The Stern Opportunity

After camping out for two hours to beat the crowds, I had the pleasure of attending Wednesday's interview of former Treasury Secretary Henry Paulson given by Morgan Stanley Chairman John Mack in the John Paulson Auditorium. This event was a great example of the amazing educational opportunities afforded to us as members of the Stern community, and is the kind of gem I go out of my way to attend.

The interview centered on the topics covered in Secretary Paulson's recently released book, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System. I have not yet read the book, but according to the Secretary it focuses on two heavily intertwined topics: the battle to avoid economic collapse and the struggle to implement much needed policy amid an entrenched bureaucracy and strong political winds. Under the direction of Chairman Mack's diverse and probing questions, Secretary Paulson covered myriad topics from moral hazard to the timing of the TARP legislation.

Remarkably, Secretary Paulson successfully combated the worst recession in recent memory very early in his tenure at the White House. He attributes his success to the year he had pre-crisis to develop trust and rapport with President Bush and Fed Chairman Bernanke. He emphasized the important leadership role played by President Bush during the crisis. The President took the time to become well versed on all relevant economic topics, and showed a genuine curiosity and respect for the forces plaguing both Main Street and Wall Street.

During the Q&A session, the Secretary was asked to address the criticism he received on the timing of the Troubled Asset Relief Program (TARP) legislation. Many critics have speculated that if the administration hadn't waffled between buying up toxic assets and recapitalizing the banks, much of the recession's pain would have been mitigated. Secretary Paulson argued that his timing was purposeful and appropriate; Congress needed to witness the potential danger of the recession before it would pass the legislation without speculation that Washington was attempting to nationalize the banks. He made it quite clear to the audience that he felt that serious revamping of existing legislature is impossible unless under the duress of crisis. He cited Medicare and Social Security as just two examples of programs that will cause future generations serious pain and are only solvable amid that pain.

As businesses become increasingly interconnected and the potential for global contagion rises, the likelihood of government intervention into markets and coordinated macroeconomic policy seems to grow exponentially. Any aspiring financier should probably read this book in conjunction with Sorken's Too Big To Fail and NYU's white papers on the crisis. Together, these texts give an accurate picture of both the macro problems that drove the crisis and the individuals who rescued us from imminent disaster. It is therefore with haste that I will pick up a copy of Secretary Paulson's On the Brink, because nothing says "relaxing spring break" like an inside look at an intergovernmental economic taskforce.

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