"Extreme Risk Aversity" would be a great name for a punk band. It sounds like it might translate as an "excess of caution," but what it really means, according to former Treasury Secretary Hank Paulson, is fear.
"It was in August, O.K., where there was real stress, where credit spreads blew out, and there was fear," he told me, referring to the late summer of 2007, when the mortgage crisis began. "I always talk publicly about 'extreme risk aversity,' or something. Treasury secretaries don't use 'fear.' But there was this -- you know -- there was fear, O.K.?"
The excerpt comes from Todd Purdum's epic 8,000-word consolidation of a series of interviews conducted by the Vanity Fair writer with Paulson from shortly after the former Goldman-Sachs CEO arrived in Washington right through the entire financial crisis. Everyone else in the econoblogosphere has already put in their two bits and I don't have too much to add: There's not a whole lot of breaking news, Paulson does come off as naive about how Washington works, expresses a surprising amount of respect for Barney Frank and Nancy Pelosi, and tells us exactly what we already knew about the rest of the White House: It was packed with inflexible ideologues who had no interest in compromise.
It's not hard to imagine that we could all be a lot worse off if one of those inflexible ideologues had been ensconced in the Treasury instead of Paulson. It's the great irony of Paulson's existence. He's a man attacked ruthlessly by the left for bailing out Wall Street instead of Main Street and for supposedly orchestrating his former company's survival while letting a rival, Lehman Brothers, crash and burn. At the same time he is excoriated by the right as the most interventionist Treasury secretary in generations.
It sure would have been nice if Purdum had asked Paulson about the SEC's decision in 2004 to allow investment banks to increase their permitted leverage from 10-1 to 30-1, a decision that, as CEO of Goldman, Paulson personally lobbied for, and which undoubtedly helped contribute to the excessive risk taking that crashed Wall Street. And as has been universally noted, Paulson's contention that he did not have the "authority" to bail out Lehman, just one day before the government bailed out AIG, doesn't pass the smell test. But you do get the sense from Purdum's story that Paulson understood how perilous the economic situation was, and did everything he could think of to grapple with it.
History's verdict is unknown, but judging by the fact that we are still arguing about Hoover and Roosevelt's role in causing or ending the Great Depression, we probably won't get any closure on Paulson's tenure for another century, if then. Best we can say for now, is that for the time being, we've avoided another Great Depression. Would we have been so lucky if one of Bush's true believers had been running the show?