In 2008, then-U.S. Treasury Secretary Hank Paulson was at the center of the storm during the worst economic crisis since the Great Depression. Today he maintains that the major actions the government took then were necessary at the time.
But while Paulson believes the Troubled Asset Relief Program (TARP), the bailout of insurance giant AIG and other broad measures enacted at that time were the correct actions to take, he does regret not communicating their importance more clearly.
“The major decisions, I think we got right,’’ Paulson told Matt Lauer on TODAY Thursday. “I have second thoughts about a lot of things. The biggest thing I have second thoughts about, I never was able to explain to the American people that every action we took was for them to keep our economy functioning because if we hadn’t had a functioning economy, the situation could’ve been quite worse.”
Paulson is on the cover of Friday's issue of Bloomberg Business Week, which is dedicated to a look back at the financial crisis of 2008. He also participated in "Hank: Five Years from the Brink," a Bloomberg documentary about the crisis that comes out on Netflix on Sept. 16.
“The night before we filmed the documentary, my stomach tightened up and I had trouble sleeping all over again,’’ Paulson said.
TARP, which authorized the government to purchase and insure up to $700 billion of troubled assets from banks and other financial institutions, received heavy criticism for bailing out banks that made poor decisions or allegedly committed fraud that contributed to the subprime mortgage crisis. But Paulson believes TARP was necessary, given the state of the economy of that time.
“Let’s not forget, what TARP did allowed us to move overnight and put capital into hundreds of banks, and that money came back plus $32 billion,’’ Paulson said. “I think banks made mistakes, and they’ve come a long way. The banks are better capitalized, better regulated, (and) have much, much better risk controls.
“The thing I say which still isn’t popular — and I’m not defending the banks, because they made decisions — but the root cause of every crisis is lies and flawed government policies. Because no matter how the financial system is set up, no matter what the economic system is, as long as you have people, you’re going to have financial crises, you’re going to have bubbles that manifest themselves in the financial system. So the key thing is to make sure you’ve got the tools you need and the political will to act with force to manage a crisis before it becomes too big.”
In the Bloomberg Business Week story and the documentary, Paulson also discusses the effects the crisis had on his own family, including his brother. Richard Paulson worked for the global financial services firm Lehman Brothers, which declared bankruptcy in September of 2008 when the government chose not to bail it out. The effects rippled across the global economy.
"What I talk about a bit in the documentary was after Lehman had gone down that week, there was a lot going on,'' Paulson said. "We were dealing with multiple crises. Lehman had gone down on a Sunday night, and it was Friday morning when I came for up air after having met with Congress and asked for the extraordinary powers, and I remembered I hadn’t given my brother a call.
"He’s a very good friend, my best friend. He was a fixed-income salesman, senior vice president in the office of Lehman Brothers, and so I called him, and I was calling to explain we did everything we possibly could, we didn’t have the tools to save Lehman. Before I even got there, he said to me, 'I know.' His concern was about me."