BOOK REVIEW: Insider’s view of the financial crisis

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By Henry M. Paulson Jr.

Business Plus, $28.99, 496 pages

Reviewed by Carrie Sheffield

Henry M. Paulson Jr.’s “On The Brink” is a wonkish fireside chat, a mix of personal and professional vignettes behind the scenes of the global financial crisis.

At times slow-moving, bogged down in an acronym-rich alphabet soup of complex financial instruments, the narrative starts with the former Treasury secretary detailing his rise to the perch of chief executive and chairman of Goldman Sachs and his decision to join the George W. Bush administration in 2006. Mr. Paulson writes that it was a difficult choice for him because of family pressure, including resistance from his mother and his wife, Wendy, a Wellesley College classmate and supporter of Hillary Rodham Clinton’s.

Just after coming to Washington, Mr. Paulson’s team acknowledged that it was impossible to know exactly what might have triggered a financial meltdown, and, unfortunately, part of their forecasting was hampered by fear that word of any worst-case-scenario modeling might leak out to the markets and spark a self-fulfilling prophesy.

Throughout “On the Brink,” Mr. Paulson gives a staunch defense of President Bush’s intellectual capabilities and innate curiosity, which Mr. Paulson says includes a natural feel for the market, thanks to his Harvard Business School MBA (the same laurel held, incidentally, by Mr. Paulson himself).

Mr. Paulson weaves in fascinating tidbits about the electoral politics surrounding the financial crisis, including how then-candidate Barack Obama received regular consultation from Mr. Paulson after gaining the Democratic nomination but abruptly stopped talking to him once he had snagged the presidency in November 2008.

Before the 2008 political campaign got into full swing, Mr. Paulson writes, Sen. Christopher J. Dodd, Connecticut Democrat, chairman of the Senate Committee on Banking, Housing and Urban Affairs, was too distracted by his presidential campaign to advocate for meaningful reforms to the behemoth, government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Sarah Palin was personally annoying and grating to Mr. Paulson, he writes, a political savant with little grasp of the financial markets but an uncanny grip on the pulse of the populist electorate. When Mr. Paulson spoke with Mrs. Palin about the decision to place Fannie and Freddie into government conservatorship, rather than probing for a contextualized, macroprudential analysis, Mrs. Palin asked first whether a few GSE executives who had been fired would receive golden parachutes, a favorite red-meat issue among the Tea Party crowd.

Instead of chapter titles, the no-nonsense Mr. Paulson uses milestone dates as chapter headings. Interestingly, he says he relied almost entirely on his memory and travel and call logs to write the book because “I have been blessed with a good memory, so I have almost never needed to take notes.”

Not everyone would agree his memory is fully accurate, however. Mr. Paulson’s revelations about Russia’s efforts to persuade China to dump some of its American debt have been denied by authorities from the former Soviet Union.

Indeed, China itself would have little incentive to disengage rapidly from the U.S. financial system, Mr. Paulson writes, thanks to deepening ties he helped forge while at Goldman Sachs and later at Treasury when he established the Strategic Economic Dialogue to address topics such as U.S.-China trade, economic imbalances, energy and the environment. His long-term relationship with the Chinese gives the reader a nuanced look at U.S. efforts to force Beijing to cease its currency manipulation, which to date have largely been unsuccessful.

Throughout the book, Mr. Paulson tries to extricate himself from the gridlocked culture of Washington, which he paints as a toxic atmosphere anathema to regulatory reform. Discussing his Christian Science faith - which he defends as embracing of medical technology - Mr. Paulson paints himself as a crusader and moralist for market transparency as a means to ensure smooth market functioning.

But despite this finger-pointing, Mr. Paulson acknowledges that his original diagnosis upon assuming office contained a glaring omission. While at Camp David during his first major briefing to Mr. Bush, Mr. Paulson writes, “Notably absent from my presentation was any mention of problems in housing or mortgages.”

Indeed, Mr. Paulson later admits that under his chairmanship, the President’s Working Group on Financial Markets placed misguided focus on hedge funds, some of the most stable financial institutions amidst the market turbulence.

“I’m a candid person by nature, and I’ve attempted to give the unbridled truth. I call it the way I see it,” Mr. Paulson writes. True to form, his plain-spoken prose is straightforward and largely accessible, except for his discussions of financial-instrument minutiae. However, Mr. Paulson’s details give the lay reader an insider’s view and shed some light on a convoluted financial system desperately in need of repair.

Carrie Sheffield, a former editorial writer for The Washington Times, is a graduate student at Harvard’s Kennedy School.

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