Paulsen found it easier to deal with Obama
Hank Paulson feared there would be a run on the dollar during the early phase of the financial crisis when global concerns were focused on the US, the former Treasury secretary has told the Financial Times.
“It was a real concern,” Mr Paulson said in an interview ahead of the release on Monday of his memoir On the Brink. A dollar collapse “would have been catastrophic,” he said. “Everything that could go bad did not go bad. We never had the big dislocation of the dollar.”
When the crisis escalated and went global with the failure of Lehman Brothers in September 2008, the dollar rallied – but Mr Paulson had to grapple with a firestorm of financial failures.
He feared Goldman Sachs and Morgan Stanley would go down along with Washington Mutual and Wachovia.
Lloyd Blankfein, Goldman Sachs chairman, told him that Goldman would be “next” if speculators succeeded in bringing down Morgan Stanley, the former Treasury secretary said.
“If they go, we’re next,” Mr Blankfein told Mr Paulson, a former Goldman chairman who had recused himself from decisions relating to his former company.
US officials explored the possibility of mergers between JPMorgan and Morgan Stanley, Goldman and Citigroup, or Goldman and Wachovia, before settling on turning Morgan Stanley and Goldman into banks with access to central bank loans.
Even then, Morgan Stanley was not safe until the US Treasury helped seal an investment by Japan’s Mitsubishi UFJ, Mr Paulson writes.
The frenzied manoeuvring came in the three-week period between the failure of Lehman on September 15 2008, and Columbus Day weekend in early October, when the global financial system was on the verge of meltdown.
“Banks were going down like flies,” Mr Paulson told the FT. As his book details, he was scrambling to secure Tarp bail-out funds from Congress.
“The timing could not have been worse since we were months or weeks from the election so you had the collision of markets and politics.”
Although a Republican, Mr Paulson found it harder to deal with John McCain than Barack Obama – raising the intere
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