On The Brink…
Former Treasury Secretary Hank Paulson’s new book, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System came out this week, It is available at Amazon here, and I heartily recommend it.
What comes across most clearly is just how close we came to a real, cataclysmic meltdown of the entire, worldwide financial system, and how antiquated and ill-prepared our regulatory system was… and still is… to deal with such a crisis. The full scope of what very nearly happened is horrifying.
Surprisingly, Paulson actually anticipated a major credit crisis before he took on the job at Treasury. He just didn’t expect it to be of such a magnitude and velocity, nor did he expect that the regulatory tools available by law to deal with the crisis would be so puny and ineffectual.
I had a pretty clear idea that there would be a credit crisis sometime when I was in Washington. And I told the president I thought there’d be one, and the first major meeting I had with him I spent just talking about that topic. But I did not anticipate a crisis of the magnitude we faced–didn’t anticipate that at all–and I certainly was bordering on naive in my understanding of the regulatory powers and authorities in Washington.
Much of the book is devoted to what should have been done long ago to avoid the “credit crisis” and what we should do now to prevent the next one.
…(W)e need to rethink housing. I spend a lot of time in the book talking about Fannie Mae and Freddie Mac, the two huge financial institutions that right now are doing virtually all of our mortgage financing, and the government’s behind them. But part of why we got here is we have so overstimulated and overincented housing in the United States that we got homeownership to levels that were unsustainable. And so we need to rethink housing policy: restructure, scale down Fannie and Freddie, but look at a whole series of other things–FHA programs, the mortgage interest deduction–because the combined weight of all of these things I think is just too much.
Mr. Paulson has been giving interviews on network and cable outlets almost non-stop. And the sefl-styled critics, most of whom know next nothing about finance, will no doubt puff and snort that Paulson is merely trying to attract attention to sell books. But Hank Paulson was a very rich man long before he was convinced… reluctantly… to take the job of Treasury Secretary, so its more than a little silly to suggest that he wants or needs the money from book sales.
About writing the book, Mr. Paulson had this to say,
… (W)e tried to write something that’s a fast-paced narrative where you don’t have to have a PhD in finance to understand it, and yet to still be technically accurate and correct: something that the average American can read and understand, and something that finance experts would look at and still think is relevant. To me that was a real challenge.
Anyone who is remotely interested in what happened, and why, should get a copy of Paulson’s book. What you’ll learn is worth many times the price.
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