In the face of consistent prodding from Charlie Rose on Tuesday night, Treasury Secretary Hank Paulson did his best to avoid, as he put it, "making any news." He refused to be pinned down on whether he, like Ben Bernanke, supported a second economic stimulus plan, he called President Bush a "great boss" and "a quick study," and he strongly suggested that the actions taken so far by the federal government were beginning to restore confidence in financial markets, even while warning that were some "difficult" months in front of us.
But when Rose asked a particularly pertinent question: "Do you wish you had come to the decision to do this, the recapitalization of the banks, earlier?" Paulson did some nimble tap-dancing.
PAULSON: Charlie, I don't think it would have made any difference, because the fact is we came to Congress as early as we could to get legislation.
...We asked for authorities. The authorities were about the capitalization of the banks. The program we were driving the hardest was the purchase of illiquid assets, which again creates price transparency and makes it easier for private capital to come in. We always wanted other powers. We got other powers, the powers to also put capital into the banks.
At the very least, Paulson was disingenuous. At the Senate Banking Committee hearing on Sept. 23 in which Paulson and Bernanke attempted to explain and defend their plan to buy toxic assets off of financial institutions, several Senators asked whether a better solution might be to simply recapitalize the banks. Paulson's answer was blunt "Putting capital in institutions is about failure. This is about success."
For him to now say that "I don't think it would have made any difference" and "we always wanted other powers," is misleading. At this juncture it seems pretty clear that the panic in credit markets did not begin to subside until Paulson changed his original position and decided that there was no other option than to pour at least $250 billion directly into banks. That's not what he ever wanted to do, but it turns out to be exactly what did make the "difference."
Now it is true that had Paulson and Bernanke told the Senate Banking Committee and the House Financial Services Committee that the only way to address the crisis would be to recapitalize the banks, Republicans would likely have suffered mass aneurysms. Paulson also has a point when he asserts that without an obviously grave crisis staring politicians directly in the face, Congress wouldn't have rolled over and given Paulson and Bernanke the "authorities" they were requesting. The result was a classic Catch-22. You couldn't fix the crisis without a massive intervention, but you wouldn't get the authority for a massive intervention without the crisis reaching a point where the the entire global economy was on the verge of breaking down.
But there has also been some reporting suggesting that Ben Bernanke pushed for a more aggressive effort to recapitalize banks from the beginning, only to be resisted by Paulson and the Bush administration.
The global economy suffered significant damage between the time Paulson first proposed his bailout plan, and the eventual decision to recapitalize banks. If a more forthright effort to push recapitalization along the lines that Bernanke reportedly supported and Democratic senators advocated early on had been made, could some of that damage been mitigated? No wonder Paulson seemed a little defensive on Charlie Rose.