Saturday, August 07, 2010

On The Brink by Hank Paulson

Just completed Henry "Hank" Paulson's On The Brink, his account of the financial crisis, the origins of the recession, and his actions as Treasury Secretary. There are two popular books on this topic,: this one and Andrew Ross Sorkin's Too Big To Fail. In this review I'll concentrate on Paulson's. When I write the review on Sorkin's, I'll make some comparisons.
While I followed the financial crisis closely and had strong opinions of what the appropriate government responses were, this book clearly illuminated much more. In both the popular media and the blogosphere, one can find many criticisms of the various programs undertaken by the government to attempt to stem the tide of financial failure that was sweeping through the market. I would speculate that the majority of that criticism comes from conservatives, which is unfortunate. The information seems overwhelming to me that the country barely escaped a second depression. Find any account of the bank failures in the 1930's as they grew from a trickle to a wealth-destroying roaring river, and the parallels are clear. in the thirties, the savings of farmers, individuals, and millionaires alike were destroyed as bank after bank succumbed to "runs". The same thing was well underway in 2007 and 2008, as hundreds of local banks failed, along with much larger IndyMac Bank, Countrywide, and then Bear Stearns and Lehman. We can speculate on which institution would have been next (Morgan Stanley, Wachovia and Merrill Lynch were likely candidates) but action prevented it.
Paulson tells all this in a straightforward style. He provides the inside the beltway view that would be difficult for others, as he recounts discussions with President Bush, who found the required actions completely opposite to his conservative beliefs, with Congressional Committee Chairmen and senior members, and with the various other Executive Branch and Fed officials.
He provides some personal background as well, and as I read the book, I'll admit to being pleasantly surprised to learn how many multi-millionaire investment bankers, like Paulson, grew up in modest circumstances.
There were surprises in those stories. Barney Frank comes off as a total stand-up guy, willing to take the heat. George Bush too, prepared to take on members of his own party who wanted a free-market outcome. Nancy Pelosi shows up as smart, political, and politically savvy. Barrack Obama is smart, informed, helpful until election day, and then unwilling to aid until sworn in. Chris Dodd flip-flops, and John McCain is made out to be a grandstander, who never understood how bad a crisis the country faced. In the private sector, Jamie Dimon of JP Morgan Chase, when push came to shove, was always prepared to do the right thing for the country.
In turn the explanation of the development of TARP, TALF, the monitoring of the markets as each day brought forth more calamity (The signal for me was when the Reserve Fund - one of the oldest, largest and most successful "broke the buck". If money funds devalued, the country would have faced another wave of value destruction the size of the equity elimination of residential real estate. Here again, Paulson recounts what was required to get politicians on board, to face the crisis, and take action. I've long felt that few of our elected officials have any understanding of the economy and market system; this book is and unhappy confirmation of that.
By itself, the play-by-play account of the weekend where Treasury and The Fed tried to come up with a way to save Lehman and prevent deepening crisis is worth the purchase price of the book.
Whether the government did the right thing or not will be the subject of analysis and argument for decades. For those of you who believe TARP, TALF, etc, were huge mistakes, before I cal l you an idiot, I urge you to read this book. If you still think that after reading it, you ARE an idiot.
At the end, Paulson gives his view of what kind of reform is required to regulate giant, multinational financial institutions. I guess in a few years we'll know how close the just past "FINREG" act comes to that.
Enhanced by Zemanta

1 comment:

Anonymous said...

Good post and this enter helped me alot in my college assignement. Gratefulness you seeking your information.