To say Hank Paulson has not done a good job during this financial crisis may be going too far. Since no one else has held this job during this period, there's relatively little compare him to. Maybe others would have made worse mistakes. But we can certainly say that he's proven eminently fallible. His decision to let Lehman Brothers collapse now looks like a catastrophic error. As Dani Rodrik says, "As bad as things were, what caused credit markets to seize up was Treasury Secretary Henry Paulson's refusal to bail out Lehman Brothers. Immediately after that decision, short-term funding for even the best-capitalized firms virtually collapsed and the entire financial system simply became dysfunctional." And Paulson made that decision over the objections of others, like Timothy Geithner, head of the New York Federal Reserve.Whether it was Lehman's collapse that turned a crisis of liquidity into a crisis of capitalization, Paulson also didn't see that capitalization had become the nature of the crisis. The powers he now promises to use to recapitalize the banks were powers he didn't want. He wanted to buy assets and address a liquidity crisis. He didn't include -- and in fact opposed -- a provision for the possibility that capitalization was the problem. Democrats gave him capitalization powers because they were listening to economists like Jamie Galbraith and Nobel prize winner (it's so fun to say that!) Paul Krugman. Now those powers are central to his strategy and public statements. Then there was his handling of the bailout bill, which was a political disaster. Remember the provision that stated "decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency?" And remember when Paulson then lied and told Congress that he thought it improper to construct his own oversight and had always meant to leave it up to them? And then there's the ideology side of things, which many folks say have led him to drag his feet on full government action like nationalization. Which is all to say that we're not operating under omniscient leadership here, and as more news of Paulson's intransigence at the G7 meeting filters out, it's increasingly clear that folks need to keep up the pressure and criticism and alternative ideas and make very sure not to let Paulson set the terms of the debate -- and that needs to be done, as you saw with capitalization, for Paulson's sake as much as for our own. It's also clear that Democrats need to do a lot of thinking as to who would make a good successor. Bob Kuttner's ideas on this question are well worth reading. HANK PAULSON'S SPOTTY RECORD.
To say Hank Paulson has not done a good job during this financial crisis may be going too far. Since no one else has held this job during this period, there's relatively little compare him to. Maybe others would have made worse mistakes. But we can certainly say that he's proven eminently fallible. His decision to let Lehman Brothers collapse now looks like a catastrophic error. As Dani Rodrik says, "As bad as things were, what caused credit markets to seize up was Treasury Secretary Henry Paulson's refusal to bail out Lehman Brothers. Immediately after that decision, short-term funding for even the best-capitalized firms virtually collapsed and the entire financial system simply became dysfunctional." And Paulson made that decision over the objections of others, like Timothy Geithner, head of the New York Federal Reserve.Whether it was Lehman's collapse that turned a crisis of liquidity into a crisis of capitalization, Paulson also didn't see that capitalization had become the nature of the crisis. The powers he now promises to use to recapitalize the banks were powers he didn't want. He wanted to buy assets and address a liquidity crisis. He didn't include -- and in fact opposed -- a provision for the possibility that capitalization was the problem. Democrats gave him capitalization powers because they were listening to economists like Jamie Galbraith and Nobel prize winner (it's so fun to say that!) Paul Krugman. Now those powers are central to his strategy and public statements. Then there was his handling of the bailout bill, which was a political disaster. Remember the provision that stated "decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency?" And remember when Paulson then lied and told Congress that he thought it improper to construct his own oversight and had always meant to leave it up to them? And then there's the ideology side of things, which many folks say have led him to drag his feet on full government action like nationalization. Which is all to say that we're not operating under omniscient leadership here, and as more news of Paulson's intransigence at the G7 meeting filters out, it's increasingly clear that folks need to keep up the pressure and criticism and alternative ideas and make very sure not to let Paulson set the terms of the debate -- and that needs to be done, as you saw with capitalization, for Paulson's sake as much as for our own. It's also clear that Democrats need to do a lot of thinking as to who would make a good successor. Bob Kuttner's ideas on this question are well worth reading. 
