Sep 24

Hank at the Brink…Again and Again


“I didn’t have to have long debates with President Bush about how bad the harm to the economy would be if the financial system went down. He had a good feel and he understood markets.”

That’s former U.S. Treasury Secretary Henry Paulson explaining his relationship with former President George W. Bush during the financial crises, in Bloomberg Businessweek’s initial foray into filmmaking – basically a visually annotated interview with Paulson.

The movie is only available on Netflix, much like one of my own personal favorites, House of Cards, the multi-episode fictional story of slimy, unethical practices in the day-to-day maneuverings in Washington, D.C. Most people who have seen it can hardly wait for Season 2 later this year.

Like House of Cards, Hank Five Years from the Brink, is about slimy, unethical practices, but this time in the financial industry. Unlike House of Cards, it spares most all of those at the top from criticism, while providing an explanation that ostensibly is reasonable, but is filled with holes. Most people who see this movie will not want to see a financial crisis 2.

In Paulson’s defense, he actually does a good job of initially answering a difficult question: Why let Lehman Brothers go under and not AIG?

His answer: The Treasury could make a loan to AIG with viable insurance subsidiaries as collateral, while Lehman had no such similar subsidiaries. True, but…

A side benefit: His former employer, Goldman Sachs, had some rather complex and hidden dealings with AIG. Some of which could be said to have forced the hand of then NY Fed president Tim Geithner to make the big banks whole on CDS from AIG. Other dealings are probably still open to interpretation. In any event, for Paulson to not even mention this in passing is akin to the famous line in a much better movie, the Wizard of Oz,: “pay no attention to the man behind the curtain.”

Another “pay no attention” moment in the movie is when Paulson says that while he, Bernanke and Geithner were trying to come up with a solution for the Lehman mess, ex-Goldman buddy and then head of Merrill Lynch John Thain struck a deal to have Bank of America purchase ML. It is hard to believe that “the man behind the curtain” had nothing to do with that acquisition.

Paulson also does a poor job of explaining why the use of the hastily approved TARP money changed almost overnight, from purchasing bad assets from banks to providing capital to banks.

As I remember, one reason was that the government said it was so difficult to value those bad assets. Of course, this belied the reasoning behind an earlier, successful bank “bailout” program run via the Resolution Trust Corporation in the 1980s. But, Paulson does not mention that publicly stated reason. Oops.

And, of course, Paulson only raves about his close relationship with Fed Chair Bernanke and NY Fed President Geithner, saying they worked very closely together. However, this fails to account for the importance of an independent central bank. I guess Hank may not have paid full attention in his economics courses at Dartmouth.

What about the Special Inspector General of TARP? What was Hank’s relationship with this Congressionally mandated office, designed to monitor and audit the TARP program? In the movie, it was as if SIGTARP never existed. Of course, former SIGTARP head Neil Barofsky would probably agree with that assessment, as outlined in his well written book, “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.” (amazon link here).

At the end, Paulson says he ‘did’ this movie because he does not want to see a replay of what happened. Of course, he says that after he unequivocally states that there WILL be another market meltdown. Perhaps, a better title for this Netflix only stream should have been, “Hank at the Brink…Again and Again.”

Although I am not a movie critic, please allow me to briefly remember the two great movie critics, Siskel and Ebert, and give Bloomberg Films a ‘thumbs up’ for trying to present a complicated subject. And give ‘Hank at the Brink’, ‘two thumbs down’ for pandering away from the truth.

Until next time, the balcony is closed.