The Daily Bail

Hank Paulson sounds tough. His gravelly delivery starts out strong. The voice is that of a seasoned and fair-minded cop sorting out the ruffians, and the hard-boiled dialogue is straight from Raymond Chandler. Speaking of his plans to act immediately against some specific financial sector CEOs and their boards of directors, he says “Mr. President, ... we’re going to move quickly and take them by surprise. The first sound they’ll hear is their heads hitting the floor.”

As I say, a great opening. This is exactly what we need—a top-tier Wall Street dealmaker and experienced executive who knows how to bring major-league pressure to good banks gone bad, and who uses that knowledge to depose miscreants while safeguarding the public purse. We might have opened his book worrying about the fact that its author, the man who was charged with confronting Wall Street about the damage it caused to the economy and the country, used to run Goldman Sachs, but immediately he sounds like a big-time poacher turned gamekeeper. We can all sleep that little bit easier.

Or can we? This is only three lines into the book and something already sounds wrong. Haven’t we heard far too much lately about Wall Street attitudes and behavior to take Paulson’s statements so readily at face value? One sentence later and all is clear: Paulson is talking about his takeover of Fannie Mae and Freddie Mac, an important episode for people working at those Government Sponsored Enterprises, but largely a sideshow to the main business of 2008, which was the complete collapse and the unconditional bailout of the purely private firms—and the people who run them—that dominate Wall Street. Or, rather, the way in which the most “pro-market” people in our economy all became Government Sponsored and made out like bandits along the way.

Paulson sounds tough throughout the book and he has many growling moments that add to the theater. But on the substance that matters—when it came to his friends, associates, and even long-term Street rivals—he was weak. He had a soft and gentle touch. In his mind, no one was really to blame, and (almost) everyone could and would be saved, and at no cost to them—and never mind what that meant to taxpayers and ordinary citizens.

On the Brink is Paulson’s story, or at least a heavily vetted spin on his story. (He keeps no notes and never uses email—this is a smart guy.) The book focuses primarily on the period from September 2008 through the end of the Bush administration. Its author comes across in its pages as honest, overtaken by events, and swamped by odds beyond his control. But in reality he is a prime constructor of modern Wall Street, a man who worked long and hard—alongside his competitors—to bring you the risk-taking and crazy gambling of the 2000s.

That Paulson was also in charge when the Street crashed has its potential ironies, of course. And there is still a chance to save his reputation—that is what this book is all about–with a sophisticated web of misdirection. He seeks to make three closely connected points. If you buy them all, then Hank Paulson is a hero of mythic proportions. If you question even one, the whole house of cards around his reputation—and our current financial sector—starts to tremble like an investment bank facing its creditors.

And if we seriously dispute his interpretation on all three dimensions, then we are looking at something quite different. Far from being a hero (his view), or an unfortunate victim of events beyond his control (the mainstream consensus view), or even a man who was compromised by his deep Wall Street background but tried hard to use this knowledge to turn things around (a position favored by some Democrats), Paulson is something else entirely. He is an integral, if somewhat un-self-aware, component in the mechanism that not only shook down the American taxpayer in 2008-2009, but also set us up for repeated crashes—perhaps with even worse consequences—in the future.

Here are the issues. First, Paulson portrays himself as the thoughtful Wall Street insider who knew—somehow—that a crisis was coming. As he told President Bush, “If you look at recent history, there is a disturbance in the capital markets every four to eight years.” And he confides in the reader, “I was convinced we were due for another disruption.” This is a sensible insight and, if true, would qualify as prescient—although it’s too bad that Paulson turns out to be a procrastinator.

But before we get there—what exactly did Paulson know and when did he know it? This memoir is thin regarding his time at Goldman Sachs. We learn that he pushed out Jon Corzine, and that he built up the firm and internationalized it, but not much else. He talks about the development of financial instruments in and around the housing market in a very detached way, as if he were only an observer. There is no first-person involvement, no sense of the risks being taken and the rewards harvested. Paulson’s line is that he knew enough to be helpful but not enough to have engaged in any fraudulent transactions. Alternatively, he had no idea what was coming. He was just as much in the dark as everyone else running big Wall Street firms. The crisis that hit us was based just as much on his ignorance as it was on yours.

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