In FED We Trust Read Online Free

In FED We Trust
Book: In FED We Trust Read Online Free
Author: David Wessel
Pages:
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O I T A GAIN”
    Government bank bailouts were hardly unprecedented in the United States or abroad. Between 1986 and 1995, the government shuttered more than a thousand savings and loan associations with assets totaling over $500 billion — fora total cost that ended up at about $150 billion. In that case, as in most others, the decision to spend huge sums of money was made by democratically elected leaders, not unelected central bankers. Now, however, the clock was ticking: if $30 billion was needed this weekend to seal a deal to save Lehman, it was going to have to come from the Fed. For its part, the Fed
could
come up with large sums of money quickly, but neither Bernanke nor Paulson was comfortable with doing so — especially after facing so much criticism for the assertive government role in getting Bear Stearns sold in March 2008.
    In a conference call with Bernanke and Geithner, Paulson had stated unequivocally that he would not publicly support spending taxpayers’ money — the Fed’s included — to save Lehman. “I’m being called Mr. Bailout,” he said. “I can’t do it again.” Though Paulson had no legal ability to stop the Fed, Bernanke and other officials were extremely reluctant to put money into any Lehman deal over the Treasury secretary’s objections — unless, as Paulson often did, he changed his stance.
    Paulson was a deal maker. He didn’t build relationships by socializing. He focused relentlessly on studying his clients, figuring out what motivated them, and reaching the desired outcome. It was a style that helped him in February 2008 negotiate an emergency $152 billion tax cut with a Democratic Congress to try to give the economy a jolt. But like many on Wall Street, he could shout “No! No!” before, citing changed circumstances, abruptly saying “Yes!” The approach provided flexibility in negotiating the best business deal; it didn’t build lasting credibility in Washington. He would later argue that each of his exaggerations or unqualified statements was justified by prevailing circumstances or tactics. His “Mr. Bailout” outburst, he insisted months later, was calculated to stop any lower-level government employees on the conference call from weakening the government’s bargaining position by leaking that the government might put in money. But his words were so emphatic that listeners later were stunned by his subsequent actions.
    As Lehman’s problems deepened, the Treasury secretary’s style occasionally brought him into conflict with Geithner, his partner in managing the crisis. Geithner’s approach — at least when he was at the New York Fed — was more disciplined, calmer, and politically savvy. A veteran of the U.S. Treasury’s management of the Asian financial crisis of the 1990s, Geithner had learnedat the side of Clinton’s agile Treasury secretary, Bob Rubin. Rubin placed a high premium on what his then-deputy Lawrence Summers called “preserving optionality” — deferring final decisions until they had to be made and avoiding any public statement that could limit his political wiggle room. Rubin prized flexibility, and so did Geithner. That made sense in an ever-changing panic, but this approach risked turning crisis management into a series of ad hoc decisions that left everyone from traders in the markets to politicians in Congress guessing at the rules of the game.
    Geithner had strenuously cautioned Paulson and Bernanke against publicly displaying any regret about the Bear Stearns bailout. In the calm, methodical manner that earned him respect inside the Fed and Treasury, Geithner counseled that the best approach now would be to ask: Is the system at risk if Lehman defaults? Is there a way to prevent default? If so, can the government help legally?
    The Geithner method, however, required a certain team discipline, and that had fallen apart Thursday night when a couple of Paulson’s aides — Jim Wilkinson, his chief of staff, and Michele Davis, his
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