On the Brink: Inside the Race to Stop the Collapse of the Global Financial System
Andrew Ross Sorkin’s Too Big to Fail left a clear impression that Sorkin has to a great extent merely repeated the words of some of the government and business titans who played major roles during the financial crisis—people who would be highly motivated to manage their public profiles. Among the handful that Sorkin and his team of researchers apparently relied upon most was Henry Paulson. The former Secretary of the Treasury was portrayed to a great extent as a hero in Sorkin’s account. It is striking how closely that version of Paulson’s role in the financial crisis mirrors the one told by Paulson himself. For any reader of both books, On the Brink expands upon Sorkin’s unchallenged version of the Secretary’s role and actions.
As with all books by major political figures, it is difficult to take the whole at face value. Few are objective, particularly when personal legacies are at stake. The blame placed on Paulson, more than any other figure during the crisis, was for the decision to permit Lehman to fail based on an ideological adherence to the principle of moral hazard. Many believe Lehman’s failure triggered a far worse financial meltdown than would have occurred if Lehman had received the sort of aid that prevented Bear Stearns from defaulting. Paulson points out countless times in his memoir that he did not have the legal authority to save Lehman. He points this out so many times that his claim sounds increasingly like a hollow attempt to erase the blame widely assigned to him. His rationale evaporates and smacks of hypocrisy when he criticizes British regulators for undermining the first deal for Barclays to acquire Lehman due to technical stock exchange rules, noting that he considered them a pretext. The following passage is also telling:
“Moral hazard,” I made clear, “is something I don’t take lightly.” But I drew a strong distinction between our actions in March with Bear Stearns and now with Lehman Brothers. I stressed that unlike with Bear, there had been no buyer for Lehman. For that reason I said: “I never once considered it appropriate to put tax payer money on the line in resolving Lehman Brothers.” How could I? There was in fact no deal to put money into.
What is almost farcical about the above is that the language in quotes is all that Paulson actually uttered the morning of the Lehman failure, directly linking his feelings about moral hazard to the decision to let Lehman fail. The rest of this passage, attributing the permitted failure of Lehman to other factors, has no direct quotes because there are none. Paulson goes on to state: “I’ve come to see that I ought to have been more careful with my words.” It was only after the full ramifications of the Lehman failure became apparent that he did indeed choose different words—those not in quotes in the above passage.
To an extent, the debate over Paulson’s preference as to whether Lehman should have been allowed to fail is irrelevant. Even had he wanted to somehow back Lehman with government funds, he would have found no support in Washington. A Lehman “bailout” would have been wildly unpopular with the great majority of Americans. As New York Times columnist, Joe Nocera, pointed out in his column on the one-year anniversary of the Lehman failure, the bankruptcy was damaging, but was likely necessary to gain the backing required to salvage the rest of the financial system.
Despite all the public persona management that drives much of the narrative, the seeming rudderless actions by Paulson and his key partners in managing the crisis make greater sense once one has read On the Brink. The former secretary provides a palpable sense of the nearly moment-to-moment developments and obstacles that necessitated changes in tactics to effectively cope with the threat. Whether Paulson had indeed erred and revised history in his discussion of the Lehman failure, it is clear he truly acted tirelessly to stave off a worse meltdown than the one that occurred. The guts of this book are his portrayal of the extremes of managing this crisis. Indeed there is much to admire about his resolve. As in most memoirs of this ilk, there is also much that is unaddressed.
Conspicuously missing from the book are comments on Paulson’s former colleague at Goldman, John Thain, regarding his most criticized actions before being forced out as Merrill CEO. Also absent, for example, is any explanation for the many phone calls to Goldman CEO Lloyd Blankfein throughout the crisis, as has been documented in the press. Paulson's feelings about Lehman’s vilified CEO Dick Fuld are understated. He generally paints Fuld as a sad figure, omitting the powerful frustration he is on record expressing about his dealings with the fallen CEO.
Surprising elements of the book are the extent to which Paulson describes former President Bush’s involvement in the crisis. While not up to his elbows in the relentless firestorm, Bush is here more engaged than has been apparent in other accounts. Paulson goes so far as to repeatedly express admiration for his former boss characterizing him as intelligent and able to put others at ease.
He also weighs in on the four personalities on the Democratic and Republican presidential tickets. He was impressed by Obama’s intelligence and notes that they spoke nearly each day during the crisis, but that these conversations ended as soon as Obama was elected. He is more neutral about the Republican ticket, though he expresses a certain irritation about exchanges with Palin. On the whole, he steps back and has a chuckle with the reader about the obvious political brinksmanship of both tickets, and nearly all of Washington. But through it all, Paulson describes how he persevered, and at certain critical junctures prayed. Reactions to his oft-mentioned prayer will vary. Some may admire his faith and others will ridicule it. That he resorted to it rather spontaneously, in a variety of settings, does indicate quite profoundly how filled with doubt was the former Secretary of the Treasury about his earthly ability to manage so extreme a financial crisis. No doubt, images of troubled genuflection are not what most would anticipate in reading this book.
If you have not yet consumed your fill of financial crisis books, this one is easily digestible, filled with interesting information, though with a certain amount of the inevitable artificial flavor. Champions of Paulson will no doubt see their admiration bolstered. Others will immediately recognize certain unabashed spin, and wrestle to judge the veracity of much of Paulson’s account, but will not doubt the fervor of his mission. Questions regarding whether certain institutions, most especially Goldman Sachs, were favored over others will not find answers in this book.
Ted Sturtz is Editor-in-Chief of the New York Journal of Books and a former Lehman Brothers Senior Vice President.