cratered. Sorkin also notes that it is very self-serving for Paulson, as the architect of the 2008 bailouts, to play up the necessity of a bill like Dodd-Frank:
As he recalled those sleepless days in September, he suggested that had he had resolution authority [as he would have under the currently proposed bill], he would have been able to take over Lehman Brothers and the American International Group without the financial system crumbling. (Of course, there remains a running debate about why Mr. Paulson didn’t seek to have the government bail out Lehman Brothers; he says he didn’t have the powers.)
There are a number of widely discussed problems with Paulson’s insistence that he didn’t have the power to bail out Lehman Brothers. One is that he let Lehman fail but then fought for TARP, which gave him the power to bail out any financial institution, when other banks got into trouble. Similarly, he could have fought for resolution authority if he thought it would have solved everything. Garrett Jones made this point in a recent Spectator interview: “I think there’s nothing in that resolution authority that couldn’t have been hammered out in the two weeks it took to write the TARP…. The absence of a resolution authority was not the big deal.”
The article’s takeaway is that Paulson seems to think the bill fails to address problems in the housing market but provides indispensable tools for regulators — which tools he lacked in 2008. This hesitating endorsement is significant, in context, for two reasons.
The first is that it further undermines the idea that conservatism or even mere Republicanism were important to Paulson. Now that his time in the highest levels of government is over, he can drop the pretense that he has loyalties to the small government movement or to Congressional Republicans who are fighting Dodd-Frank.
The second is that he is the former CEO of Goldman Sachs. When he praises the reform bill, it’s worth wondering whether he’s speaking in that role or as the former Treasury head.