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Paulson Defends Response to the Crisis, but Where Did the Crisis Come From?
The NYT gave Treasury Secretary Henry Paulson the opportunity to defend his handling of the financial crisis. The piece justifies his change in course where he subsequently rejected the original TARP plan that he urged Congress to pass.
While this change of course was striking, it is even more striking to see Paulson talk about the crisis like a hurricane that just came out of the sky. The piece begins:
"We are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy."
Yes, it was a really severe financial crisis, but it was also an entirely predictable financial crisis. A competent Treasury Secretary would not have been caught by surprise by this crisis. In fact, a competent Treasury Secretary would have been attacking the housing bubble and the over-leveraged financial system that laid the basis for this crisis from the day that he/she took office.
Instead, Secretary Paulson insisted that everything was just fine, refusing to consider that there were any serious problems in the housing market. Even when things began to unravel in 2007, he still insisted that everything was fine, minimizing the severity of the crisis at every point. Of course it is probably worth mentioning that Mr. Paulson personally made hundreds of millions of dollars at Goldman Sachs from the practices that further inflated the bubble.
In short, we have one of the chief arsonists telling us about his heroic efforts to combat the huge fire he faced. Somehow, I don't think many people will be applauding Mr. Paulson.
--Dean Baker
COMMENTS (6)
Quoth Paulson:
I have always said that the decline in the housing market is at the root of the economic downturn and our financial market stress.
Posted by: yes | November 18, 2008 6:15 AM
Shouldn't the point always be made that the housing bubble was a deliberate Bush policy to enhance the perception of wealth in order to hide how terrible the economy has really been under his watch? Job creation from the start wa atrocious. A policy of letting ordinary Americans stagnate while rich Americans grab all the growth for themselves was eventually going to implode.
Posted by: urban legend | November 18, 2008 3:38 PM
Urban Legend, I don't know about it being a deliberate policy. I mean, Dean was practically the only guy in the country talking about the housing bubble for a long time. I doubt if most of Bush's economic team, let alone, Bush, even considered the existence of the housing bubble until the last couple years, by which point the damage was done. They're all too blinded by ideology to notice these real-world phenomena, even when CEPR is waving incontrovertible evidence right in front of their face.
Posted by: Anonymous | November 18, 2008 6:05 PM
Urban Legend, I don't know about it being a deliberate policy. I mean, Dean was practically the only guy in the country talking about the housing bubble for a long time. I doubt if most of Bush's economic team, let alone, Bush, even considered the existence of the housing bubble until the last couple years, by which point the damage was done. They're all too blinded by ideology to notice these real-world phenomena, even when CEPR is waving incontrovertible evidence right in front of their face.
Posted by: Ryan H | November 18, 2008 6:16 PM
I think that for Paulson, to admit that he saw what was going on, and knew the consequences of it, while he and his brotherhood was making a lot of money by profiting from the situation, is to admit that he didn't care about the rest of the world, and to admit that he is faulty.
Why should he admit that ?
Posted by: Gerry Flaychy | November 18, 2008 8:41 PM
Travesty is as Dean has indicated many times that CEOs, well-quote economists, & high-ranking officials have been getting away from much if any culpability or accountability.
And national media are helping along.
Picture an average bank teller who is short few thousands or even hundreds. Will he/she be able to get away and keep the job?
Posted by: James | November 19, 2008 12:21 PM