When a book comes under the authorship of Henry (Hank) Paulson Jr., it is a must read. Paulson, as Treasury Secretary under U.S. President George Bush, was perhaps the only functionary who had a ringside view of the events during the global financial crisis. When he accepted the offer of appointment in August 2006, he took care to ensure that his turf would not be encroached upon. The book clearly demonstrates that he was indeed the man in charge. Naturally, one expected a book from him to provide some deep insights into the crisis and the efforts made to resolve it. Sadly, there are hardly any. There are only occasional off-the-cuff comments on the financial imbroglio, but there is no big picture.
The book reads more like a plumber's diary, recording the efforts a high-power team made to fix the leaking and clogged pipes in the banking condominium. Truly, the team worked over-time to save the system on the brink . The record offers an amazing account of telephone conversations and meetings at different levels, but is short on details of policy backgrounders and official archives. With the crisis having been vigilantly tracked and reported by the media as well as the web-sites and bloggers, a wealth of information is already in the public domain. Viewed against this, it cannot be said that Paulson has provided any new material that goes to enrich our understanding of the crisis or its management.
There is strong evidence that Paulson was the anchor, and all other executives and agencies such as the Fed, and the SEC revolved round him irrespective of their statutory remits. Often, the lines were blurred and the decisions taken in an amoral manner. Ends justified the means! The crisis atmosphere and the battle cry to save the U.S. and the world lent him extra power to overcome any obstacle.
This was further fortified by his special rapport with President Bush. He was in regular touch with him either to report developments or seek approval for actions. Thus, he could persuade the Fed to extend a loan to J.P. Morgan for on-lending to Bear Stearns.
He could request Christopher Cox of the SEC to ban 'shorting' to ward off attacks on Morgan Stanley and Goldman Sachs. He could persuade the New York Fed to lend to AIG ostensibly on the ground that its "bankruptcy would be devastating, leading to the failure of many other institutions". In reality, he was saving the insurers! Surprisingly, he would not extend the same loan facility to save Lehman Brothers on the plea that legal advice was against it.
Even around mid-2008, there was criticism that Paulson had packed the Treasury and other key agencies with former executives of Goldman Sachs or, as the New York Times (October 19, 2008) said, “the Guys from ‘Government Sachs.'” The consequence was that these men led by Paulson equated the health of the giant Wall Street banks with the health of the United States. Paulson's account justifies the criticism that “he replaced the time-tested rule of bankruptcy law with opaque, ad hoc intervention in financial firms.” ( The Wall Street Journal , February 4, 2010.) There is a tedious account of the troubled asset relief program (TARP) and how the patchwork was rushed through. It broke all the rules of free market capitalism. And yet, the Treasury would not agree it was a bailout. TARP did stabilise the banking system, but, as reported by Neil Borofsky, Inspector-General, it cannot be deemed a success. There are reports of TARP abuses. The future of TARP hangs in the air and there is no consensus on banking regulation. In the concluding part, Paulson has offered some views on banking regulation which are rather soft.
Running through the pages, we find references to the exchanges between Paulson and Chinese leaders. He had established a wonderful working relationship with the top Chinese leadership. This ensured that China would play ball when the dollar and Treasuries came under stress. On the whole, some of the details the book provides are interesting, even if somewhat tedious in certain places. But it fails to clarify the doubts about the bailouts put through by the U.S. authorities.
ON THE BRINK:Henry M. Paulson Jr.; Pub. by Headline Publishing Group, London. Distributed by Hachette India, 612-614, 6th Floor, Time Tower M.G. Road, Sector 28, Gurgaon-122001. Rs. 559.