Read Online On the Brink by Henry M. Paulson - Free Book Online
Authors: Henry M. Paulson
Tags: United States, General, Biography & Autobiography, Political, Political Science, Business & Economics, Economic History, Economic Conditions, Economic Policy, Public Policy, Global Financial Crisis, Economics: Professional & General, Financial crises & disasters, 2008-2009
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rustic lodges and mulched paths one and a half hours by car from Washington, in western Maryland’s Catoctin Mountain Park. It had been five weeks since I had been sworn in as secretary of the Treasury, and I was still feeling my way as an outsider in a close-knit administration.
The economic outlook was strong. Stocks were trading just below their near-record highs of May. The dollar had shown some weakness, particularly against the euro, but overall the U.S. economy was humming—the gross domestic product had risen by nearly 5 percent in the first quarter and by just below 3 percent in the second quarter.
Nonetheless I felt uneasy. On the macro front, the U.S. was conducting two wars, the expenses from Hurricanes Katrina, Rita, and Wilma were mounting, and our entitlement spending kept growing even as the budget deficits shrank. This odd situation was ultimately the result of global financial imbalances that had made policy makers nervous for years. To support unprecedented consumer spending and to make up for its low savings rate, the U.S. was borrowing too much from abroad, while export-driven countries—notably China, other Asian nations, and the oil producers—were shipping capital to us and inadvertently fueling our spendthrift ways. Their recycled dollars enriched Wall Street and inflated tax receipts in the short run but undermined long-term stability and, among other things, exacerbated income inequality in America. How long could this situation last?
My number one concern was the likelihood of a financial crisis. The markets rarely went many years without a severe disruption, and credit had been so easy for so long that people were not braced for a systemic shock. We had not had a major financial blowup since 1998.
We arrived at Camp David late Thursday morning, August 17, ate lunch, and spent the afternoon hiking. That evening, Wendy, ever the athlete, defeated all comers, including me, in the bowling tournament. Though the retreat is well known for the foreign dignitaries who have stayed there, the atmosphere is quite casual. On Josh Bolten’s recommendation I had even bought a pair of khaki pants—at the time, I just had dress slacks and jeans.
In the morning, I went for a brisk run, accompanied by the loud singing of Carolina wrens and, high up in the canopy, migrating warblers. I came across Wendy and First Lady Laura Bush, trailed by a Secret Service detail, heading off to do their birding. I was on my way to see a more exotic species of Washington animal.
After breakfast, the president’s economic team gathered in a large wood-paneled conference room in Laurel, as the main lodge is known (all of Camp David’s buildings are named for trees). Ed Lazear, chairman of the Council of Economic Advisers, led off with a discussion of wages and later talked about pro-growth tax initiatives. Rob Portman, the former congressman then serving as the head of the Office of Management and Budget, dissected budget matters, while Al Hubbard, then director of the National Economic Council, and his deputy director, Keith Hennessey, took us through entitlement issues.
The president’s operating style was on full display. He kept the atmosphere shirt-sleeve informal but brisk and businesslike, moving purposefully through the agenda with a minimum of small talk. Some people have claimed that as president, George W. Bush lacked curiosity and discouraged dissent. Nothing could be further from my experience. He encouraged debate and discussion and picked up on the issues quickly. He asked questions and didn’t let explanations pass if they weren’t clear.
I focused on crisis prevention. I explained that we needed to be prepared to deal with everything from terror attacks and natural disasters to oil price shocks, the collapse of a major bank, or a sharp drop in the value of the dollar.
“If you look at recent history, there is a disturbance in the capital markets every four to eight years,” I said, ticking off
The economic outlook was strong. Stocks were trading just below their near-record highs of May. The dollar had shown some weakness, particularly against the euro, but overall the U.S. economy was humming—the gross domestic product had risen by nearly 5 percent in the first quarter and by just below 3 percent in the second quarter.
Nonetheless I felt uneasy. On the macro front, the U.S. was conducting two wars, the expenses from Hurricanes Katrina, Rita, and Wilma were mounting, and our entitlement spending kept growing even as the budget deficits shrank. This odd situation was ultimately the result of global financial imbalances that had made policy makers nervous for years. To support unprecedented consumer spending and to make up for its low savings rate, the U.S. was borrowing too much from abroad, while export-driven countries—notably China, other Asian nations, and the oil producers—were shipping capital to us and inadvertently fueling our spendthrift ways. Their recycled dollars enriched Wall Street and inflated tax receipts in the short run but undermined long-term stability and, among other things, exacerbated income inequality in America. How long could this situation last?
My number one concern was the likelihood of a financial crisis. The markets rarely went many years without a severe disruption, and credit had been so easy for so long that people were not braced for a systemic shock. We had not had a major financial blowup since 1998.
We arrived at Camp David late Thursday morning, August 17, ate lunch, and spent the afternoon hiking. That evening, Wendy, ever the athlete, defeated all comers, including me, in the bowling tournament. Though the retreat is well known for the foreign dignitaries who have stayed there, the atmosphere is quite casual. On Josh Bolten’s recommendation I had even bought a pair of khaki pants—at the time, I just had dress slacks and jeans.
In the morning, I went for a brisk run, accompanied by the loud singing of Carolina wrens and, high up in the canopy, migrating warblers. I came across Wendy and First Lady Laura Bush, trailed by a Secret Service detail, heading off to do their birding. I was on my way to see a more exotic species of Washington animal.
After breakfast, the president’s economic team gathered in a large wood-paneled conference room in Laurel, as the main lodge is known (all of Camp David’s buildings are named for trees). Ed Lazear, chairman of the Council of Economic Advisers, led off with a discussion of wages and later talked about pro-growth tax initiatives. Rob Portman, the former congressman then serving as the head of the Office of Management and Budget, dissected budget matters, while Al Hubbard, then director of the National Economic Council, and his deputy director, Keith Hennessey, took us through entitlement issues.
The president’s operating style was on full display. He kept the atmosphere shirt-sleeve informal but brisk and businesslike, moving purposefully through the agenda with a minimum of small talk. Some people have claimed that as president, George W. Bush lacked curiosity and discouraged dissent. Nothing could be further from my experience. He encouraged debate and discussion and picked up on the issues quickly. He asked questions and didn’t let explanations pass if they weren’t clear.
I focused on crisis prevention. I explained that we needed to be prepared to deal with everything from terror attacks and natural disasters to oil price shocks, the collapse of a major bank, or a sharp drop in the value of the dollar.
“If you look at recent history, there is a disturbance in the capital markets every four to eight years,” I said, ticking off
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