Q: Did you forget that the negotiations were about politics as much as they were about saving the banking system?
A number of bank chief executives might have forgotten about their duty to shareholders as they laid the foundations of the credit crunch, and failed to respond to its increasing inevitability. But few elected officials forget that ultimately, if they want to keep their jobs, they need to appeal to the electorate.
With homes being repossessed, or plummeting in value, jobs being wiped out and credit almost impossible to come by, the imperative for politicians was Main Street, not Wall Street.
This clearly frustrated Paulson. He was a man of the markets, and saw a solution for them. One former colleague recalls watching Paulson urging Congress to support his troubled asset relief programme. “I worked with him for seven years. This is not a man known for his patience or tolerance of fools. And when I saw him having to take these idiotic questions and saw his veins starting to pop, I half expected him to leap across the table and start pounding heads.”
But the elected representatives of the people are not as deferential as Goldman staff. And while some might indeed be financial illiterates, many others saw a man who didn’t have the answers to the most basic questions.
The reaction of members of the House of Representatives that voted against the Paulson plan on September 29 told the Treasury secretary everything his advisers should have.
Take Ted Poe, a Texas Republican, who said: “New York City fat cats expect Joe Sixpack to buck up and pay for all this nonsense. Putting a gun to the head of every American is not the answer.”
Here was an unelected official seeking to revive markets by taking $700 billion of other people’s money to create his own market, asking Congress to pass a law to let him do it that places him beyond the law.
With his background, track record, and lack of planning, how can he really have expected his original draft bill to even get put to a vote? But it was this hubris, a lack of authority, misjudgment of the imperatives of public life rather than private finance, allied to the self-interest of politicians facing re-election in a few weeks’ time, that killed the watered-down bill eventually put to Congress.
Why Hank Paulson has failed as Treasury secretary
Q: If you know so much, why didn’t you see the crisis coming?
Q: Every time you’ve spent money, you’ve said it would solve the problem. What’s different this time?
Q: If you’re going to cook up a plan, why not make sure it isn’t half-baked?
Q: Surely as a former investment banker, let alone Treasury secretary, you could have told SEC chairman Cox how ridiculous his short-selling restrictions were?
Q: Why was the bail out plan as originally presented so desperately short on detail?
Q: Did you forget that the negotiations were about politics as much as they were about saving the banking system?