Tuesday, July 13, 2010

Guest Review: On the Brink

Summary: When Hank Paulson, the former CEO of Goldman Sachs, was appointed in 2006 to become the nation's next Secretary of the Treasury, he knew that his move from Wall Street to Washington would be daunting and challenging.

But Paulson had no idea that a year later, he would find himself at the very epicenter of the world's most cataclysmic financial crisis since the Great Depression. Major institutions including Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Merrill Lynch, and Citigroup, among others-all steeped in rich, longstanding tradition-literally teetered at the edge of collapse. Panic ensnared international markets. Worst of all, the credit crisis spread to all parts of the U.S. economy and grew more ominous with each passing day, destroying jobs across America and undermining the financial security millions of families had spent their lifetimes building.

This was truly a once-in-a-lifetime economic nightmare. Events no one had thought possible were happening in quick succession, and people all over the globe were terrified that the continuing downward spiral would bring unprecedented chaos. All eyes turned to the United States Treasury Secretary to avert the disaster.

This, then, is Hank Paulson's first-person account. From the man who was in the very middle of this perfect economic storm, ON THE BRINK is Paulson's fast-paced retelling of the key decisions that had to be made with lightning speed. Paulson puts the reader in the room for all the intense moments as he addressed urgent market conditions, weighed critical decisions, and debated policy and economic considerations with of all the notable players-including the CEOs of top Wall Street firms as well as Ben Bernanke, Timothy Geithner, Sheila Bair, Nancy Pelosi, Barney Frank, presidential candidates Barack Obama and John McCain, and then-President George W. Bush.

More than an account about numbers and credit risks gone bad, ON THE BRINK is an extraordinary story about people and politics-all brought together during the world's impending financial Armageddon. -- Business Plus

Often times, I will see a book that appeals to me but I pass it along to my father because I don't have time to read everything. To be honest, this was not the case with ON THE BRINK: INSIDE THE RACE TO STOP THE COLLAPSE OF THE GLOBAL FINANCIAL SYSTEM by Henry M. Paulsen, Jr.. Even though I was a finance major in college, I had a feeling that ON THE BRINK would be a little too in depth for me (and maybe even over my head!) However, I am glad that Booking Pap Pap took the time to read it and give this fantastic summary and review.

Here are his thoughts:

Being a recent retiree living principally off investment income, my wife and I were extremely concerned during the financial crisis of 2008 when we lost nearly 40% of our investment value. It was those concerns that drove my interest in reading Henry Paulson’s ON THE BRINK. Paulson, then Secretary of Treasury, gives the reader a day by day narrative on that financial crisis as it unfolded.

After a brief summary of his business career which culminated in his role as CEO of Goldman Sachs, Paulson tells how he reluctantly accepted the position of Treasury secretary in 2006 in the Bush administration despite the objection of his Democratic leaning family.

In the early days in his role as Treasury secretary, Paulson shared his concerns about the risk of a financial crisis. In August, 2007 the crisis hit in the housing markets, an area Paulson did not even mention as one of his early concerns. This housing dilemma started the dominoes falling in the financial markets resulting in the 2008 government rescue of Bear Stearns and its ultimate acquisition by JPMorgan. This government intervention was against Paulson’s stated belief in a free market economy but nevertheless was repeated several times over the next several months through the interaction of Paulson, Timothy Geitner, president of the Federal Reserve Bank of New York and Ben Bernanke, chairman of the Federal Reserve Board.

ON THE BRINK then takes the reader through the details of one financial crisis after another, including the bankruptcy of Lehman Brothers, the government takeovers of Fannie Mae and Freddie Mac, the AIG bailout, Bank of America’s takeover of Merrill Lynch and the conversion of Morgan Stanley and Goldman Sachs to bank holding companies. It seemed that in Paulson’s view of the financial world, failure of any of these institutions would result in a worldwide financial meltdown.

The author also outlines for the reader the role Congress played in the crisis. Even though the Treasury and the Fed, along with the SEC and the FDIC, had many tools to deal with an economic downturn, they appeared to be inadequate to deal with the complex nature of Wall Street in 2008. As a result Congress passed the 2008 stimulus bill, the GSE (Government Sponsored Enterprise) Reform and the $750 billion TARP (Troubled Asset Relief Program). Interestingly the TARP funds were never used to purchase troubled assets but were used instead for investments in financial institutions and bailouts of GM and Chrysler. This example of the constant changing of plans to deal with the crisis left me with the impression the government was constantly reacting to the situation rather than trying to get ahead of it. Paulson does not explain the analyses that went into the decision making process.

Paulson does a good job of sharing with the reader his impressions of the interactions with Congress. In many cases it was a struggle between politics and economics and reinforced the public image of Congress’ “business as usual” approach. The author’s description of the actions of people like Nancy Pelosi, John Boehner, Harry Reid, Barney Frank and Chris Dodd is not always complimentary. The responses to the crisis were complicated by the fact that we were in the midst of a Presidential campaign. Paulson’s interactions with the Obama and McCain teams and with the lame duck President Bush are very interesting.

ON THE BRINK will appeal to readers with some understanding of financial markets. Even though the Wall Street jargon and a heavy dose of financial and government acronyms sometimes bogs down the book, it generally moves along well. I feel that the reader can get something positive from the book even if one disagrees with Paulson’s decisions. As to the effectiveness of these actions I daresay there will always be strong disagreement.

Thanks to the publisher for sending a review copy of ON THE BRINK and thanks to Booking Pap Pap for the very insightful review!


rhapsodyinbooks said...

My husband listened to this and liked it - I think he liked the most the "gossip" about who did or didn't know anything about economics in Paulson's opinion! Nice review, thanks!!!

bermudaonion said...

It's nice to see Booking PapPap on here again! I bet Carl would enjoy this.

Serena said...

I have heard of this book and saw Paulson discuss it on one of those magazine type shows. I would like to read this one to see what his thoughts are on the subject since he had been very quiet about the inner workings of the government during the crisis. My friends and I often suggested that Paulson had a magic hat from which all the bailout funding came from -- it always seemed to materialize out of thin air.