When Things Got Tough, Hank Paulson Went Skiing

Hank Paulson said the unimaginable last week. He testified that he was off skiing when he had his famous telephone call with Ken Lewis where he strong-armed Lewis and Bank of America (BAC) to complete the acquisition of Merrill Lynch (MER). Lewis had previously testified that he thought that Paulson was on a bike ride but as it turns out Lewis was wrong and Paulson corrected the record.

During his testimony Paulson made it clear that in December the United States financial system was teetering on the edge of collapse and that if Bank of America didn’t follow through with its planned acquisition of Merrill Lynch the economy could have been destroyed. According to Paulson it was impossible to underestimate the stakes involved in a bad outcome for Merrill Lynch.

But, with the nation’s financial survival in question, Hank Paulson, Secretary of the Treasury, went skiing. He wasn’t in Washington leading his staff, briefing the President or figuring out a good solution to the problem. When he was needed most, Hank Paulson was hitting the slopes.

I almost fell off my chair when I heard Paulson correct the Congressman that was questioning him about where he was when he spoke to Ken Lewis. Paulson had to repeat it a few times; after all everyone “knew” that he did the call from a bike ride and was only out of the office for some quick exercise.

Of course, Paulson was in good company on the slopes. Apparently neither Ken Lewis nor John Thain thought the merger needed their full time attention. John Thain, CEO of Merrill Lynch was off skiing in Vail for most of the last half of December. Thain defends his decision to not be in the office because he was able to stay in touch through a Blackberry. It’s a wonder he wasn’t fired by Blackberry while enjoying himself at après ski.

Ken Lewis spent time during this critical period in December at Reynolds Plantation, a Ritz-Carlton hotel in rural Georgia. He also wasn’t a full time CEO during this critical time in Bank of America’s history.

Unbelievably, neither Ken Lewis, John Thain or Hank Paulson stayed at their desks until January when the merger would have been closed. I guess they decided that their leisure time was more important than the economic future of a few billion people.

I believe that if Hank Paulson was in Washington and was working with his staff trying to figure out what to do about the Merrill Lynch problem he never would have lashed out and threatened Ken Lewis. And, I believe that if Ken Lewis and John Thain were working together, in the same office at the same time, they would have been able to work out their differences. Instead, we got absentee leadership and communication through Blackberry and e-mail. No wonder the merger got messed up and the recriminations keep on flying around.

Leadership is a contact sport and can’t be done remote control through a Blackberry and a lap top. Leadership requires a personal connection and a ton of effort. Apparently, a lot more effort was required than the trio of Paulson, Lewis and Thain were prepared to give to their companies or their country.

It was bad leadership and uncontrolled hubris that got us into the current economic crisis and it is going to take a lot of cultural change to get us out. Let’s all pray that we have started to write a new chapter in U.S. history so that our leaders intuitively understand that when the nation’s future is at stake it’s not a good time to go on vacation.

Comments

[geoff5505:]

While the "captains of the financial industry" are certainly entitled to some time away from the office, these three individuals demonstrated their supreme lack of leadership by their absence during one of the most critical moments in the history of the American banking system. All three are now reaping the rewards of their ill-advised actions. Good riddance to all three!

Jul 20 11:38 AM

[ilovesum:]

nice to see how concerned they were during this crisis , no
wonder they were in a crisis to begin with.
so what do they do when not in crisis ?

Jul 20 11:39 AM

[airpilot0712:]

The arrogance by these so called financial "leaders" is unfathomable....

Jul 20 11:42 AM

[ain't no fo...:]

Now now, let's not forget that Paulson was simply taking a much needed rest - after all, he had accomplished much in the prior year, and he's not a young man anymore.

He had overseen the total destruction of two of Goldman's biggest competitors.

He was in the process of assuring the total emasculation of MER, another of Goldman's biggest competitors.

He had placed AIG firmly on the government tit, assuring that when the time was right Goldman would receive its $13 Billion CDS payout from the US taxpayer.

He had enabled Goldman to become a bank holding company, thereby allowing the world's largest hedge fund to receive TARP bailout $$ as well as many billions of dollars of "walking around" money from the FED discount window.

All in all, he had put in place all the mechanisms that Goldman would need to achieve hegemony over the US and, arguably, world financial markets for as far into the future as anyone can see.

Give the guy a break - that's a lot of work. The stress must have been terrible - no wonder the man needed a short respite.

All work and no play...

Jul 20 12:16 PM

[MicrocapMan:]

Better than playing bridge....

Jul 20 12:40 PM

[DrBenway:]

Maybe he wasn't on the slopes after. Here are some worthy alternatives (courtesy of Wikipedia):

# Skiing (sex), a synchronous dual handjob, which, by its nature, mimics a skiing motion.
# Skiing (slang), the act of consuming cocaine, i.e. "snow."

Jul 20 12:47 PM

[Missing_Link:]

At least he wasn't in Rome, playing the fiddle.

Jul 20 12:54 PM

[Larrysyr:]

No one acquitted themselves well here, but TARP, etc. were sold to the American people as being crucial to the survival of the economy. It was not sold as just a good idea, but one CRITICAL to the future. The BOA/Merrill merger was similarly arranged as being so important that its failure would cause mass catastrophe.

I don't know how any of these three can justify being on vacation when they said their ships were in so much danger of sinking.

Imagine if, say, FDR had been off to the spa when Pearl Harbor happened. And then, say, STAYED at the spa. I think the outcome of WWII might have been very different.

Now imagine these guys had been in the office in December. Actually, I can't imagine they would have improved anything. Their hearts and minds clearly were on the slopes.

Jul 20 01:00 PM

[Neil459:]

Welcome to hope and change.

Jul 20 01:09 PM

[imex68:]

who are
Paulson
Lewis
Thain ?

I can not remember ...
8-(00000

Jul 20 01:16 PM

[imex68:]

Such a long time ago....

Jul 20 01:16 PM

[yankee:]

Notice how these fat cats all that double or triple chins. They eat big off the fat of the land for sure. When they look in the mirror, it must scare them right to the ski slopes.

Swine...everyone of them.

Jul 20 01:53 PM

[Swashbuckler:]

Behavior is not surprising, given who they are. The vacations remind me of George W. I had far fewer problems with him than most people. But, damn, every time you turn around he was on another vacation. I mean, he was elected to govern the leading country of the free world, not herd cattle and repair fences on his f**king ranch. Of course a case could be made that the country was better off the more W. was away from the office. Anyway, Paulson on the slopes while the financial system teeters on the brink speaks volumes about his piece of sh#t personal value system.

Jul 20 02:40 PM

[TraderMark:]

Where was Jimmy Cayne?

Nevermind - I think I know.

Jul 20 07:18 PM

[TraderMark:]

When you put it that way...


On Jul 20 12:16 PM ain't no fortunate son wrote:

> Now now, let's not forget that Paulson was simply taking a much needed
> rest - after all, he had accomplished much in the prior year, and
> he's not a young man anymore.
>
> He had overseen the total destruction of two of Goldman's biggest
> competitors.
>
> He was in the process of assuring the total emasculation of MER,
> another of Goldman's biggest competitors.
>
> He had placed AIG firmly on the government tit, assuring that when
> the time was right Goldman would receive its $13 Billion CDS payout
> from the US taxpayer.
>
> He had enabled Goldman to become a bank holding company, thereby
> allowing the world's largest hedge fund to receive TARP bailout $$
> as well as many billions of dollars of "walking around" money from
> the FED discount window.
>
> All in all, he had put in place all the mechanisms that Goldman would
> need to achieve hegemony over the US and, arguably, world financial
> markets for as far into the future as anyone can see.
>
> Give the guy a break - that's a lot of work. The stress must have
> been terrible - no wonder the man needed a short respite.
>
> All work and no play...

Jul 20 07:18 PM

[dcb:]

By Dawn Kopecki and Catherine Dodge

July 20 (Bloomberg) -- U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.

The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.

“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.

Treasury spokesman Andrew Williams said the U.S. has spent less than $2 trillion so far and that Barofsky’s estimates are flawed because they don’t take into account assets that back those programs or fees charged to recoup some costs shouldered by taxpayers.

“These estimates of potential exposures do not provide a useful framework for evaluating the potential cost of these programs,” Williams said. “This estimate includes programs at their hypothetical maximum size, and it was never likely that the programs would be maxed out at the same time.”

Barofsky’s estimates include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs.

Treasury’s Comment

Williams said the programs include escalating fee structures designed to make them “increasingly unattractive as financial markets normalize.” Dependence on these federal programs has begun to decline, as shown by $70 billion in TARP capital investments that has already been repaid, Williams said.

Barofsky offered criticism in a separate quarterly report of Treasury’s implementation of TARP, saying the department has “repeatedly failed to adopt recommendations” needed to provide transparency and fulfill the administration’s goal to implement TARP “with the highest degree of accountability.”

As a result, taxpayers don’t know how TARP recipients are using the money or the value of the investments, he said in the report.

‘Falling Short’

“This administration promised an ‘unprecedented level’ of accountability and oversight, but as this report reveals, they are falling far short of that promise,” Representative Darrell Issa of California, the top Republican on the oversight committee, said in a statement. “The American people deserve to know how their tax dollars are being spent.”

The Treasury has spent $441 billion of TARP funds so far and has allocated $202.1 billion more for other spending, according to Barofsky. In the nine months since Congress authorized TARP, Treasury has created 12 programs involving funds that may reach almost $3 trillion, he said.

Treasury Secretary Timothy Geithner should press banks for more information on how they use the more than $200 billion the government has pumped into U.S. financial institutions, Barofsky said in a separate report.

The inspector general surveyed 360 banks that have received TARP capital, including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. The responses, which the inspector general said it didn’t verify independently, showed that 83 percent of banks used TARP money for lending, while 43 percent used funds to add to their capital cushion and 31 percent made new investments.

Barofsky said the TARP inspector general’s office has 35 ongoing criminal and civil investigations that include suspected accounting, securities and mortgage fraud; insider trading; and tax investigations related to the abuse of TARP programs.

Jul 20 10:05 PM

[bike 05673:]

That is what happens when you are to big to fail. i am infavor of top producers and risk takers making plenty of money.Nothing could ever happen to executives at this level that will ever change their lifestyle so they pay a power game riding up lifts playing games on their cell phones and acting like KINGS of the world. I blame the boards of directors that these executives worked for, they all just played along. It seem to me that this whole top level has just turned into a club that protects each other.

Jul 21 08:29 AM

[newbietech:]

This is unfortunate coincidence. During the September-October-Nove... time frame, Hank Paulson was known to spend most of his weekends at the Treasury. So did most of the people working under him there. By December, the financial crisis was perceived to be receding. You can't fault a guy for taking a break. You have to remember that when someone sacrifices their weekends, their family suffers too. I read all these articles in NY Times about the way all of these people were working their weekend after weekend to come up with solutions. On one hand I wondered how they could manage to work all these hours without going stir crazy. On the other hand I wondered how are their families were managing during this time. For every policy that saw the light of day there are perhaps a few that did not even though they had to work on those too.

P.S. This does not mean I agree with Hank Paulson's policy decisions.

Jul 21 09:13 AM

[Sober Realist:]

So that's why Paulson lashed out at Ken Lewis -- interruption of his ski time. Sorry to ruin your R&R with this problem that you and the rest of your kind created, but can you help us fix it so you can continue to suck the lifeblood out of our economy.

Jul 21 08:53 PM

[Joe Healey:]

Mark,
Here are some suggested subjects being ignored in most places.
1. Ratings agencies: BIG part of the financial mess, but apparently slipped under the radar and it's business as usual. Does anyone trust them? What happened to all the proposed new oversight?
2. Massive commercial vacancies showing up and bad commercial real estate assets on banks' books. Is this the next bailout?
3. PBGC - Is this backstop to pension funds insolvent and what will all these underfunded pensions mean to the nation and economy?

Aug 19 01:02 PM