Former Secretary of the Treasury Hank Paulson (known to the Hip-Hop community as "P. Hankie") sat down recently for an interview with Dallas Business Journal reporter Nicholas Sakelaris, and gave us the low down on the bail out of the Big Banks in 2008. As you might have expected, Hank the P claims that he had no choice. It was bailout the big boys or The Apocalypse. There was no middle ground.
We had some difficult decisions. We did some things that were unpleasant, even to us. But I felt then and looking back at it now, I think we got the big things right and made a big difference. We staved off disaster.
To those who claim that the capitalist system works only when those businesses that make bad decisions are allowed to suffer "creative destruction," Hank's response seems to me to be that all that theory is fine in the ivory tower, but down on The Street (Wall Street, that is), when the rubber meets the road, the tough get going, or something along those mixed metaphorical lines.
Many, many Americans were unhappy because they wanted to hear that the people who made the mistakes were being held accountable. But if I had to decide between that and stability, I erred on the side of stability. All Americans would have been hurt if the system had collapse. Those that had been responsible and those who had been irresponsible. Those who had made mistakes and those who didn’t make mistakes.
Our first priority was to prevent catastrophe to protect the American people.
That’s hard to explain and that’s hard for the American people to really understand a catastrophe that never occurred. What they see is a very serious problem that did occur. I can say, we took steps and it would have been much worse if we hadn’t taken them and guess what, the money we put out in the TARP and the capital to banks and insurance companies came back plus $32 billion.
Hard to explain? No, I think you just explained it, Hankster, and I also think most of us catch your drift.
When asked if he, personally, could have done more to prevent the problems that led to the economic crisis that required such a massive bank bail out, Hank claims that the underlying factors were pretty well "baked" into the system by the time he was appointed in 2006. He also says something to which the FDIC might give at least a head nod when it decides whether or not to sue officers and directors of a failed bank: nobody saw anything this bad coming down the pike.
...I didn’t see something of that magnitude. I had witnessed crisis every eight to 10 years. But this is a once in a 75-year crisis. In this one, the excesses had been building for decades.
This is one that was unprecedented. People hadn’t taken a look at our regulatory system in a long time. The financial markets had outgrown the regulatory system and it didn’t fit so we didn’t have the powers we need.
A guy with Hank's pedigree and access to information didn't see this train wreck coming, but the board of directors of a half-billion dollar community bank should have anticipated it. You see the absolute logical consistency of these positions, don't you? Don't you?
I happen to think that Hank Paulson is right on the money. The bailout prevented a catastrophe. I realize that Libertarians who read this blog get shooting pains in their lower abdomen when they read such opinions in this sector of cyberspace, but that's why the drug companies spit out analgesics.
As Hank says, it's tough to defend the position that you prevented a catastrophe that never occurred. At least, it's tough in a society where many often stake out positions and marshal the facts to support them. Following the facts wherever they actually lead takes a different mind set.