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Jacob Wolinsky
Jacob Wolinsky
Articles  | Author's Website |

The Financial Crisis From Henry Paulson's View. Book Review On The Brink

February 09, 2010 | About:

This is my 11th book review on books related to the current financial crisis. To see my previous book reviews check my previous articles. My most recent book is On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry Paulson. Henry Paulson was former CEO of Goldman Sachs and Treasury Secretary from 2006-2009. The book was released on Feb 1, 2010 and as of this writing is the fourth best selling book on Amazon.com.

I will be honest that I was the most excited for this book. I can not think of anyone who was more on the front lines throughout the crisis than Henry Paulson. The only person who can even come close to Hank Paulson is Ben Bernanke. However, from all accounts I have read so far, Henry Paulson was for better or worse the leader throughout the crisis. I was also excited for this book because I wanted to hear Paulson account for his reasons for letting Lehman Brothers fail, and for changing TARP from buying toxic assets to capital injections into banks. To be frank, I was very skeptical of the book and Paulson’s attempt to defend his actions towards Lehman Brothers.

I was pleasantly surprised by the book, and came out with a much more favorable opinion of Hank Paulson. Throughout the book Paulson truly shines .The first part of the book talks briefly about Henry Paulson’s early life. I thought Paulson did a good job describing enough about him for a reader to get a feel for him, without boring the reader with too many personal details. I gained a deeper insight to the man who many in the media portrayed as a Government Sachs covert agent. Paulson gets personal and talks about his vacations with his wife and family.

Henry Paulson is not a partisan Republican as many assume. His wife was a big supporter of Hillary Clinton and his mother hated President George Bush and voted for Barrack Obama. Only Paulson’s daughter wanted him to take the job as Treasury Secretary. He jokes that he was considered “a closet Democrat” by many friends.

Henry Paulson had much praise in the book for Democrat Barney Frank while criticizing the House republicans on various issues. Paulson also speaks positively about Barrack Obama, Chris Dodd, Harry Reid and John Kerry. Paulson is sharply critical of John McCain and the actions he took during the crisis. Although he does not mention it, I would not be surprised from his description of McCain if Paulson voted for Barrack Obama. He of course also has plenty of criticism for the Democrats, but he is fairly critical of politicians on both sides of the aisle.

Henry Paulson discusses a lot about how Ben Bernanke, Tim Geithner and he worked as a team for months to save the financial system. He has tremendous respect for both men and was happy they would continue their role in Government after he was gone. Paulson criticizes Sheila Bair several times, but overall paints her in a positive light for her work at FDIC.

Henry Paulson discusses throughout the book his Christian Scientist faith and his love of nature. Henry Paulson really reveals himself to the reader. He talks about a sleepless night during the height of the financial crisis when he was given sleeping pills. He talks about holding the pills in his hand, and then deciding to flush them down the toilet. He decided not to take the pills and instead decided to pray to God for guidance. Although he does not mention the name of the drug, I assume he is referring to a controlled substance like Ambien. Not many public officials would admit in a bestselling book that they nearly committed a federal crime.

The second part of the book deals with the beginning of Paulson’s career at treasury. He discusses at length his attempts to restructure Fannie Mae and Freddie Mac (the GSEs). He also discusses the political maneuvering that he took to get the Federal Housing Finance Agency (the agency that oversaw the GSEs) and other branches of Government to agree to put the GSEs into conservatorship. No other book on the crisis goes into as much detail as Henry Paulson’s book does, about the months of brainstorming and political maneuvering regarding the GSEs.

Henry Paulson discusses relatively little about the failure to save Lehman. Andrew Ross Sorkin devoted several hundred pages to the topic in his bookToo Big to Fail which I previously. However, Henry Paulson devotes no more than a few pages to the Lehman Brothers affair. Paulson offers two reasons for not saving Lehman Brothers 1. He had no authority 2. It would set a moral hazard. This strikes me as strange since the two reasons contradict themselves. Furthermore how did he have the authority to save AIG but not Lehman Brothers? Couldn’t the Fed have been more accommodative to Lehman at the time? I remember hearing the news that Sunday night in September 2008 that the Government was going to let Lehman fail and I could not believe it ( I am not playing Monday morning quarterback, I thought it was an awful decision at the time). I was disappointed in Paulson’s inability to explain himself, and I suspect the reason he did not discuss the topic in depth is because he knows in hindsight it was a bad decision.

The book does not end with Lehman’s failure. Henry Paulson discusses in detail his efforts to save Morgan Stanley and Goldman Sachs. Paulson talks about the political negotiations he had to conduct with both the Democrats and Republicans to get TARP passed. Henry Paulson shows himself to be a shrewd politician capable of getting very unpopular legislation passed by an unpopular administration.

Paulson explains in the book why he changed TARP’s original plan of buying toxic assets to capital injections. The purchase of toxic assets would take too long and there were many other obstacles in the way of the plan. I am satisfied by his answer for the drastic change in plan.

The book ends of with further actions Henry Paulson took to extend a life loan the automakers. Again, Paulson used some political maneuvering to make the plan salable to both Democrats and Republicans. Paulson also discusses the race to save Citigroup and Bank of America. He discusses pressuring Ken Lewis to complete the acquisition of Merrill Lynch but discusses little more of this sensitive topic.

I have heard many Henry Paulson’s critics are boycotting this book because “they do not want to give money to a crook”. Obviously this tactic is not working because the book is a best seller. However, I think this is the wrong view to take. Regardless, of whether you are a fan or critic of the former Treasury you owe him the opportunity to explain himself. Despite his numerous media appearances throughout the financial crisis, On the Brink is Paulson’s best defense of his actions to date. I am not telling critics of Paulson they have to buy the book. But people should consider hearing the events from Paulson’s point of view (not only because it is fascinating, but) because it is only fair to hear the events from the Paulson himself.

To purchase the book on Amazon.com click on the following link On the Brink: Inside the Race to Stop the Collapse of the Global Financial System

My next book reviews will be The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It by Scott Patterson and Distress Investing: Principles and Technique by Martin Whitman

Disclosure: New FTC guidelines require me to disclose I have a material connection because I received a free copy of the book to review.

About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

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Rating: 4.3/5 (14 votes)


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