On the brink: Inside the race to stop the collapse of the global financial system is an account of the events that took place prior to and during the global financial crisis and the federal governments’ efforts to save some of the major banks in the united states. It zips through Paulson’s career (with a political stint as an aide in the Nixon White House) and then concentrates on his extraordinary 30 months in treasury. When Hank Paulson (the then chairman and Chief Executive Officer at Goldman Sachs) joined the Bush administration as the treasury secretary of state July 2006, not much was expected of him since the economy seemed relatively stable and only a short time was left for the bush administration.
In his account of the insolvency of Lehman Brothers, a major player in Wall Street, and the financial crisis that was to follow, Paulson clearly admits that he made mistakes in his inability to parse the British understatement. At that time, he was actively involved in the facilitation of the takeover of Lehman Brothers by the Barclays Bank; he receives a call from his British counterpart Alistair Darling. The sad news he received was, “he should know that the British have some concern, their banks are already under a lot of stress, and we do not want them to be weakened any further”
A few weeks later, as Paulson and his colleagues thought that the takeover deal had been finalized hence prevented the imminent largest bankruptcy in the world, they prepare to announce their victory, and a call to the British Financial Service Authority however, changes the whole atmosphere as they learn that Barclays was not willing to rescue the Lehman Brothers.
Paulson candidly recounts his conversation with darling, “he made it clear that, without any hint of apology in his voice, that there was no way Barclays was going to rescue Lehman brothers, no specifics were given, only that he was not willing to have the United States unload its problems to the British tax payer”
About the recession, Paul admits that he made serious mistakes, but he is quick to defend himself too. He compounded the mistakes by failing to provide federal money to rescue Lehman Brothers, just as he had rescued the Bear Stearns earlier. In his defense, Paulson argues that such a move would be illegal since there was no willing buyer who had presented himself to borrow the money, unlike in the previous instance where JP Morgan took over Bear Stearns with the help of the Federal Reserve. Paulson asserts,” I am a firm believer in free markets, and I certainly had not come to Washington planning to do something to inject the government to the private sector “. He and his British counterpart clearly understood the catastrophic implications of the collapse of Lehman Brothers, but they concur that saving the bank involved a much larger investment of tax payers’ money.
It must be recalled that Paulson had declined an offer by Bush to become the treasury secretary. .His name had been given to Bush Jim Baker, a former Secretary of Treasury and Secretary of State in the bush administration and also good friend of the Bush family. Baker had noticed that Bush’s first two choices for the position were not finance people and thus did not have any significant ties to Wall Street, a key requirement for the position. His reason for staying away from Wall Street people as Paulson writes, “He (Bush) had a genuine contempt for Wall Street and its minions….”
Apparently, Baker believed that the president ultimately needed a secretary with Wall Street savvy because, he (Bush) believed that he was no getting very good financial advice. In accepting the position, he secured the promise of the president that would become the primary spokesperson on economic and financial issues of that administration.
He finally accepts the offer after much soul searching; little did he know that a year later, he would find himself at the epicenter of the worst most cataclysmic financial crisis since the great depression of the early 20th century. A long the way, Paulson is filled with self doubt. As Lehman tottered, Paulson once tells his wife,” I am really scared” he was on the verge of taking sleeping pills, something that was totally against his Christian beliefs. Filled with tension, he even admits to having to double over with painful dry heaves.
He then set out on what he called, to “restore credibility to treasury”. He did not seem to have given much thought to the state of affairs in treasury during the reign of the two other secretaries who preceded him. Paulson admits that at the onset of has term in treasury; he had already started preparing for the possibility of a financial collapse.
Paulson actually, admits to having presented some ideas about the imminent financial crunch to Congress. He was repeatedly forced to demonstrate to Congress that the economic situation was dire, at the risk of further panicking the markets “I explained that we needed to be prepared to deal with everything from terror attacks and natural disaster to oil price shocks, the collapse of a major bank or a sharp drop in the value of the dollar” .The administration did not appear to be worried by these claims even after Paulson listed the disturbances that had rocked the United States economy for the past fifteen years.
“The crisis in the financial markets that I had anticipated finally arrived force in august 9, 2007, it came from an area that we had not anticipated –housing- and the damage it caused was much longer lasting than all of us could have imagined” Paul actually gives an account of every day happenings, clearly describing the fast speed in which the whole incident happened.
This is truly a lifetime nightmare, things that people had not thought about were happening in quick succession and investors all over the globe were scared of massive losses especially in Wall Street. All the eyes were thus turned on the United States treasury secretary to remedy the disaster.
Paulson takes the reader through the intense moments that took place as he addressed urgent market conditions, weighed critical decisions, debated policy and economic considerations with notable players that included CEO’s of top Wall Street firms, presidential candidates Barack Obama, Mac Cain and the then president George W.Bush.
This book is fast and intriguing, retelling of the major decisions that were made with lightening speed in an attempt to save Wall Street. Readers who marvel at Paulson’s writing style should realize that he was an English major in Dartmouth, where he must have advanced his writing skills. Just like bush, he holds a MBA from Harvard. Most amazingly though, Paulson tells the story with absence of a ‘decider’. Bush, the president is almost inexistent, he is someone Paulson calls aside just to get an approval for something or another, but for most part of the story, bush is not to be seen anywhere.
In conclusion, on the brink is an important first person account of the crisis that rocked the world in 2008 and the subsequent rescue Program. Paulson is the only treasury secretary in the history of the United States to battle such a huge crunch. We must however admit that some decisions, though flawed, could hardly be avoided. We cannot deny that the financial crisis would have been so much worse, without his timely intervention. Just as Paulson explains that, “things happened and they happened quite fast. There was no let up and People didn’t get enough sleep, others were tired and edgy. Tempers flared and people shouted at one another.” Paulson, in this book, captures some of the speed and intensity of this period quite well. This experience, even from the outside, is an invaluable aid for the reader in the understanding of what happened.
Henry M. Paulson. On the Brink: Inside the Race to Stop the Collapse of the Global Financial System. Business Plus; 1 edition (Feb 1 2010)