In Defense of Hank Paulson
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History may look more fondly upon him than he’s given credit for today. The bailout and the response to the crisis was executed better than many imagined, says Andrew Ross Sorkin.
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Andrew Ross:
Andrew Ross Sorkin is The New York Times’s chief mergers and acquisitions reporter and a columnist. He is also the author of the 2009 book, "Too Big To Fail." Mr. Sorkin, a leading voice about Wall Street and corporate America, is also the editor of DealBook, an online daily financial report he started in 2001. In addition, Mr. Sorkin is an assistant editor of business and finance news, helping guide and shape the paper’s coverage.Mr. Sorkin, who has appeared on NBC's “Today” show and on “Charlie Rose” on PBS, is a frequent guest host of CNBC’s “Squawk Box.” He won a Gerald Loeb Award, the highest honor in business journalism, in 2004 for breaking news. He also won a Society of American Business Editors and Writers Award for breaking news in 2005 and again in 2006. In 2007, the World Economic Forum named him a Young Global Leader. Mr. Sorkin began writing for The Times in 1995 under unusual circumstances: he hadn’t yet graduated from high school. Mr. Sorkin lives in Manhattan.
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TRANSCRIPT:
Question: In March of 2008, Hank Paulson refused to think about bailouts. Where did this visceral rejection originate?
Andrew Ross Sorkin: I think with Hank Paulson the concept of a bailout was anathema to him from day one. He was a Republican, he's a free marketeer, he believes in capitalism, and part of capitalism is believing in failure. And so the idea of bailing out an institution, I think, went against every part of him. And I think that was, for him, the biggest struggle to overcome, both in terms of his own ideals and then politically what it meant for the Bush administration.
Question: How did Paulson go from being anti-bailout to champion of it?
Andrew Ross Sorkin: Well, as someone who was so against bailouts, he was somebody who was also a pragmatist, and I think he recognized that as much as he didn't want to bail out many of these institutions, and they didn't necessarily deserve to be bailed out, that he needed to do so for the sake of the system. So when you look at the Bear Stearns bailout, for example, I think he had a realization, a recognition, that if he didn't do that, he was worried, frankly, at that time about a run then on Lehman Brothers and the rest of the system. Obviously, when he finally got to Lehman Brothers in September, he didn't bail them out. But once you got to AIG and once you started thinking about Morgan Stanley and Goldman Sachs, at that point I think he really saw the abyss on the other side and thought if we don't bail these firms out, if we don't find a solution to reinstall confidence in the system, the game is over.
Question: Some say Paulson’s failure to bail out Lehman was the policymaking error of the crisis. What do you think?
Andrew Ross Sorkin: There are two issues here. One is the consistency question, which is that throughout this period there was an inconsistency to Paulson and the administration's views on bailouts. You saw them save Bear Stearns, you saw them put Fannie and Freddie into conservatorship, and that created an expectation in the marketplace about how they would treat and handle Lehman Brothers. So the fact that they were then inconsistent on Lehman Brothers is in part what shook the confidence in the markets. So that is a piece of it. Should have they saved Lehman Brothers? Not necessarily because they deserved to be saved, but because the system needed them to be saved in part because of that consistency question. So the Lehman Brothers failure became a grand mistake because of those issues.
Question: Will the government be able to extricate itself from being a bailout machine?
Andrew Ross Sorkin: I'm afraid to say that over the next decade or longer it is going to be very hard for the government to really extricate itself from this, from Wall Street. And there's always going to be, in the back of investors' minds and in the back of the minds of people in the marketplace and the public, that the government could and may step in. And it's going to raise that whole consistency question all over again the next time a big institution gets into trouble, and what the role of government will be and how it will play going forward.
Question: During the crisis, why were there mixed messages coming from Paulson, Geithner and Bernanke?
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