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On the Brink: Inside the Race to Stop the Collapse of the Global Financial System
From the Foreword, by Rep. Barney Frank, especially written for the trade paper edition:
"For many people, what will be most striking about this foreword is the fact that I wrote it. It's not every day a partisan, liberal Democrat gets a call from a conservative, high-ranking member of the George W. Bush administration asking for a favorable introduction to anything. But when former secretary of the Treasury Henry M. Paulson, Jr., called, I was quick to agree to express in print my enthusiasm for his excellent recounting of some of the most important and controversial events in our recent national history."
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ON THE BRINK is Hank Paulson's first-person account of the catastrophic economic events of 2008. From the man who was in the very middle of this perfect economic storm, Paulson puts the reader in the room for all the intense moments as he addressed urgent market conditions, weighed critical decisions, and debated policy and economic considerations with of all the notable players-including the CEOs of top Wall Street firms as well as Ben Bernanke, Timothy Geithner, Sheila Bair, Nancy Pelosi, Barney Frank, presidential candidates Barack Obama and John McCain, and then-President George W. Bush.
More than an account about numbers and credit risks gone bad, ON THE BRINK is an extraordinary story about people and politics-all brought together during the world's impending financial Armageddon.
"For many people, what will be most striking about this foreword is the fact that I wrote it. It's not every day a partisan, liberal Democrat gets a call from a conservative, high-ranking member of the George W. Bush administration asking for a favorable introduction to anything. But when former secretary of the Treasury Henry M. Paulson, Jr., called, I was quick to agree to express in print my enthusiasm for his excellent recounting of some of the most important and controversial events in our recent national history."
####
ON THE BRINK is Hank Paulson's first-person account of the catastrophic economic events of 2008. From the man who was in the very middle of this perfect economic storm, Paulson puts the reader in the room for all the intense moments as he addressed urgent market conditions, weighed critical decisions, and debated policy and economic considerations with of all the notable players-including the CEOs of top Wall Street firms as well as Ben Bernanke, Timothy Geithner, Sheila Bair, Nancy Pelosi, Barney Frank, presidential candidates Barack Obama and John McCain, and then-President George W. Bush.
More than an account about numbers and credit risks gone bad, ON THE BRINK is an extraordinary story about people and politics-all brought together during the world's impending financial Armageddon.
478 pages, Hardcover
First published March 4, 2010
214 people are currently reading
3125 people want to read
About the author
Henry M. Paulson Jr.
15 books70 followersHenry Merritt "Hank" Paulson, Jr. (born March 28, 1946) is an American banker who served as the 74th United States Secretary of the Treasury. He had served as the Chairman and Chief Executive Officer of Goldman Sachs, and is now chairman of the Paulson Institute, which he founded in 2011 to promote sustainable economic growth and a cleaner environment around the world, with an initial focus on the United States and China.
Paulson was born in Palm Beach, Florida, to Marianna (née Gallauer) and Henry Merritt Paulson, a wholesale jeweler. A star athlete at Barrington High School, Paulson was a champion wrestler and stand-out football player, graduating in 1964. Paulson received his A.B. in English from Dartmouth College in 1968; at Dartmouth he was a member of Phi Beta Kappa and Sigma Alpha Epsilon and he was an All-Ivy, All-East, and honorable mention All American as an offensive lineman. Paulson received his Master of Business Administration degree from Harvard Business School in 1970.
He met his wife, Wendy Judge, a Wellesley College graduate, during his senior year. The couple have two adult children, sports-team owner Henry Merritt Paulson III, more commonly known as Merritt Paulson, and journalist Amanda Paulson. The Paulsons became grandparents in June 2007. They maintain homes in both Barrington Hills and Chicago.
Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972. He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973.
He joined Goldman Sachs in 1974, working in the firm's Chicago office under James P. Gorter, covering large industrial companies in the Midwest. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became managing partner of the Chicago office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then Chief Operating Officer from December 1994 to June 1998, eventually succeeding Jon Corzine as chief executive. His compensation package, according to reports, was $37 million in 2005, and $16.4 million projected for 2006. His net worth has been estimated at over $700 million.
Paulson was nominated on May 30, 2006, by U.S. President George W. Bush to succeed John Snow as the Treasury Secretary. On June 28, 2006, he was confirmed by the United States Senate to serve in the position. Paulson was sworn in at a ceremony held at the Treasury Department on the morning of July 10, 2006.
Paulson identified the wide gap between the richest and poorest Americans as an issue on his list of the country's four major long-term economic issues to be addressed, highlighting the issue in one of his first public appearances as Secretary of Treasury. Paulson conceded that chances were slim for agreeing on a method to reform Social Security financing, but said he would keep trying to find bipartisan support for it. He also helped to create the Hope Now Alliance to help struggling homeowners during the subprime mortgage crisis.
After leaving his role as Treasury Secretary, Paulson spent a year at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University as a distinguished visiting fellow, and a fellow at the university's Bernard Schwartz Forum on Constructive Capitalism. His memoir, On the Brink Inside the Race to Stop the Collapse of the Global Financial System, was published by Hachette Book Group on February 1, 2010.
On June 27, 2011, Paulson announced the formation of the Paulson Institute, an independent center located at the University of Chicago, dedicated to fostering international engagement to address issues of global scope, with particular emphasis on cooperation between the United States and China. Paulson was also named as a senior fellow at the University of Chicago's Harris School of Public Policy. His five-year appointment took effect July 1, 2
Paulson was born in Palm Beach, Florida, to Marianna (née Gallauer) and Henry Merritt Paulson, a wholesale jeweler. A star athlete at Barrington High School, Paulson was a champion wrestler and stand-out football player, graduating in 1964. Paulson received his A.B. in English from Dartmouth College in 1968; at Dartmouth he was a member of Phi Beta Kappa and Sigma Alpha Epsilon and he was an All-Ivy, All-East, and honorable mention All American as an offensive lineman. Paulson received his Master of Business Administration degree from Harvard Business School in 1970.
He met his wife, Wendy Judge, a Wellesley College graduate, during his senior year. The couple have two adult children, sports-team owner Henry Merritt Paulson III, more commonly known as Merritt Paulson, and journalist Amanda Paulson. The Paulsons became grandparents in June 2007. They maintain homes in both Barrington Hills and Chicago.
Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972. He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973.
He joined Goldman Sachs in 1974, working in the firm's Chicago office under James P. Gorter, covering large industrial companies in the Midwest. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became managing partner of the Chicago office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then Chief Operating Officer from December 1994 to June 1998, eventually succeeding Jon Corzine as chief executive. His compensation package, according to reports, was $37 million in 2005, and $16.4 million projected for 2006. His net worth has been estimated at over $700 million.
Paulson was nominated on May 30, 2006, by U.S. President George W. Bush to succeed John Snow as the Treasury Secretary. On June 28, 2006, he was confirmed by the United States Senate to serve in the position. Paulson was sworn in at a ceremony held at the Treasury Department on the morning of July 10, 2006.
Paulson identified the wide gap between the richest and poorest Americans as an issue on his list of the country's four major long-term economic issues to be addressed, highlighting the issue in one of his first public appearances as Secretary of Treasury. Paulson conceded that chances were slim for agreeing on a method to reform Social Security financing, but said he would keep trying to find bipartisan support for it. He also helped to create the Hope Now Alliance to help struggling homeowners during the subprime mortgage crisis.
After leaving his role as Treasury Secretary, Paulson spent a year at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University as a distinguished visiting fellow, and a fellow at the university's Bernard Schwartz Forum on Constructive Capitalism. His memoir, On the Brink Inside the Race to Stop the Collapse of the Global Financial System, was published by Hachette Book Group on February 1, 2010.
On June 27, 2011, Paulson announced the formation of the Paulson Institute, an independent center located at the University of Chicago, dedicated to fostering international engagement to address issues of global scope, with particular emphasis on cooperation between the United States and China. Paulson was also named as a senior fellow at the University of Chicago's Harris School of Public Policy. His five-year appointment took effect July 1, 2
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November 23, 2014
There are three types of crisis-history-books: macro stories (why it had happened in terms of macroeconomics); third-party-for-broad-public-storytelling (usually written by journalists for non-economists) and first-hand-reminiscences (story by real actors, usually for the broad public).
If your interest in topic is superficial, you should read something from second category. Probably, "The End of Wall Street" by Roger Lowenstein.
If you'd like to dig deeper, then it is better to make it through "macro" first and "first-hand-experience" later (and "On the Brink" is the best sample of this second step).
If your interest in topic is superficial, you should read something from second category. Probably, "The End of Wall Street" by Roger Lowenstein.
If you'd like to dig deeper, then it is better to make it through "macro" first and "first-hand-experience" later (and "On the Brink" is the best sample of this second step).
September 26, 2014
ya boi read dis book right afta mah man tim geithners epic stress test. dis dont hold watah ta geitners tour da force, but paulson does manage ta give is own unique viewpoint of da avents of da 2008 economic meltdown , nom sayin? ya may not digg was hes all about, but mah boi hank lays it down on da line n manages ta put da bush administration in a brand new light. check it out.. . .
December 30, 2010
BOOK REVIEW
ON THE BRINK: Inside the Race to Stop the Collapse of the Global Financial System
by Henry M. Paulson, Jr., Business Plus, Hachette Book Group, 2010
Reviewed by Bill Breakstone, Somers, NY, May 22, 2010
This is more or less the 12th book I’ve read about the Financial Crisis of 2007—2009. It’s no doubt the last I’ll undertake, but it will have to do for now. I need a break, and have a half-dozen volumes of fiction, biographies and historical prize-winners that I’m looking forward to reading in the interim.
There have been many accounts of the financial crisis written over the past two or three years, most authored by financial writers and economists, and all both interesting and authoritative. The major decision-makers who dealt with the pending collapse of our financial system have yet to be heard from, as most are still in policy-making positions in government. [I discount Alan Greenspan’s book, as he had departed from decision-making at the Fed well before the crisis developed.] The singular exception to date is Henry Paulson’s book, “On the Brink.”
The former Secretary of the Treasury was at the center of the financial storm, along with Fed Chair Ben Bernanke and New York Fed President Tim Geithner, who would succeed Paulson as the new Treasury Secretary in the Obama Administration. All of the other accounts of the crisis refer to Paulson’s role to one extent or another, so this book offers the reader to hear in the first person singular a retelling of the events. Much is repetitive, but the perspective here is the point, and the reader is afforded the opportunity to gain a glimpse of an extraordinary leader, acting in a time of extreme crisis, as few have had to face in public office.
What I found most interesting in Paulson’s book was the picture that emerges of the man himself. His background as a giant in the finance industry is well-known to anyone familiar with Wall Street, and his public service record has been widely written about in print and discussed in the media. His personal life has received far less attention, lacking as yet a biography. Paulson quite openly describes himself in these pages— his early family life; his spiritual beliefs; his love of, and shared interests with, his wife Wendy and their children; his interest in nature and wildlife; and his and Wendy’s total dedication to the conservation movement. These are all qualities right there for the reader to discover through the author’s own words.
Yet there are other personal traits that become accessible from reading how Paulson dealt with the challenges that he and his associates faced—his relationships with President Bush and the two Presidential candidates McCain and Obama; his relentless work with Congressional leaders in bringing various remedies into effect; and his over-riding dedication to national interests above partisan politics. [At no point in reading the book do his political leanings stand out. That he was a fiscal conservative by nature there is no doubt. But he was not locked into an ideological straightjacket.] The picture that emerges is that of an intensely dedicated public servant; a highly sensitive and feeling human being; a person of immense energy and stamina, though at times the workload had direct and negative physical consequences; and a complete team player whose consultations and problem solving coordination with Ben Bernancke and Tim Geithner were essential in avoiding financial Armageddon.
Paulson was widely criticized for changing directions in midstream on many occasions, especially regarding his position on “moral hazard.” Those criticisms were well founded, and Paulson does not argue that mistakes were not made; rather, to his credit, he admits them.
One particular mistake was in overlooking or downplaying the emerging public disgust with Wall Street compensation. Perhaps this is far easier to see in hindsight than it was for Paulson and other policy makers to focus in on in real time. But he does hint that he should have had more insight into what was becoming more and more evident as the crisis deepened. In formulating the TARP Program, congressional leaders pressed Paulson, Bernancke and Geithner for limits on executive compensation for employees of participating institutions. The compromise that was eventually reached banned “golden parachutes” for executives of failed companies. But nothing was included in the provisions regarding bonus compensation, and eventual revelations of multi-million dollar payouts to executives at AIG, BofA, Merrill Lynch and other TARP participants, resulted in a public outcry that continues to this day, with ramifications that have turned a great portion of American society against banking interests and Wall Street in general.
Now, if one looks back to those bleak days in September of 2008, it would seem that with the continued survival of Morgan Stanley and Goldman Sachs very much at stake, Paulson et. al. had the cards in their deck! Yet they opposed restrictions on executive compensation on the grounds that limiting such would dissuade institutions from participating in the Program, and they deemed maximum participation as essential. With these two giant financial institutions dying on the vine, why did Paulson not think that the bargaining chips were not on his side of the table?
So, mistakes were made. Nonetheless, the success that Paulson, Bernanke and Geithner achieved in avoiding a world financial meltdown is surely deserving of thanks from every American, regardless of their political persuasions. This is the main thread that emerges from “On the Brink.”
March 31, 2015
This was an excellent complement to Tim Geithner's "Stress Test". Paulson, Geithner and Bernanke were the key players in mitigating the impact of the 2008-09 financial crisis, and the dedication, teamwork and diligence they and their staffs applied to the enormous issues we faced were nothing short of remarkable. Even just six years later, it's impossible to imagine their being able to get Congress to do what it did to supplement their herculean efforts, it's become that much more dysfunctional in Washington. I won't attempt to hide my bias: these men kept our financial system from going down and causing untold pain in the broader economy. I'm as much a free-market capitalist as the next economic conservative; but, working in the investment business before, then and now, I recognized the risks we faced that went largely unperceived by the general public and media. As unpalatable as many of the solutions appeared on the surface to be, we had no good alternatives and no time to keep looking for more of them. On the narration: great choice of narrators - he didn't sound much different from Paulson himself, and he read with great pace. Nice forward read by and interview of Paulson included.
September 7, 2016
Leaving aside whether Paulson did the right thing or not, my major issue with this book is it almost exclusively based on Paulson's memory, and the memory of "others." There is no bibliography. There are no sources. No datebook. No call sheets. For a non-fiction book about an important event with a massive paper trail, this book stands as an unbelievable, astonishing feat of memory.
While I put some stock in the whole idea of he lived through it, he'll remember a lot, not to the extent it would fill a 500-page book. I'd let Paulson off the hook a little on this point, if the book wasn't structured as a day-by-day. Even if Paulson does remember everything accurately in this entire book, I don't know that I'm willing to believe he didn't consult documents to verify information.
I would think it would be important to corroborate more facts, dates and times against other sources, during an important time in US and global financial markets. While I don't believe Paulson is knowingly lying in the book, a reader has to read it as he is an unreliable narrator. That makes this book a strange document.
(I didn't read this in a day, like I've lied to GR. I don't note the days I start books. I put this down for months on end. I can't even guess how long it took me.)
While I put some stock in the whole idea of he lived through it, he'll remember a lot, not to the extent it would fill a 500-page book. I'd let Paulson off the hook a little on this point, if the book wasn't structured as a day-by-day. Even if Paulson does remember everything accurately in this entire book, I don't know that I'm willing to believe he didn't consult documents to verify information.
I would think it would be important to corroborate more facts, dates and times against other sources, during an important time in US and global financial markets. While I don't believe Paulson is knowingly lying in the book, a reader has to read it as he is an unreliable narrator. That makes this book a strange document.
(I didn't read this in a day, like I've lied to GR. I don't note the days I start books. I put this down for months on end. I can't even guess how long it took me.)
March 12, 2018
I just re-read this one because I am trying to find the best post-crisis memoir to assign to my class and this may be one (the contenders are Sheila Bair and Tim Geithner). I think I may like this one the best (especially after the re-reading) because Paulson was such a banking industry insider before and had so much power as a regulator that the perspective is a good one. He feels so bad for the bankers. And he just does not at all seem to feel bad for the mortgage holders that are getting foreclosed on. Yet he's such a down to earth guy. You like him by the end, but 10 years after the crisis I really wonder what it would have looked like to have another man or woman at the helm--maybe a Liz Warren or a Sheila Bair or any old reformer who while looking at a banking collapse would have thought first about the people and not the banks.
July 9, 2022
Decent writing. Doesn't explain how much actually happened or how much is Paulson's memory. He doesn't take notes so it's not like he can clearly remember everything exactly as it happened.
That said, from a pure political point of view his actions showed (1) that he shouldn't have been Treasury Secretary and (2) that for him the economy was purely Wall Street; there was no broader view.
That said, from a pure political point of view his actions showed (1) that he shouldn't have been Treasury Secretary and (2) that for him the economy was purely Wall Street; there was no broader view.
October 2, 2013
I can't help but consider Paulson to be a protected elite. America is not supposed to have "protected elites". Since the market crash of 2007-2009 if Paulson did what several people have said he--lied to Congress--and then said the key Wall Street Insiders the truth, he should be in Jail!
April 4, 2017
a great book describing the financial crisis, even though I lived through it, it helped me understand the why.
I did watch Too big to Fail, and even though what was in there is covered in the book, many of the things in the movie were compressed to fit.
I did watch Too big to Fail, and even though what was in there is covered in the book, many of the things in the movie were compressed to fit.
August 2, 2020
A true visionary! If men like him would not handle the printing press in such agile ways how could Americans continue producing tanks and bombs for the rest of the World? How could the President be able to kill so many terrorists if he were to use his own earnings to buy drones?
June 29, 2022
3.5
Le style d'écriture de l'auteur est un peu sec : le banquier n'est pas forcément écrivain. Les phrases courtes, sans véritable apport font que j'ai parfois eu du mal à avancer. La trame de fond est toutefois très intéressante : pourquoi l'administration Bush a t-elle agit comme elle l'a fait pendant la crise des subprimes ? L'avantage de lire les mémoires du secrétaire au Trésor à ce moment-là c'est qu'on comprend les enjeux cachés, les inquiétudes et la vue d'ensemble qui mènent à TARP.
Le livre est parfois un peu technique ce qui pourra en rebuter certains. Pas besoin d'un MBA pour comprendre mais il y a en revanche des abréviations ad nauseam. Je recommande si vous voulez comprendre la crise de 2007 de manière approfondie, avec un rythme suivant le calendrier serré des événements.
Le style d'écriture de l'auteur est un peu sec : le banquier n'est pas forcément écrivain. Les phrases courtes, sans véritable apport font que j'ai parfois eu du mal à avancer. La trame de fond est toutefois très intéressante : pourquoi l'administration Bush a t-elle agit comme elle l'a fait pendant la crise des subprimes ? L'avantage de lire les mémoires du secrétaire au Trésor à ce moment-là c'est qu'on comprend les enjeux cachés, les inquiétudes et la vue d'ensemble qui mènent à TARP.
Le livre est parfois un peu technique ce qui pourra en rebuter certains. Pas besoin d'un MBA pour comprendre mais il y a en revanche des abréviations ad nauseam. Je recommande si vous voulez comprendre la crise de 2007 de manière approfondie, avec un rythme suivant le calendrier serré des événements.
June 29, 2024
- Collapse of the financial condition usually has a very long lead up period. Lots of irrational things would be happening, however due to the fact that little fallout has occurred out of it, people will have an innate sense of false security. They become indebted with fear of missing out, and kept doing the prior irrational things
- The initial phase of crash is actually rather quiet - most people, seeing not many consequences had occurred (in 2008's case, the housing market, which started around 2006), concluded that this would be contained
- However, when things crash, they crash quickly and crash rather hard. The entire 2008 period is essentially the unwind of massive irrationality of decades in just one year
- The initial phase of crash is actually rather quiet - most people, seeing not many consequences had occurred (in 2008's case, the housing market, which started around 2006), concluded that this would be contained
- However, when things crash, they crash quickly and crash rather hard. The entire 2008 period is essentially the unwind of massive irrationality of decades in just one year
January 18, 2023
Very good in the first half, but I found that the second half dragged on a bit more than I had hoped.
June 17, 2019
Whenever I read memoirs of controversial political leaders, I tend to wear my skeptics glasses. Such books, after all, represent their final opportunity to justify their motives and decisions. That said, although I was deeply uncomfortable with Paulson’s decision to bail out Wall Street banks and still am, I found him to be a sympathetic character. After all, he had left a highly lucrative position as CEO and Chairman of Goldman Sachs to serve as Treasury Secretary for George W. Bush out of a sense of duty, something that I, a war veteran, can respect.
Although I disagreed with his choices to bail out various financial institutions and still do so, I appreciated his willingness in this book to explain his reasoning. For example, early on in the financial crisis, he did not have statutory authority to invest government money in money-losing ventures. As a result, he was able to bail out Bear Stearns, in the midst of a liquidity crisis (It had assets that could be liquidated if necessary but was unable to get the short-term financing it needed to pay its bills at the time.), but was unable to rescue Lehman Brothers because of the poor quality of the collateral it had to offer (Its actual value was significantly less than its book value.). He rescued AIG because he was initially under the impression that it was facing a liquidity crisis, but ultimately it had a capital problem. In other words, he made his decision to bailout AIG based on an incorrect understanding of the actual situation.
Mr. Paulson has been accused of playing favorites with the Wall Street banks, but I am willing to give him the benefit of the doubt in this case. Wall Street was his natural habitat and what he understood. He honestly believed that a collapse of Wall Street would have caused businesses throughout the nation to curtail their operations and possibly fail when their source of financing dried up, and he may well be right about that. At any rate, it is unfair to accuse someone of improper motivations when other factors can just as easily explain his choices.
Mr. Paulson repeatedly claimed that the bailouts went against everything he believed in, which appears to be laissez-faire capitalism with minimal government involvement. In some way, his description of his choices reminds me of a presidential election in which I am dissatisfied with the choices, often deeply so, and looking for a third option. People will often say that I just need to hold my nose, which usually just irritates me and hardens my resolve to find a third option. That said, I fully understand other people’s willingness to hold their noses and vote for the lesser of two evils and typically do a better job of respecting their choice than they do of respecting mine. Faced with a crisis situation and crisis timing, Paulson saw two highly unpleasant choices (financial collapse vs. bailouts) and made his decision. I don’t know if there was a third option that he was unable to see from the midst of the crisis.
What might have been the most interesting and definitely entertaining part of the book was his interactions with politics. The crisis occurred in an election year and he had to coordinate with Congress, the president and the presidential candidates. Decisions that seemed reasonable to him sometimes blew up in his face because they didn’t seem reasonable to other stakeholders, whether representatives and senators facing reelection or presidential candidates trying to gain support. I remember John McCain suspending his campaign so he could return to Washington and help with the crisis. As Mr. Paulson describes it, it was pure gambit, an attempt to look like he was taking the crisis more seriously than Barak Obama. As it turned out, the Democrats set a trap for him, and he stepped right in it, leading to a farcical scene in a meeting with senior government leaders that rivaled a Saturday Night Live spoof for its comedy.
At the close of the book, Mr. Paulson offers suggestions for modifying the financial regulatory system as well as how the finance industry does business. I have no idea if they would work and don’t even know if any have been implemented in the decade since the crisis; however, I definitely think they should at least be taken seriously by policy makers. When he wrote the memoir, he clearly wanted to get back to laissez-faire capitalism with appropriate industry and government rules to properly manage such issues as systemic risk without introducing new problems in the efforts to avoid the old ones. After all, it was a failure to understand and manage such risk that led to the crisis in the first place.
Although I disagreed with his choices to bail out various financial institutions and still do so, I appreciated his willingness in this book to explain his reasoning. For example, early on in the financial crisis, he did not have statutory authority to invest government money in money-losing ventures. As a result, he was able to bail out Bear Stearns, in the midst of a liquidity crisis (It had assets that could be liquidated if necessary but was unable to get the short-term financing it needed to pay its bills at the time.), but was unable to rescue Lehman Brothers because of the poor quality of the collateral it had to offer (Its actual value was significantly less than its book value.). He rescued AIG because he was initially under the impression that it was facing a liquidity crisis, but ultimately it had a capital problem. In other words, he made his decision to bailout AIG based on an incorrect understanding of the actual situation.
Mr. Paulson has been accused of playing favorites with the Wall Street banks, but I am willing to give him the benefit of the doubt in this case. Wall Street was his natural habitat and what he understood. He honestly believed that a collapse of Wall Street would have caused businesses throughout the nation to curtail their operations and possibly fail when their source of financing dried up, and he may well be right about that. At any rate, it is unfair to accuse someone of improper motivations when other factors can just as easily explain his choices.
Mr. Paulson repeatedly claimed that the bailouts went against everything he believed in, which appears to be laissez-faire capitalism with minimal government involvement. In some way, his description of his choices reminds me of a presidential election in which I am dissatisfied with the choices, often deeply so, and looking for a third option. People will often say that I just need to hold my nose, which usually just irritates me and hardens my resolve to find a third option. That said, I fully understand other people’s willingness to hold their noses and vote for the lesser of two evils and typically do a better job of respecting their choice than they do of respecting mine. Faced with a crisis situation and crisis timing, Paulson saw two highly unpleasant choices (financial collapse vs. bailouts) and made his decision. I don’t know if there was a third option that he was unable to see from the midst of the crisis.
What might have been the most interesting and definitely entertaining part of the book was his interactions with politics. The crisis occurred in an election year and he had to coordinate with Congress, the president and the presidential candidates. Decisions that seemed reasonable to him sometimes blew up in his face because they didn’t seem reasonable to other stakeholders, whether representatives and senators facing reelection or presidential candidates trying to gain support. I remember John McCain suspending his campaign so he could return to Washington and help with the crisis. As Mr. Paulson describes it, it was pure gambit, an attempt to look like he was taking the crisis more seriously than Barak Obama. As it turned out, the Democrats set a trap for him, and he stepped right in it, leading to a farcical scene in a meeting with senior government leaders that rivaled a Saturday Night Live spoof for its comedy.
At the close of the book, Mr. Paulson offers suggestions for modifying the financial regulatory system as well as how the finance industry does business. I have no idea if they would work and don’t even know if any have been implemented in the decade since the crisis; however, I definitely think they should at least be taken seriously by policy makers. When he wrote the memoir, he clearly wanted to get back to laissez-faire capitalism with appropriate industry and government rules to properly manage such issues as systemic risk without introducing new problems in the efforts to avoid the old ones. After all, it was a failure to understand and manage such risk that led to the crisis in the first place.
March 12, 2010
Reading this book I became aware how naïve I must have been back especially in 2008 as the financial system in the US lurched from crisis to crisis realizing now that there was so much work going on behind the scenes by collaborative teams from Treasury-Fed-Comptroller-SEC-FDIC and House and Senate. Paulson’s book reads almost like a day by day blow of events from 2007 through the handoff January 20, 2009 to the Obama team. Surprisingly, reading it often got me excited – like a good novel.
My only critique is Paulson is too nice to too many folks. Possibly Senator Dodd or Governor Palin got itsy bitsy slights, but he had nothing but good things to say about a huge cast of characters – from Bush to Bernanke.
I finished the book reflecting that maybe I was too partisan during that time period sitting from so far away from the action and relying mostly on WSJ and CNBC for tid bits. I think it is too easy (at least for me it was) to get sucked in to believing laissez faire has to be followed at all costs (good bye AIG, good bye ML, good bye Fannie, good by GM, good bye Citi) or that folks like Barney Frank and Nancy Pelosi are evil (and then you read Paulson talking about good were the intentions and how hard they worked to get legislation through that was important).
My biggest surprise was how many telephone calls Paulson had to make daily (one page shows his call log for one day), how often he worked (and well) with Tim and Ben, and how “good” the big bank CEO’s were in letting the Fed-Treasury cram down Government money on them. You wonder if anyone other than Paulson could have pulled it off?
I do believe there were systemic risks in the system. I think the crisis would have been worse had the Fed and Treasury not pushed as hard. I am glad that crisis is behind us, and we can back to shrinking the role of the government, and shrinking the leverage and risk taking of not just financial institutions, but also of individuals who borrow.
My only critique is Paulson is too nice to too many folks. Possibly Senator Dodd or Governor Palin got itsy bitsy slights, but he had nothing but good things to say about a huge cast of characters – from Bush to Bernanke.
I finished the book reflecting that maybe I was too partisan during that time period sitting from so far away from the action and relying mostly on WSJ and CNBC for tid bits. I think it is too easy (at least for me it was) to get sucked in to believing laissez faire has to be followed at all costs (good bye AIG, good bye ML, good bye Fannie, good by GM, good bye Citi) or that folks like Barney Frank and Nancy Pelosi are evil (and then you read Paulson talking about good were the intentions and how hard they worked to get legislation through that was important).
My biggest surprise was how many telephone calls Paulson had to make daily (one page shows his call log for one day), how often he worked (and well) with Tim and Ben, and how “good” the big bank CEO’s were in letting the Fed-Treasury cram down Government money on them. You wonder if anyone other than Paulson could have pulled it off?
I do believe there were systemic risks in the system. I think the crisis would have been worse had the Fed and Treasury not pushed as hard. I am glad that crisis is behind us, and we can back to shrinking the role of the government, and shrinking the leverage and risk taking of not just financial institutions, but also of individuals who borrow.
July 29, 2018
I resisted the impulse to shell out 30 bucks and buy the hardcover when it first came out. As a bargain bin special for $8 one year later, I am satisfied that I received my money's worth. Books like this have a tendency towards self-justification with limited admissions of error or bad judgement. The value of this book is its portrayal of the sheer panic and confusion that racked global financial markets. While Paulson confidently traces his career from Darthmouth to Harvard Biz to Wall Street amassing massive personal wealth and leapfrogging John Corzine to take over Goldman Sachs, he confesses that the financial crisis humbled him. He comes across as a frantic, hyperactive fireman trying to extinguish a forest fire with a garden hose. His perspectives on the political infighting, finger pointing and fragile egos along the New York/Washington DC corridor are quite engaging. Despite his treatment in the press and the looming judgement of history (i.e. the growing consensus that he should have bailed out Lehman Brothers before AIG), Paulson shows a very human side. The Christian Scientist who needs 8 hours of sleep every night and loves to view wild birds in natural habitats can steamroll his way through the Federal Bureaucracy, Congress and Wall Street to get things done. It is troubling to think what might have happened if Bush had appointed a more cautious Treasury Secretary who could not forge allliances with the likes of Ben Bernanke, Tim Geithner. Nancy Pelosi and Barney Frank. History will judge Paulson somewhat harshly but it becomes easier to forget how panicked we all felt back in the fall of 2008 as the world stared into a financial abyss. This guy jumped into the ring and gave it his best shot.
June 29, 2010
It took a long time to read this book. The material was interesting - it was great to see what was happening behind closed doors during the financial crisis. It definitely gave me a new perspective on a variety of events and people - the Lehman Brothers failure and George W. Bush to name a couple. I generally felt that Paulson was being straightforward and honest throughout the book, and that he did a decent job avoiding some of the financial jargon that could really trip readers up.
A small problem I had was just trying to keep track of the full cast of characters. Some of the main ones are listed in the front of the book, but there were plenty of times where I ended up googling someone to find out who they were.
The bigger gripe I had was that despite the underlying story being a huge crisis with drama everywhere you look, the book came across as very dry and somewhat tedious. It could be argued that this is a benefit - after all, there's enough drama in the true story, and this is an accounting of the facts behind the scene. However, it felt like I was reading an itinerary, or the minutes of a meeting, rather than a story.
It's too bad Michael Lewis didn't collaborate with Paulson on the book. As it is, I'll be checking out The Big Short to see how Lewis dealt with the crisis (albeit from a much different viewpoint).
A small problem I had was just trying to keep track of the full cast of characters. Some of the main ones are listed in the front of the book, but there were plenty of times where I ended up googling someone to find out who they were.
The bigger gripe I had was that despite the underlying story being a huge crisis with drama everywhere you look, the book came across as very dry and somewhat tedious. It could be argued that this is a benefit - after all, there's enough drama in the true story, and this is an accounting of the facts behind the scene. However, it felt like I was reading an itinerary, or the minutes of a meeting, rather than a story.
It's too bad Michael Lewis didn't collaborate with Paulson on the book. As it is, I'll be checking out The Big Short to see how Lewis dealt with the crisis (albeit from a much different viewpoint).
March 10, 2010
Near the end of former Treasury Secretary Henry Paulson's memoir about his role during the greatest financial disaster to hit the U.S. since the Great Depression he writes, "[T:]he crisis did not shake my faith in the free-market system." Along with regularly placed confessions by Paulson letting the reader know that he hated what he had to do and that it went against everything he believed, this is about all the reflection and analysis we get from him, the man at the center of averting, if he is to be believed, a financial catastrophe.
The who, what, where, and how are all here. Unfortunately, there is no why. He tells us that the needed regulatory control didn't exist, but he doesn't tell you that he, as CEO of Goldman Sachs, was involved in lobbying the government for easing that regulatory control. He writes that letting these Wall Street firms go under would be devastating for the nation, but he never explains to us how letting Bear Stearns or AIG fail would affect the everyday life of the average American. And most importantly, he never explains why the free-market system that he still puts his faith in needed the biggest government bailout and intervention in our history.
As a result, Paulson's book is a disappointment and those looking for an understanding and in-depth analysis of the financial crisis should look elsewhere.
The who, what, where, and how are all here. Unfortunately, there is no why. He tells us that the needed regulatory control didn't exist, but he doesn't tell you that he, as CEO of Goldman Sachs, was involved in lobbying the government for easing that regulatory control. He writes that letting these Wall Street firms go under would be devastating for the nation, but he never explains to us how letting Bear Stearns or AIG fail would affect the everyday life of the average American. And most importantly, he never explains why the free-market system that he still puts his faith in needed the biggest government bailout and intervention in our history.
As a result, Paulson's book is a disappointment and those looking for an understanding and in-depth analysis of the financial crisis should look elsewhere.
February 10, 2017
The bailouts were complicated. Even reading the WSJ, I couldn't follow everything that was happening. This book does a great job of spelling it out in a way that one can follow.
The writing is honest, with praise for both Bush II and Obama, and criticism of several members of Congress. Paulson doesn't hide the physical effects of the stress he was under. Most authors would.
Paulson has some tremendous blind spots. Some bank activities are really just gambling. That should be stopped. The only mention of the speculative element is in a question from Bush II. The big banks need to be broken up, probably based on geography.
Great narrator.
The writing is honest, with praise for both Bush II and Obama, and criticism of several members of Congress. Paulson doesn't hide the physical effects of the stress he was under. Most authors would.
Paulson has some tremendous blind spots. Some bank activities are really just gambling. That should be stopped. The only mention of the speculative element is in a question from Bush II. The big banks need to be broken up, probably based on geography.
Great narrator.
March 21, 2010
Part Biography, Part Analysis of the financial crises. Due to the crises, he was forced to do things he didn't believe in (government intervention) to save something he did believe in (our free market financial system). He didn't create the problem but worked diligently to rescue our financial system. It could have been much worse but for his efforts. He made mistakes but as I consider the totality of what he did against the backdrop of the breadth and depth of the problems we faced, I am grateful for his work as Treasury Secretary. I believe his motives were genuine and his work ethic and dedication are beyond reproach. Writing was a bit hokey and awkward at times and there were times I wanted more depth on arcane financial information but for the most part I thought he struck a good balance. I'd recommend to anyone. Obama and Bush came off looking better than I would have thought. McCain and Palin look like the buffons I suspected they are.
January 26, 2011
Written with his mother's advice in mind..."if you don't have anything nice to say about anybody, don't say anything at all"...so in this book, all the bureaucrats are strong, all the politicians are good looking and all the bankers are above average.
Ok, so he can write a book that deftly avoids being critical of anyone. And as such, all book really does is document, on a broad scale, the major events of the Great Recession from the view at the top. No great insight here.
But I did like his afterward where he summed up what he thought the next steps should be to address the situation to avoid such a severe problem again. Unfortunately, it doesn't seem that any of his suggestions are taking deep root.
Ok, so he can write a book that deftly avoids being critical of anyone. And as such, all book really does is document, on a broad scale, the major events of the Great Recession from the view at the top. No great insight here.
But I did like his afterward where he summed up what he thought the next steps should be to address the situation to avoid such a severe problem again. Unfortunately, it doesn't seem that any of his suggestions are taking deep root.
December 30, 2013
His view appears to be that a lot of very smart people worked very hard to prevent a global meltdown. However, for those of us who lived through it, it appears he was pretty much clueless -- rolling from one emergency to the next and never getting ahead of it. Ironically he writes that on 8/9/2007 "the crisis in the financial markets arrived from a corner he did not anticipate-- housing" and yet the FDIC, the states, the government agencies are suing almost any bank in the country for loans they made as early as 2004. So bank managers should have known things were going wrong in 2004 but the Secretary of the Treasury and former CEO of Goldman Sachs had no clue until 8/9/2007? Hard to believe.
March 8, 2010
the short sellers are out killing the banks, the world is about to collapse, the market must be sent a strong message, arbitrary mergers... x300 pages.
then some not-so original ideas on how to reform the system... mostly boiling down to "keeping peoples skin in the game".
anyone who believes in the efficient market hypothesis should read this.
then some not-so original ideas on how to reform the system... mostly boiling down to "keeping peoples skin in the game".
anyone who believes in the efficient market hypothesis should read this.
May 29, 2012
Part history, part revisionist history, quickly begins to sound like self-fulfilling prophecy.
Funny too how he makes no mention in the book of his 2007 efforts to try to partner with money managers to buy up as much as $100 billion in subprime loans and "stabilize" those so-called structured investment vehicles. They didn't bite, so it quickly fizzled.
Funny too how he makes no mention in the book of his 2007 efforts to try to partner with money managers to buy up as much as $100 billion in subprime loans and "stabilize" those so-called structured investment vehicles. They didn't bite, so it quickly fizzled.
January 12, 2014
Painful read for me. It is proof that he is an idiot and unsuitable for the job of Treasury secretary, so reading about one bad economic decision after another was very hard to stomach, especially since the book came out so soon after the crisis. I had to keep putting it down. The only person dumber and less suitable is Geithner, a fact that is also apparent in this book.
February 13, 2010
Paulson reveals that he is a closet democrat. Had great things to say about Pres Bush, Barney Frank, Ben Bernanke, Tim Geithner and himself. He didn't like McCain. Difficult read but lots of good info.
October 13, 2017
Good book if you are looking for a step by step response of US govt institutions of 2008 crisis. However, there are no bad guys in the book which is sad. Paulson goes to great lengths to show every banker as statesman material
May 28, 2013
Not impressed Paulson
April 15, 2014
I had no idea how close we were to economic catastrophe in 2008. Read this book and learn how ideology almost sent us into the abyss, and how George Bush may have saved us all.
July 11, 2011
The book wastes no time on lengthy introductions or narrative preambles. The very first sentence is a direct question from President Bush to Paulson. ("Do they know it's coming Hank?" - "they" being Fannie Mae and Freddie Mac, and "it" being the seizure of the control of those companies by the government.) The overall narrative style of the book is very direct and conversational, which makes for an easy and straightforward read. This tone of voice is at odds with the more deliberate and cerebral image that we've got of Paulson from his public appearances. In my opinion, this is one of the virtues of the book - I don't think I would be able to sit through this many pages of Paulson's monotone, and all the technical jargon would have been unbearable. Instead, we get a very personal and personable account of one of the most difficult moments in the history of US financial system. Paulson is also very generous with bringing up details of his own life, which make him even more relatable. My personal favorite was his admission that he needs eight hours of sleep at night. It may be a small thing, but I believe that good night's rest is severely underappreciated and undervalued, especially in high-power circles like the financial sector.
In the chapter on Paulson's personal life before joining the Bush administration we learn about the main highlights of his biography. The chapter is not long, even though Paulson has enjoyed a very versatile and interesting career. He had worked in Nixon administration, but since then has largely stayed out of politics. His family is very liberal, which makes for some interesting conversations at the dinner table and family reunions I'd imagine.
The chapter on the economic and financial turbulence that preceded the great banking crash of 2008 is very fascinating and educational. Even though it deals with many subtle and technical topics, it is written extremely well and even people who have never been exposed to the inner workings of the financial system should be able to follow it without much difficulty. Even so, it is impossible to keep track of all the moving parts that constitute such a complex system, so if you feel that you still don't understand everything that went wrong, you are not alone. It is doubtful that even those who were in charge of situation at the time fully appreciated the problems that were brewing.
The chapter on Bear Stearns crisis in March of 2008 is a fascinating study in behind-the-scenes happenings of one dire crisis. Most of the most important events happened over one tumultuous weekend, and this chapter details all of the relevant negotiations that were going on at the time. We are led to believe that the bailout of Bear Stearns was inevitable, and the least evil of all options that were on the table at the time. Paulson keeps stressing that a failure of the government to act at that moment would have had major serious ramifications for the entire financial sector (a theme that he comes back to throughout the book), but he doesn't go into the details of why in fact this would have been the case.
By late March, however, it became increasingly obvious that another major financial institution was working under an increased strain. Lehman Brothers was having major difficulties, and unless something got done about it the company was headed for a collapse. However, it is still not entirely clear why this should be the government's problem. A collapse of such an important player would certainly have dire consequences and would unsettle many investors, but it is not clear that this would cause the collapse of the entire financial system. Meanwhile, the problems with Fannie Mae and Freddie Mac continued to simmer, with no immediate political solution in sight.
When the summer rolled in, the crisis with Fannie Mae and Freddie Mac was coming to a head. For better or worse the requisite government measures that Paulson was proposing had much more support among the Democrats than Republicans. This is not surprising at all - they were in control of Congress and had much more leverage which to use to get their own legislative agenda through, including the very unpalatable block grants. Fannie Mae and Freddie Mac were becoming amenable to government's terms, and by the end of summer it started to seem that the worst was over.
Unfortunately, the sense of calm was not to last. In September it became obvious that Lehman Brothers would not survive and to Paulson and others in the Treasury Department it became an imperative to work out a deal with private buyers to rescue Lehman. Paulson insists that during the negotiation with the potential buyers the position of the US government was very clear: there will be no government financing of the rescue. However, the very fact that the government worked so industriously and doggedly at rescuing Lehman must have sent a signal to anyone that government felt that it had to do absolutely anything in its power to help Lehman survive. It is hard to imagine that this not have a very strong impact on potential buyers when they were looking into their options. At the very least it would have made them extremely skittish to risk their own money to bail out a competitor when it was more than likely that the government would eventually have to do the same without their help. In fact, there was no legal way for the government to help, but that was not exactly clear to the potential buyers. In the end the most serious potential buyer, UK's Barclays, decided against buying. After that the faith of Lehman Brothers was sealed; they had to file for Chapter 11 bankruptcy within a week.
And that's when the wheels really started to come off the cart. The bankruptcy of Lehman Brothers sent shockwaves through the World markets that no one had anticipated, or so are we led to believe. Soon enough investors around the world started having doubts in solvency of other major investments banks, and it started to look like all of them might soon be under the peril of having to declare bankruptcy. The whole World financial system, so it seemed, was on a brink of total collapse. The consequences of such a dire predicament would have been catastrophic indeed, on par with the Great Depression, or worse.
We also finally learn where the $700 billion dollar TARP price tag came from. In a nutshell, if the total value of all the mortgages in the US is $11 trillion, and only about 10% of those are in a peril of imminent foreclosure, then about $1 trillion would sound like a reasonable amount of money that needed to be available for a bailout. However, $1 trillion sounds pretty bad, so if you can make it look like much less than that it would politically be much more feasible to get the Congress to foot the bill. Many pundits in the media had suspected as much, but it's good to finally get a confirmation from Paulson himself. To me at least, it looks rather sketchy that the secretary of the Treasury would be making such off-the-cuff estimates of required funds. I would have much preferred that there were a much more solid technical analysis that had led to this number.
Most of the rest of the book is a blow-by-blow narrative of how Paulson worked with various government officials, prominent politicians from both houses, and top-level bankers on coming up with the plan and legislation that would help prevent the total financial collapse. This narrative can be rather gripping and high-paced at times, but there are also moments when it overwhelms with technical details. However, these details in my opinion are absolutely necessary for the purpose of this story.
Fortunately, there is a glossary of all the terms and acronyms at the end of the book. There is also a list of all the main protagonists at the beginning. Unless you are complete political and economic information junky, you will definitely appreciate both of these lists.
In one aspect this book may not be able to achieve its goals. In terms of pure politics, the narrative raises many red flags for those who have a nagging suspicion that Paulson is in fact a committed big-government Republican, or even worse - a RINO. He is a bit too quick to praise some very prominent Democrats (like Barney Frank, Barack Obama, Chris Dodd, etc.) and is either mute on characterizing some Republican political operatives (Karl Rove), mostly critical (John McCain), or largely critical (Sarah Palin). His appraisal of President Bush is rather too defensive (He's a good guy, honest!) and seems to be geared more towards appeasing liberals (including all the members of his immediate family) than towards reaffirming his standing with the small-government conservatives. In fact, Bush is the only Republican politician that features even remotely prominently throughout the book. His attitude towards Chinese government officials is a bit troubling as well. I understand that as the chairman of Goldman Sachs he had built his reputation and fortunes by working closely with Chinese market, but it's a not a good sign when on several occasions a Chinese official that Paulson interacted with comes across as a more market-oriented of the two. I might be misreading those particular anecdotes, but my gut-level impression supports the notion of Paulson being a big-government politician, his repeated support for free markets notwithstanding.
The final chapter of the book ("The Afterward") is a bit puzzling as well. It is not strictly speaking an afterward of the policies that had been implemented, but more of a chapter dedicated to the lessons that he took home from the crises. Most of those lessons seem very plausible, but I feel that there is an inherent contradiction between some of his positions. On one hand he decries the fact that the top ten US financial institutions control some 60% of the overall market, and yet he calls for an increased control and regulation. The last time I checked it is exactly the excessive regulation that is favorable to the existence of few big companies. The smaller ones just don't have enough resources to invest into the ever more burdensome regulatory compliance.
However, the strangest aspect of the afterward is that there is no reappraisal of TARP and other controversial policies that had been talked about in this book. A year has passed since Paulson left the office, and even thought it still might be too early to make a complete analysis, certain general comments could have been made. As is we are left to make up our own mind about the legacy of those policies. In particular, I would have liked to hear his take on other major financial interventions that have happened under the Obama administration. Many of those policies, rightly or wrongly, see TARP as the template on which they were based. I was really surprised to find Paulson mum on this subject.
All of the shortcomings aside, this is an extremely fascinating and very readable book. It gives a first-hand account of the epicenter of the worst financial crisis since the Great Depression, and the seriousness of the situation is very palpable from every page. The dire situation could also be compared to some other non-financial crises, like the Cuban Missile Crises for instance. In fact, I think it would even make a good movie. It would be fun to see who would get to play Paulson.
In the chapter on Paulson's personal life before joining the Bush administration we learn about the main highlights of his biography. The chapter is not long, even though Paulson has enjoyed a very versatile and interesting career. He had worked in Nixon administration, but since then has largely stayed out of politics. His family is very liberal, which makes for some interesting conversations at the dinner table and family reunions I'd imagine.
The chapter on the economic and financial turbulence that preceded the great banking crash of 2008 is very fascinating and educational. Even though it deals with many subtle and technical topics, it is written extremely well and even people who have never been exposed to the inner workings of the financial system should be able to follow it without much difficulty. Even so, it is impossible to keep track of all the moving parts that constitute such a complex system, so if you feel that you still don't understand everything that went wrong, you are not alone. It is doubtful that even those who were in charge of situation at the time fully appreciated the problems that were brewing.
The chapter on Bear Stearns crisis in March of 2008 is a fascinating study in behind-the-scenes happenings of one dire crisis. Most of the most important events happened over one tumultuous weekend, and this chapter details all of the relevant negotiations that were going on at the time. We are led to believe that the bailout of Bear Stearns was inevitable, and the least evil of all options that were on the table at the time. Paulson keeps stressing that a failure of the government to act at that moment would have had major serious ramifications for the entire financial sector (a theme that he comes back to throughout the book), but he doesn't go into the details of why in fact this would have been the case.
By late March, however, it became increasingly obvious that another major financial institution was working under an increased strain. Lehman Brothers was having major difficulties, and unless something got done about it the company was headed for a collapse. However, it is still not entirely clear why this should be the government's problem. A collapse of such an important player would certainly have dire consequences and would unsettle many investors, but it is not clear that this would cause the collapse of the entire financial system. Meanwhile, the problems with Fannie Mae and Freddie Mac continued to simmer, with no immediate political solution in sight.
When the summer rolled in, the crisis with Fannie Mae and Freddie Mac was coming to a head. For better or worse the requisite government measures that Paulson was proposing had much more support among the Democrats than Republicans. This is not surprising at all - they were in control of Congress and had much more leverage which to use to get their own legislative agenda through, including the very unpalatable block grants. Fannie Mae and Freddie Mac were becoming amenable to government's terms, and by the end of summer it started to seem that the worst was over.
Unfortunately, the sense of calm was not to last. In September it became obvious that Lehman Brothers would not survive and to Paulson and others in the Treasury Department it became an imperative to work out a deal with private buyers to rescue Lehman. Paulson insists that during the negotiation with the potential buyers the position of the US government was very clear: there will be no government financing of the rescue. However, the very fact that the government worked so industriously and doggedly at rescuing Lehman must have sent a signal to anyone that government felt that it had to do absolutely anything in its power to help Lehman survive. It is hard to imagine that this not have a very strong impact on potential buyers when they were looking into their options. At the very least it would have made them extremely skittish to risk their own money to bail out a competitor when it was more than likely that the government would eventually have to do the same without their help. In fact, there was no legal way for the government to help, but that was not exactly clear to the potential buyers. In the end the most serious potential buyer, UK's Barclays, decided against buying. After that the faith of Lehman Brothers was sealed; they had to file for Chapter 11 bankruptcy within a week.
And that's when the wheels really started to come off the cart. The bankruptcy of Lehman Brothers sent shockwaves through the World markets that no one had anticipated, or so are we led to believe. Soon enough investors around the world started having doubts in solvency of other major investments banks, and it started to look like all of them might soon be under the peril of having to declare bankruptcy. The whole World financial system, so it seemed, was on a brink of total collapse. The consequences of such a dire predicament would have been catastrophic indeed, on par with the Great Depression, or worse.
We also finally learn where the $700 billion dollar TARP price tag came from. In a nutshell, if the total value of all the mortgages in the US is $11 trillion, and only about 10% of those are in a peril of imminent foreclosure, then about $1 trillion would sound like a reasonable amount of money that needed to be available for a bailout. However, $1 trillion sounds pretty bad, so if you can make it look like much less than that it would politically be much more feasible to get the Congress to foot the bill. Many pundits in the media had suspected as much, but it's good to finally get a confirmation from Paulson himself. To me at least, it looks rather sketchy that the secretary of the Treasury would be making such off-the-cuff estimates of required funds. I would have much preferred that there were a much more solid technical analysis that had led to this number.
Most of the rest of the book is a blow-by-blow narrative of how Paulson worked with various government officials, prominent politicians from both houses, and top-level bankers on coming up with the plan and legislation that would help prevent the total financial collapse. This narrative can be rather gripping and high-paced at times, but there are also moments when it overwhelms with technical details. However, these details in my opinion are absolutely necessary for the purpose of this story.
Fortunately, there is a glossary of all the terms and acronyms at the end of the book. There is also a list of all the main protagonists at the beginning. Unless you are complete political and economic information junky, you will definitely appreciate both of these lists.
In one aspect this book may not be able to achieve its goals. In terms of pure politics, the narrative raises many red flags for those who have a nagging suspicion that Paulson is in fact a committed big-government Republican, or even worse - a RINO. He is a bit too quick to praise some very prominent Democrats (like Barney Frank, Barack Obama, Chris Dodd, etc.) and is either mute on characterizing some Republican political operatives (Karl Rove), mostly critical (John McCain), or largely critical (Sarah Palin). His appraisal of President Bush is rather too defensive (He's a good guy, honest!) and seems to be geared more towards appeasing liberals (including all the members of his immediate family) than towards reaffirming his standing with the small-government conservatives. In fact, Bush is the only Republican politician that features even remotely prominently throughout the book. His attitude towards Chinese government officials is a bit troubling as well. I understand that as the chairman of Goldman Sachs he had built his reputation and fortunes by working closely with Chinese market, but it's a not a good sign when on several occasions a Chinese official that Paulson interacted with comes across as a more market-oriented of the two. I might be misreading those particular anecdotes, but my gut-level impression supports the notion of Paulson being a big-government politician, his repeated support for free markets notwithstanding.
The final chapter of the book ("The Afterward") is a bit puzzling as well. It is not strictly speaking an afterward of the policies that had been implemented, but more of a chapter dedicated to the lessons that he took home from the crises. Most of those lessons seem very plausible, but I feel that there is an inherent contradiction between some of his positions. On one hand he decries the fact that the top ten US financial institutions control some 60% of the overall market, and yet he calls for an increased control and regulation. The last time I checked it is exactly the excessive regulation that is favorable to the existence of few big companies. The smaller ones just don't have enough resources to invest into the ever more burdensome regulatory compliance.
However, the strangest aspect of the afterward is that there is no reappraisal of TARP and other controversial policies that had been talked about in this book. A year has passed since Paulson left the office, and even thought it still might be too early to make a complete analysis, certain general comments could have been made. As is we are left to make up our own mind about the legacy of those policies. In particular, I would have liked to hear his take on other major financial interventions that have happened under the Obama administration. Many of those policies, rightly or wrongly, see TARP as the template on which they were based. I was really surprised to find Paulson mum on this subject.
All of the shortcomings aside, this is an extremely fascinating and very readable book. It gives a first-hand account of the epicenter of the worst financial crisis since the Great Depression, and the seriousness of the situation is very palpable from every page. The dire situation could also be compared to some other non-financial crises, like the Cuban Missile Crises for instance. In fact, I think it would even make a good movie. It would be fun to see who would get to play Paulson.
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