On the Brink
It’s been too long time since I’ve read a book. I picked up a copy of Hank Paulson’s On the Brink this week. It’s a very good read, and Paulson gives a gripping day-by-day account of his time as Treasury Secretary.
He received a lot of bad publicity over the closing months of his tenure for implementing TARP and other bailout plans, but this book puts into perspective just what he, and his department, had to contend with. In the last half of 2008, the financial world was rocked with crisis after crisis, and Paulson was at the center of it all – running around trying to do deals with banks, regulators, and Congress, while also in the midst of an election campaign. Many times Paulson was in the thick of dealing with one crisis when another hit. I even found myself thinking, “You can’t be serious!” whenever more bad news was delivered. Paulson and his team had to actually deal with it all.
He regarded that period as tougher than anything he ever had to do during his 30+ years at Goldman Sachs, and goes so far as to recount the occasional bouts of dry retching he endured as exhaustion and stress caught up with him.
Two interesting things occurred to me. Paulson goes to great lengths to cast President Bush in a positive light. Bush is depicted as always supportive, helpful, and even insightful. But to me the praise was a little too overdone to the point that it felt hollow. Bush’s credit mainly stemmed from him getting out of the way and letting Paulson do his job. Pelosi’s portrayal didn’t fare as well. (There’s a scene where his staffers are pulling all nighters in chaotic ad hoc offices on the Hill, running on take away pizza and diet Coke. Paulson goes to Pelosi’s office to speak with her, and everything there is prim and proper, and far away from the crisis happening outside the door. Someone takes his cup of Diet Coke away and pours it into a glass, and Pelosi says, “We don’t drink out of plastic cups here.”) Nonetheless, the book is still reasonably politically balanced as Paulson recognized that he needed the support of both parties to “save the US economy”.
The other striking thing was that many of the emergency powers held by the Fed and FDIC could only be exercised if there was a crisis that threatened the systemic integrity of the financial system. However, just about every institution mentioned in the book turned out to be “systemically important” – not just one or two, but over a dozen were on the brink of going belly up (and, as Paulson believed, the rest of the global economy along with them). There really are a lot of private institutions which are “Too Big to Fail”.
I recommend this book if you’d like a candid insight into what happens at the highest levels of the financial industry and political world. In early October 2008, I was in New York, feeling disturbed as I watched the markets turn to shit on Bloomberg. It was very late in the night, and I remember walking over to my hotel room window, which looked towards New York’s financial district. I wondered what the bankers were doing at that moment because I was sure a lot of them were pulling all nighters, trying to save something or other. I don’t have to wonder any longer, because this book tells that story.
3:28pm 
