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Remembering the Day When the American Financial System Began to Crumble

September 16, 2013 at 12:00 AM EDT
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JUDY WOODRUFF: Now to the crisis that consumed the Federal Reserve when U.S. financial markets came tumbling down five years ago this week.

As David Wessel just mentioned, we have perspective from the man who was President George W. Bush’s point person as Americans woke up to find Wall Street imploding.

HENRY PAULSON, former U.S. Treasury Secretary: I’m playing the hand that was dealt me.

JUDY WOODRUFF: September 15, 2008, global financial markets were melting down. And then-Treasury Secretary Hank Paulson defended the decision not to bail out Lehman Brothers, a 158-year-old investment firm. It came months after the Fed provided credit so that J.P. Morgan Chase could buy the failing Bear Stearns. Paulson said no one wanted to buy Lehman.

HENRY PAULSON:  The situation in March and the situation and the facts around Bear Stearns were very, very different to the situation we’re looking at here in September. And I never once considered that it was appropriate to put taxpayer money on the line with — in resolving Lehman Brothers.

JUDY WOODRUFF: His remarks didn’t calm investors or the system. Within days and even hours of that news, other financial giants teetered on the brink. Bank of America purchased Wall Street investment house Merrill Lynch. J.P. Morgan Chase bought Washington Mutual. Wells Fargo bought Wachovia. And the government propped up AIG, the world’s largest insurer, because its financial bets nearly paralyzed the nation’s banking system.

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Paulson, a former chairman and CEO of Goldman Sachs, ultimately did get Congress to pass the controversial TARP, or Troubled Assets Relief Program. Under the measure, the government could disburse up to $700 billion to the banks in an effort to shore up the financial sector. Ultimately, it spent a little over $400 billion and has turned a small profit.

The system was stabilized. But public anger at Wall Street was simmering. In July of 2010, President Obama signed the Dodd-Frank financial reform legislation. While the law promised some of the biggest changes to Wall Street since the Great Depression, many of the internal regulations are still being written.

Today, the president touted the success of his administration’s response to the financial crisis, but also acknowledged many Americans remember that time from a very different perspective.

PRESIDENT BARACK OBAMA: Most American whose have known economic hardship these past several years, they don’t think about the collapse of Lehman Brothers when they think about the recession. Instead, they recall the day they got the gut punch of a pink slip or the day a bank took away their home.

JUDY WOODRUFF: Like the Obama administration, Paulson, too, has been trying to convey a fuller portrait of what he achieved during the crisis.