The NYT gave Treasury Secretary Henry Paulson the opportunity to defend his handling of the financial crisis. The piece justifies his change in course where he subsequently rejected the original TARP plan that he urged Congress to pass. While this change of course was striking, it is even more striking to see Paulson talk about the crisis like a hurricane that just came out of the sky. The piece begins: "We are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy." Yes, it was a really severe financial crisis, but it was also an entirely predictable financial crisis. A competent Treasury Secretary would not have been caught by surprise by this crisis. In fact, a competent Treasury Secretary would have been attacking the housing bubble and the over-leveraged financial system that laid the basis for this crisis from the day that he/she took office. Instead, Secretary Paulson insisted that everything was just fine, refusing to consider that there were any serious problems in the housing market. Even when things began to unravel in 2007, he still insisted that everything was fine, minimizing the severity of the crisis at every point. Of course it is probably worth mentioning that Mr. Paulson personally made hundreds of millions of dollars at Goldman Sachs from the practices that further inflated the bubble. In short, we have one of the chief arsonists telling us about his heroic efforts to combat the huge fire he faced. Somehow, I don't think many people will be applauding Mr. Paulson.
--Dean Baker
