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Henry Paulson Wishes He Had Today’s Regulatory Tools During His Treasury Tenure

September 16, 2013 at 12:00 AM EDT
On the fifth anniversary of the meltdown that crippled the nation's economy, Judy Woodruff talks with the former treasury secretary who was on the front lines of the financial crisis. Henry Paulson reflects on progress by the financial industry, what tools he wishes he had before the collapse and the fight over the debt ceiling.

JUDY WOODRUFF: Today, I sat down with him to discuss the legacy of the meltdown chronicled in his book “On the Brink” and in a new documentary, “Hank,” out today.

Secretary Henry Paulson, thank you for talking with us.

HENRY PAULSON:  Judy, it’s very good to be here.

JUDY WOODRUFF: So, here we are, five years after the financial collapse. You have said there are still banks out there too big to fail. You have also said you expect — in fact, you think that another collapse is inevitable. Do you think that it could happen at any time in the near future?

HENRY PAULSON:  Judy, I think that the situation is much better than it was.

We have come a long way. A lot has been done. The markets are functioning as normal right now. I think we have got the best financial system in the world, the most transparent, the most efficient. We still have got work to be done. Now, with regard to the banks, I’m actually pleased that we have the powers from Dodd-Frank, which let regulators wind down any failing institution, no matter how large, outside of bankruptcy.

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So I’m much more focused on cleaning up other problems, much more focused on fixing Fannie and Freddie, addressing other issues.

JUDY WOODRUFF: So the argument by, among others, Elizabeth Warren, now the senator from Massachusetts, that these banks are so big, they have not been regulated adequately, and they ought to be broken up?

HENRY PAULSON:  I don’t think any bank should be too big to fail, any bank needs to be too big to fail.

Almost any bank of size is too big to liquidate immediately in the middle of a crisis. But I believe we have got the tools we need today. Regulators have the tools to deal with failing banks and to make sure that they’re not propped up in their current form. And these are tools I would love to have had when I was treasury secretary.

JUDY WOODRUFF: Well, speaking of that, today is the fifth anniversary exactly of the collapse of Lehman Brothers. I have seen several interviews that you have done on the subject. You have said you didn’t have the authority to save Lehman.

My question is, if you had a do-over, is there anything that you would have done differently in that regard?

HENRY PAULSON:  With regard to Lehman, there’s nothing I can think of we would have done over.

Ben Bernanke, Tim Geithner and I have all repeatedly said we didn’t have the necessary authorities. I wish we’d had the authorities. But, again, let’s not forget the fact that Lehman was a symptom. It wasn’t the cause of the crisis, that I’m very pleased when I look back, very pleased about one thing. And that is that we are able to work with Democrats, with Republicans, to be able to work on a bipartisan basis twice, first with Fannie or Freddie, and then with the TARP, get the authorities we needed, move quickly, take the actions, get capital out into the banks, and avoid a catastrophe.

JUDY WOODRUFF: You mentioned TARP.


JUDY WOODRUFF: A lot of conversation to this day about that program that became almost a household made, the Troubled Asset Relief Program.

A lot of government money went to these banks. The banks today are thriving. They’re making more than they have ever made. Taxpayers haven’t really been a part of this. Was there something about TARP you would have organized differently?

HENRY PAULSON:  Well, let me correct one thing, OK?

The money that went into the TARP capital and insurance company — bank and insurance capital programs, it has all come back, plus $32 billion. So the money has come back, plus 32 billion additional dollars for the taxpayer.

The second thing I will say about that program is that it was unique. I can’t think of anywhere in the world or anyone who has done a program where you went out and put capital into hundreds of banks, hundreds of banks while — before they were failing, getting them out to recapitalize the system. I think that really made a huge, huge positive difference.

Now, the do-over that I would have, I wish that I had been able to convince the American people that we didn’t do this for those banks. We did it for them. We did it to prevent a terrible disaster that could have rivaled or exceeded that of the Great Depression.

JUDY WOODRUFF: Don’t many Americans have a right to be angry when they look at Wall Street and see the profits, see the banks doing so well, and ask, what about the rest of us?

HENRY PAULSON:  Well, American are, quite understandably, very frustrated, because they suffered a deal after the crisis. And the economy is still not growing as fast as we need it to grow to create the jobs we need to create, to have prosperity and really a sustainable recovery.

One of the things we want to do is to remind people how close we came to going into the abyss, how important it was we took the steps we did, and how important it is we learned our lesson, so we don’t repeat the same problem.

JUDY WOODRUFF: Let’s look ahead for just a minute.

A number of prominent members of your party, the Republican Party, who are today arguing that the real problem the economy faces is the government and government debt, and a number of them are talking about using the debt ceiling as an instrument to keep government spending down. Is the debt limit an appropriate tool to use to do that?

HENRY PAULSON:  Well, I’m a former Treasury secretary, and every Treasury secretary hates the fact that we need to go back to Congress and ask them to raise the debt ceiling, so we can meet the obligations that they have already approved. So we all hate that.

That’s a flaw in the system, number one. Number two, the point I continually make is that we won’t default on our dealt. There will be brinksmanship. There will be politicking. But at the end of the day, Congress should raise the debt ceiling and Congress will raise the debt ceiling. They always do.

JUDY WOODRUFF: Last question: the Federal Reserve. You know the importance of the Federal Reserve. You worked very closely with the chairman during the financial crisis. Today, there’s a big question about who is going to replace Ben Bernanke. Larry Summers, the former Treasury secretary, has taken him name out of the running. A lot of attention on Janet Yellen, who is a Fed governor.

Knowing what you know of her, is she someone who is qualified to be chairman?

HENRY PAULSON:  Judy, the Fed job is a very important job.

And I have been very disturbed by all the politicking around it and the whole way this situation has been handled. All I know is good things about Janet Yellen. I don’t know her well. I have met her a couple of times. There are number of good candidates.

And I also had a very high regard for Larry Summers.

JUDY WOODRUFF: When you speak of the politicking around the Fed chairmanship, what does that say to you about the concern out there in Congress and elsewhere about government — the role of the government in all of this?

HENRY PAULSON:  What it says to me is we have dysfunction in our political process in Washington, D.C.

And it’s really time for both parties to come together and come up with solutions for the good of the country, and I — as I said, I was disgusted by the politicking and have been around the situation. This is a very important job. These are very important, credible, good people that are being considered for the job. Too often in Washington, when people disagree on policy, they attack the person. And I have just got no — no, at all, sympathy for that.

JUDY WOODRUFF: Henry Paulson, thank you very much. Good to talk with you.

HENRY PAULSON:  Judy, thank you.