Paulson says he was scared and clueless during Lehman collapse

Paulson says he was scared and clueless during Lehman collapse
BY GAIL MARKSJARVIS
Copyright © 2010, Chicago Tribune
February 01, 2010
http://newsblogs.chicagotribune.com/marksjarvis_on_money/2010/02/paulson-says-he-was-scared-and-clueless-during-lehman-collapse.html


Henry Paulson, the former U.S. Treasury Department secretary, just said in a CNBC interview that in the midst of the Lehman Brothers collapse he had no idea what to do and was so afraid he excused himself from an emergency meeting on the matter and called his wife.

"I'm scared," he said he told his wife on a cell phone, while appearing to the others in the meeting that he was making a business telephone call. "I didn't know what to do."

He asked his wife to pray for him. "Then, I put on my armor and went back into the room and acted like I knew what to do."

Paulson's just written a new book, "On the Brink," in which he recalls the details of the weekend when he dealt with the Lehman collapse.

More shocking, is Paulson's contention that prior to the collapse, neither he nor other administration officials had any idea how housing debt was structured in various Wall Street creations. Paulson has said that he discovered all of this in the midst of the crisis. Prior to the collapse, his department had done a study of housing and concluded there was no problem. The study left out the esoteric financial structures that turned out to be a disaster.

Now, there are two things that must be done, said Paulson. "We need one systemic regulator" and "we need resolution authority so no institution is too big to fail."

He thinks the public should channel its anger into demanding financial reforms. But he also agrees with the public's anger over tremendous Wall Street bonuses.

"When I ran Goldman, even during benign times, I thought compensation was out of whack," he said. He claims he told his staff during meetings "people don't like you" because of compensation levels.

Still, although he headed the company before taking over as U.S. Treasury secretary, he was not able to curtail the bonuses that have so angered the public after bailouts with public money.

And he claims Goldman would have been in danger of collapsing if the government had not stepped into the financial crisis with emergency measures.

"It seemed like there was a good chance Morgan Stanley could go down, and if it did that could take Goldman down," said Paulson.

If that had happened, added Paulson: "It would have been all she wrote for the American economy."