Hank Paulson, hero?

By Felix Salmon
September 12, 2013

1338_cov304x4151.jpgHank Paulson had a good crisis. That’s why he’s getting hero-worship on the cover of Bloomberg Businessweek magazine; he is also pretty much the sole interviewee in a hagiographic 90-minute documentary, produced by Bloomberg, which is about to appear on Netflix. The combination is being promoted with the idea that “no one felt the impact” of the financial crisis more than Paulson, which is obviously false, but which also gives a pretty good idea of the whole project’s point of view. (The film never mentions, for instance, that Paulson received more than $500 million, tax free, for his Goldman Sachs stock when he sold it before moving to Treasury.)

Paulson has an interesting take on the various ways in which the crisis could have gone worse. First there was Bear Stearns: if he hadn’t managed to rescue the bank by finding a buyer in JP Morgan, says Paulson, then the chain reaction would have started. “If Bear Stearns had gone, then Lehman would have gone immediately thereafter, and we hadn’t fixed Fannie or Freddie yet. We would have had Armageddon”. The Bear rescue, according to Paulson, bought precious months during which Paulson could deal with Frannie, and during which Ben Bernanke could start setting up the various borrowing windows and liquidity programs which would help to stabilize the financial system.

Paulson also says, in the documentary — and this is a theory I haven’t heard before — that we would have been worse off if Bank of America had bought Lehman Brothers. If that had happened, he says, then there wouldn’t have been any buyer left for Merrill Lynch — and Merrill’s implosion would have been much worse than Lehman’s was.

It would be nice to see these claims — and Paulson’s tenure more generally — interrogated impartially by the Bloomberg Businessweek editorial machine, which is pulling out all the stops in terms of publicizing its Paulson extravaganza. (It’s even roping in Mike Bloomberg himself, something which has never happened before.) But with a documentary director who now considers Paulson to be “a national hero”, and a cover story which bears Paulson’s own byline, the former Treasury secretary was never going to be facing any tough questions.

To their credit, on the other hand, Bloomberg invited me to a promotional lunch with Paulson today, and so I took the opportunity to ask him about the perception that he always thought that he knew best, and that he considered popular opinion, and elected representatives, as annoying obstacles.

Paulson replied by saying that he “could not take greater exception with your comment”. He talked at some length about how he used his Goldman-honed client-schmoozing skills to get what he wanted from Congressional representatives on both sides of the aisle, but I must admit that I didn’t come away from his answer feeling as though he really respected those people’s views, or the importance of public opinion. And I’m perfectly happy to defend the argument that the arrogance of Paulson asking for a $750 billion blank check by presenting a three-page TARP bill was a significant reason why that bill was defeated.

I’m also happy that I got to ask Paulson about the secret meeting he held with the Goldman Sachs board in Moscow in June 2008. Even at the time, Paulson’s advisers thought it unwise; with hindsight, it seems indefensible. What could he have been thinking? But Paulson was unapologetic: “The incident you referred to was totally and completely appropriate,” he told me. “With a board of directors, people I hadn’t seen for years, I went to a social function with them, when we were in the same hotel, and said hi, and saw old friends”.

I don’t blame Paulson for the financial crisis; he was a good crisis manager — certainly better than either of his predecessors would have been — and he worked extremely well with Ben Bernanke and Tim Geithner. Still, everybody made mistakes during those long sleepless weeks, and it would be nice if some of the principals were more willing to admit that. And I also look forward to rather harder-hitting documentaries from Bloomberg in the future. This one feels altogether too promotional — both of Paulson and of Bloomberg Businessweek itself. The film is basically just one long interview with Paulson, intercut with a few words from his wife, and quite a lot of contemporary news footage and headlines. Including, notably, this anachronism:

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This story came out in November 2008; Bloomberg didn’t buy Businessweek until October 2009. Both Bloomberg Businessweek and Hank Paulson have a lot of good qualities. But this film does end up feeling as though it’s trying a bit too hard to make them both look good.

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