Just about anybody who has tracked the events that seared the financial markets of the world in the last three years will find Hank Paulson?s On the Brink exciting stuff. Paulson was often criticised as a none-too-impressive speaker in public, but he more than makes up for it in the racy narrative style that he employs. The book, of course, tracks the formative years of the former CEO of Goldman Sachs, but its operative portion is the period from when he became the treasury secretary in President Bush?s cabinet till the Obama administration took over in January 2009.
Within that period, the US economy swung through the full gale of the sub-prime crisis, the Bear Stearns bailout, the moving into conservator ship of Fannie Mae and Freddie Mac and, of course, the days and months around the collapse of Lehman Brothers and the almost similar fate for AIG.
It is dynamic. Page after page, Bernanke, Geithner, Warren Buffet, Dick Fuld, an array of the top Chinese leadership and, of course, President Bush move in and out as dramatis personae in the narrative. It does not get better than this. On the Brink is possibly the closest we will get to the thought process of the players who worked on those events, for quite some time. It will also remain coloured by the perspective the reader assumes of how Paulson handled the crises. The perspective is not dependent on the divide between the Republicans and Democrats. It concerns the role of free market enterprise and that of the state. As Paulson himself says, he will be remembered as having orchestrated the largest possible series of nationalisation of institutions, though on a short-term basis.
In all this, the key question that is bound to come up is whether Paulson is telling it the way the events really happened. The premise on which he builds up the narrative is that while Tim Geithner, the then New York Fed chief, and Ben Bernanke, the chairman of the Federal Reserve, were the others in the troika, it was he who led the crisis team. To an extent it is true, as the $700-billion Troubled Asset Reconstruction Programs, earned the sobriquet ?Paulson plan? and the Time magazine, too, saying, ?if there is a face to this financial debacle, it is now his?.
For instance, the $700-billion TARP was designed as a debt buyout programme. It was a plan to buy the distressed assets of the troubled entities like Citibank. But within days, the programme changed its plan to buy equity in them instead. Paulson says the change was impressed upon him by Warren Buffet. Yet, given that an equity stake is far more powerful than a debt support, this line of thinking must have occurred to a sharp banker like Paulson too during the drafting of the plan. Only, he does not say so.
The book will have few rivals in the pages where Paulson describes how the Lehman bailout plan came unstuck by September 16, 2008, after Bank of America and later Barclays Bank walked out of the proposed deal. As the investment bank filed for bankruptcy, the treasury secretary, faced with the prospect of another collapse at Morgan Stanley and a towering one at AIG, next talks of the phone call he put through to his wife, putting words to his fear of a possible collapse of the entire financial system. The only event that comes close is his meeting with the CEOs of the investment banks at the Fed, to sew up a sweetener plan for a possible buyer of Lehman.
The narrative, again, of course, seen from his viewpoint, shows how little the legislatures differ in democracies. Just as despite the absolute necessity, the Congress delayed handing him the freedom and authority to tackle emergencies like Lehman Brothers, the Indian Parliament, too, has been stifling very critical financial sector legislation. So far, we have escaped the consequences of the delays.
Paulson, who is now a fellow at the Johns Hopkins University after stepping out of the Treasury Building next to the White House, has told a very difficult tale well! He has remembered events without the use of notes and memoirs, using the crisp nature for the events. The only feeling that remains is if he has used his powers to remember all the occasion that mattered.
