David Kirkpatrick

December 19, 2008

Picking Paulson’s brain

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 12:50 pm

I’d guess it’s a pretty scattered and frightening place at the moment. BusinessWeek interviewed him, and his main points were an “orderly” bankruptcy for troubled automakers might be the best outcome and he now favors oversight of hedge funds and “any institution whose failure could jeopardize the financial system.”

From the link:

Paulson was interviewed by BusinessWeekEditor-in-Chief Stephen Adler as part of the 10-year-old Captains of Industry series, which features leading newsmakers.

Among other points, Paulson said:

• An economic downturn remains much more of a risk than inflation from the money that’s now flooding the system. “That’ll be a high-class problem when we can start worrying about growth and inflation again,” Paulson said, adding: “The real cost would be to not do enough and then have the economy go into a free fall.”

• Banks that took U.S. funding should lend more, but he defended the Treasury’s emphasis on getting them money right away without strings. “Our first priority was always, and we were clear from the day we went to Congress, to prevent the collapse of the financial system.” He said, “There was literally a wave, just a string of financial institution failures or near-failures.” Paulson added: “They need to lend more. We don’t want them hoarding, we want them lending.” However, he also said, “It is not in my judgment practical or prudent to have government…saying ‘Make this loan, don’t make this loan.'”

• He defended the amount of disclosure by Treasury on the Troubled Asset Relief Program, or TARP. Paulson said, “We have been moving with lightning speed,” and added, “We’re building this organization as we’re going.”

• “The No. 1 thing we need to do is stem the housing correction.”

• The government lacked the authority to prevent the failure of Lehman Brothers, the investment bank that went under in September. But he said that Lehman’s failure was “in my judgment a symptom, not a cause” of the financial turmoil.

• President Bush “is very current and he’s on top of everything we’ve done.” He said, “I know that’s not conventional wisdom among some people but it’s absolutely true.”

• China and the U.S. should be good partners. “We won’t always have the same view, but engagement in my view is exceptionally important.”

Adler’s final question to Paulson was what advice he would give his successor, Timothy Geithner, who is now president of the Federal Reserve Bank of New York. Paulson said Geithner doesn’t need his advice, but added, “It’s important when you’re going through a time like this to define your job expansively.”

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