Yet More Paulson Revisionism

by: Felix Salmon November 19, 2008    
Felix Salmon

Felix Salmon

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The second part of David Cho's interview with Hank Paulson features even more revisionism. Get a load of this:

Paulson used his influence within the administration to win even broader powers from Congress, allowing him to nationalize major financial institutions, either in part or entirely. The bills were sweeping in scope and gave him the latitude to spend hundreds of billions of dollars as he saw fit...

Under the plan, Paulson was granted sweeping discretion to decide how to use the $700 billion and which financial firms would get the money. He could hire firms to manage the program without having to obey the standard government rules for contractors. He could even decide how to place conditions on companies receiving government help, including limits on executive compensation.

In the end, Congress granted Paulson every authority he asked for.

It's not easy to keep Paulson's stories straight, but when it comes to Lehman Brothers, the First Version was that it was a good thing that it was allowed to fail. The Second Version was that Treasury never had the power to rescue Lehman. And the Third Version is that he was trying desperately to save Lehman, as he says today:

When the investment bank Lehman Brothers released disastrous second-quarter earnings this summer, shortly before it went bankrupt, Paulson asked its chief executive, Richard S. Fuld Jr., what the next quarter would look like. Fuld said it might be worse. Paulson demanded that he find a buyer for the company.

Fuld balked, looking for other ways to save the firm. So Paulson moved ahead himself and tried, ultimately unsuccessfully, to engineer a deal.

"I was the only guy who drove that," Paulson said. "I called two banks when none of them were interested. I tried to get them interested. I urged them to do it. . . . That's what a Treasury Secretary needs to do when you are in a war."

If you're being charitable to Paulson, you might think that at least the second two versions are consistent - that Paulson tried to save Lehman despite not yet having the power to nationalize it, and that shortly afterwards, in the TARP bill, he was sure to give himself that power.

But it turns out that story doesn't wash, for two reasons. Firstly, Paulson is happy admitting to Cho that he has done lots of things as Treasury secretary which he was unsure he had the power to do. But more importantly, when he introduced the TARP bill initially, it didn't include a lot of the powers that Congress eventually gave him. Nouriel Roubini told the story of what really happened over a month ago: Congress realized that Paulson needed extra powers, and went to great lengths to give him those powers even though he never asked for them. As Nouriel says:

Paulson should be lucky that his early opposition to such public capital injection in the financial system did not prevent Congress - via the back door - to do what was right.

This is not Paulson "winning" powers from Congress which he "asked for" - it's Paulson being given powers by Congress which he didn't ask for. If there's any hero in this story, it's not Paulson, it's Barney Frank. And it's depressing to see Paulson try to grab whatever little credit there is to go 'round.

Disclosure: No positions

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This article has 7 comments:

  •  
    Nov 19 03:24 PM
    Anyone even considering Barney Frank a hero is surely full of baloney.
    Reply | Link to Comment
  •  
    Nov 19 04:23 PM
    What Blarney Frank didn't tell the public is that the REAL reason for the credit crisis is Weapons of Mass Destruction. Seems Saddam fed-ex'd them here right before he was captured.

    Blarney Frank deserving credit for anything good that happened has got to be the funniest thing Felix has written so far.
    Reply | Link to Comment
  •  
    Nov 19 04:49 PM
    Paulson quieted down the banking crisis with under $350 billion dollars; then said he would not need to use any more TARP money. That seems to me to be a good thing. Frank, Dodd and the Democrat Party, on the other hand, created the problem in the first place with a public policy of interference in the markets to goose up the home ownership factor without regard to market discipline. Paulson should change his mind. In this political environment, apparently honesty has no reward.
    Reply | Link to Comment
  •  
    Nov 19 05:53 PM
    Felix, This is probably the worst article of yours that I've read. Usually you start out with a better idea and then do better research on it.
    Reply | Link to Comment
  •  
    Nov 19 06:40 PM
    Everyday the markets vote on Paulson's management of this crisis. In the last 2 weeks there has been a loss of 125Billion in market cap for the banks he's chosen as survivors. I rest my case .
    Reply | Link to Comment
  •  
    Nov 19 11:00 PM
    Are you saying he is lying about his trying to sell Lehman despite Fuld? Because it sure sounds like you are. I personally believe this version. What would you do if you tried to help and that help was rejected - would you not later say they deserved going under?
    Reply | Link to Comment
  •  
    Nov 20 01:49 AM
    Is paulson a criminal? Who created the casino that sucks air money from every corner of the world? Is the house taking it all now? Where did the money go? Lost? preserved? ;) I'll say the latter is most likely the case. Don't get fooled. The cowboys are in better shape than ever, milking tens of billions. One thing sure to be worried is the tipping point. When will the whole world have enough of cowboys? Did cowboys go overboard this time? If so and the world reaches the tip point, then I don't see how ww3 can be avoid. Back to Paulson, Isn't this just obama taking the 100k miles old GM go have it. Seriously, Obama is the 1st in history, have we experienced this ever, paulson's act is just the beginning.
    Reply | Link to Comment
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