By David Wessel
David Wessel, The Wall Street Journal’ economics editor and author of “In Fed We Trust: Ben Bernanke’s War on the Great Panic,” recently finished “On the Brink,” the new book by former Treasury Secretary Henry Paulson, which covers much of the same time period from a different vantage point. Wessel says he’ll leave the book reviewing to other more neutral observers, but offered this list of nuggets he gleaned from Paulson’s account.
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Check out the complete list at the WSJ >>
And don't miss #8 below -- as further proof that GE was and is insolvent, saved only a government guarantee. GE Capital must face newer, far more stringent capital requirements in the future.
My apologies for the deceptive title to this story, but it's Wessel's original. Next time I take a few days off from the website, I plan to read Paulson's propaganda.
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1. Paulson says that ever since high school he has had occasional bouts of “dry heaves” at moments of exhaustion, of which there were several during his tenure as Treasury secretary. During contentious September 2008 negotiations on Capitol Hill over the Troubled Asset Relief Program’s restrictions on executive compensation, he recalls: “Exhausted, I went back to the small office I was using and had a bout of the dry heaves in front of Judd Gregg [a Republican senator from New Hampshire.] I wasn’t that sick, but I made a lot of noise, which seemed to galvanize Rahm Emanuel. ‘We need to get everyone back together again and get this thing done,’ he said. Harry Reid [the Senator majority leader] came in and asked if I needed a doctor. I said no, I was just tired.”
My Comment: So Paulson appearing to get weaker and sicker galvanized the effort to get TARP passed. We learned Sunday that John McCain getting on board the TARP train made the difference according to Paulson.
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5. Another exception is Sheila Bair: “I respected Sheila… (B)ut sometimes she said things that made my jaw drop. That morning she had said she wasn’t sure that Citi’s failure would constitute a systemic risk,” the threshold for extraordinary federal action. “She spoke as if Citi were just another failing bank and not a world leader — with $3 trillion in assets, both on and off its balance sheet — imploding in the midst of the worst economic conditions since the Great Depression… Although I believed she was simply posturing, I replied, ‘If Citi isn’t systemic, I don’t know what is.’”
My Comment: Nobody's perfect, but I've always liked Sheila more than any other banking regulator in DC. Her legend grows further now. Essentially, she hated Citigroup and management enough to contemplate letting them fail, at least on certain days. Like it.
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6. Toward the end of the Bush presidency, Paulson heard more than once from Bob Rubin, the former Clinton Treasury secretary and former colleague of Paulson’s at Goldman Sachs who was then among those at the top of Citigroup. “Bob Rubin… called to tell me that short sellers were attacking the bank… Always calm and measured, Bob put the public interest ahead of everything else. He rarely called me, and the urgency in his voice that afternoon left me without doubt that Citi was in grave danger.”
My comment: So Bob Rubin was the impetus for the ban on short-selling financial stocks. Let's not forget the banking system is still insolvent. The only change has been to the rules of accounting, FASB 157 and brethren.
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7. The federal rescue of Citi led directly to the rescue of General Motors and Chrysler. “Nancy Pelosi [the speaker of the House]… told me point-blank that it was politically impossible to rescue Citi and not help the automakers. She had until recently opposed bailouts for the car companies, which she considered poorly managed.”
8. Jeff Immelt, CEO of General Electric, frightened Paulson in early September by calling to say GE, which Paulson describes as “an American business icon,” was having trouble borrowing money by selling IOUs known as commercial paper, and visited Paulson several days later in person. In mid-October, Paulson called Immelt to discuss imminent plans for a Federal Deposit Insurance Corp. guarantee of all new bank debt, but not GE’s. Immelt told him not to worry, GE would manage and would benefit indirectly by a more stable banking system. The next day, Immelt called back and said the bank guarantees were hurting GE’s finance unit because banks could borrow with U.S. government guarantees and GE couldn’t. And on Oct. 16, 2008, Immelt came in person to press the matter with Paulson. Over the following weeks, Paulson and Treasury official David Nason “worked hard to get Sheila [Bair] comfortable” with extending the guarantee to GE. In November, she did. GE’s finance unit, along with Citi, became one of the biggest users of the program.
My comment: We'll have more on GE and Obama soon. GE is still insolvent just like everyone else. Repeat after me: Spend, Pretend and Extend.