What Henry Paulson's new memoir misses about his own responsibility for the global meltdown.
Investment bankers are among the least reflective of financial birds. They deal with the problem at hand without asking too many questions about how it got there. One of their favorite trills is, "It is what it is." So it's no surprise that On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, the memoir of Henry Paulson, the avid bird-watcher and former Goldman Sachs chief executive who served as Treasury secretary for 30 turbulent months, doesn't contain much second-guessing or navel-gazing. "I'm a straightforward person. I like to be direct with people," he tells us. His first-person account of the epic financial collapse is just that—straightforward and direct. Shorn of anonymous, unsourced dish, it nonetheless offers plenty of excellent color and detail.
Paulson reveals that he's prone to dry heaves when he's under pressure. And be forewarned: Reliving the epic, wholesale failure of the financial system and the nauseating bailouts can trigger a gag reflex. Paulson was in an unenviable position. The Bush administration was on its last legs, the economy was in recession, and the global financial system melted down smack in the middle of a torrid campaign season. Working with Federal Reserve Chairman Ben Bernanke —"an incredible stand up guy"—and the cool, calm and collected president of the New York Federal Reserve Bank, Tim Geithner, Paulson stitched together the guarantees, bailouts, and backstops that helped cushion the fall.
Paulson offers a brief glimpse of his compelling background: farm boy, Dartmouth offensive lineman, young aide in the Nixon White House and hard-charging Goldman Sachs banker. In some ways, Paulson was an odd fit for New York's most august investment bank. He's a birder, not a golfer; he doesn't use a BlackBerry; he's an earnest Christian Scientist and an inconspicuous consumer. The Paulsons have had the same toaster oven for 40 years. (He neglects to mention the $500 million in Goldman Sachs stock he sold upon assuming office at the treasury in the spring of 2006.)
As a condition of accepting the job, Paulson demanded to be President George W. Bush's chief economic spokesman. But Paulson, a halting public speaker, wasn't particularly good at constructing narratives about what was happening in the economy—leaving the public and his boss continually shocked at the succession of failures. In late April 2007, he said subprime mortgage problems were "largely contained." In March 2008, as Bear Stearns was about to implode, Bush asked: "We're not going to do a bailout, are we?" The response: "I told him I wasn't predicting one and it was the last thing in the world I wanted."
When the bailouts began, Paulson took charge, acting as investment banker in chief. He personally replaced the management of Fannie Mae and Freddie Mac and put the government's credit behind the faltering mortgage agencies. "We had, I thought, just saved the country—and the world from financial catastrophe," he writes.
But just as one crazy caper ended, a new one was about to begin. The reason: The Wall Street banks were royal screw-ups. Without passing judgment on them—these were members of his former fraternity—Paulson treats us to a parade of big shots asking the government to save their banks from their own incompetence. Here's Chuck Prince, Citigroup's hapless chief executive, at a dinner in June 2007: "Isn't there something you can do to order us not to take all of these risks?" Lehman Bros. chief executive Richard Fuld calls from India to ask if Paulson can get him flyover rights from Russia to get home more quickly. Then on the day before Lehman Bros. went bankrupt, Fuld pleads: "Hank, you have to figure something out." John Mack of Morgan Stanley begs: "Hank, the SEC needs to act before the short sellers destroy Morgan Stanley." On the Brink will do little to dispel the notion, which Paulson acknowledges, that some Republicans believe him to be a closet Democrat. His wife, Wendy, held a fundraiser for her fellow Wellesley classmate, Hillary Rodham Clinton, in 2000, and the Paulsons are big-time tree-huggers. His mother, a once-staunch Republican, had so soured on Bush that she urged her son not to take a job in his administration. Paulson love-bombs Barney Frank as "scary-smart, ready with a quip, and usually a pleasure to work with," praises Senate Majority Leader Harry Reid and notes that then-Sen. Barack Obama was "always well informed, well briefed, and self-confident."
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at email@example.com and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.
Photograph of former U.S. Treasury Secretary Henry Paulson by Win McNamee/Getty Images.