Yet More Paulson Revisionism

The second part of David Cho’s interview with Hank Paulson features even more revisionism. Get a load of this:

Paulson used his influence within the administration to win even broader powers from Congress, allowing him to nationalize major financial institutions, either in part or entirely. The bills were sweeping in scope and gave him the latitude to spend hundreds of billions of dollars as he saw fit…

Under the plan, Paulson was granted sweeping discretion to decide how to use the $700 billion and which financial firms would get the money. He could hire firms to manage the program without having to obey the standard government rules for contractors. He could even decide how to place conditions on companies receiving government help, including limits on executive compensation.

In the end, Congress granted Paulson every authority he asked for.

It’s not easy to keep Paulson’s stories straight, but when it comes to Lehman Brothers, the First Version was that it was a good thing that it was allowed to fail. The Second Version was that Treasury never had the power to rescue Lehman. And the Third Version is that he was trying desperately to save Lehman, as he says today:

When the investment bank Lehman Brothers released disastrous second-quarter earnings this summer, shortly before it went bankrupt, Paulson asked its chief executive, Richard S. Fuld Jr., what the next quarter would look like. Fuld said it might be worse. Paulson demanded that he find a buyer for the company.

Fuld balked, looking for other ways to save the firm. So Paulson moved ahead himself and tried, ultimately unsuccessfully, to engineer a deal.

"I was the only guy who drove that," Paulson said. "I called two banks when none of them were interested. I tried to get them interested. I urged them to do it. . . . That’s what a Treasury Secretary needs to do when you are in a war."

If you’re being charitable to Paulson, you might think that at least the second two versions are consistent — that Paulson tried to save Lehman despite not yet having the power to nationalize it, and that shortly afterwards, in the TARP bill, he was sure to give himself that power.

But it turns out that story doesn’t wash, for two reasons. Firstly, Paulson is happy admitting to Cho that he has done lots of things as Treasury secretary which he was unsure he had the power to do. But more importantly, when he introduced the TARP bill initially, it didn’t include a lot of the powers that Congress eventually gave him. Nouriel Roubini told the story of what really happened over a month ago: Congress realized that Paulson needed extra powers, and went to great lengths to give him those powers even though he never asked for them. As Nouriel says:

Paulson should be lucky that his early opposition to such public capital injection in the financial system did not prevent Congress – via the back door – to do what was right.

This is not Paulson "winning" powers from Congress which he "asked for" — it’s Paulson being given powers by Congress which he didn’t ask for. If there’s any hero in this story, it’s not Paulson, it’s Barney Frank. And it’s depressing to see Paulson try to grab whatever little credit there is to go round.

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