Hank Paulson: This Is What It Was Like to Face the Financial Crisis

Sept. 15, 2008: Lehman Brothers files for Chapter 11 in the largest-ever U.S. bankruptcy

September 12, 2013

People weren’t taking Dick Fuld’s calls the weekend before Sept. 15, because Dick had been in denial for a long time. As the CEO of Lehman Brothers, he had asked the New York Fed and the Treasury weeks earlier to put capital into a pool of nonperforming illiquid mortgages that he wanted to put in a subsidiary he called SpinCo and spin off. We had explained that we had no authority to do that. He thought somehow there was something the government could do to help. How could it be that no one would want to buy his company? He just couldn’t believe it.

Henry Leutwyler for Bloomberg Businessweek

I was one of the few people speaking with him, and I told him what was happening: We couldn’t find a buyer, and without one, the government was powerless to save Lehman. He was devastated. You would have to be a CEO to really understand what he was going through. He obviously loved the firm—viewed it as his firm—and to have it go down when you’re at the helm, there can’t be much that’s more devastating than that professionally. But the Lehman Brothers bankruptcy on Sept. 15 was hardly the end of the crisis. It wasn’t the beginning, either. My goal had never been to go to Washington. My first year at Harvard Business School, 1969, I stopped studying. I was a good enough student that I could get by, so I spent most of my time at Wellesley College with Wendy Judge and persuaded her to marry me before the second year. Wendy got a job teaching swimming in Quantico, Virginia, so I got a job at the Pentagon. The only time I had ever worn a suit was to go to church. The only management experience I had was at a summer camp in Colorado. But, remarkably, I worked on my first bailout in those days.

Lockheed was a major defense contractor on the verge of bankruptcy, and the Nixon administration had gone to Congress to get a loan guarantee. I frankly didn’t think the government should intervene. The parts of Lockheed which were critical to the national defense could have been bought by other defense contractors, but this was hotly debated. Even then, bailouts were very unpopular.

As a result of the work I had done on Lockheed, I was approached by the White House. I went to work for a man named Lewis Engman, an assistant director of the White House Domestic Council. I was very green. I had a lot of questions, and Lew was a good mentor. He said, “If someone asks you to do something, and it doesn’t seem right, ask lots of questions. And any memo you write, ask yourself not only is it the right thing, but how would it look printed on the front page of the Washington Post.” I had started work in the Nixon White House in April 1972, just a few weeks before the Watergate break-in. That was terrific advice.

Video: "Hank: Five Years From The Brink." (The rest of this Businessweek article can also be accessed at the following link.)  http://www.businessweek.com/articles/2013-09-12/hank-paulson-this-is-what-it-was-like-to-face-the-financial-crisis?google_editors_picks=true

It was not hard for me to decide to leave government. In January of 1974, when I joined Goldman Sachs (GS), it never occurred to me I might one day run the firm. If you were interested in management and running a big organization, you went to some industrial company. You didn’t work for an investment bank. I picked Goldman Sachs because I was really interested in the idea of multitasking, working, and advising clients in a lot of industries.

Early on at Goldman Sachs someone said, “Hank isn’t that smart. What he really does is just assimilate and absorb information from others.” I took that as a huge compliment. I worked with many CEOs there, some really good, some not so good. I worked and advised heads of state, government leaders. What I learned was that there’s no perfect leader. Everyone is flawed, and their strengths are usually the opposite of their weakness. “Hank is candid; Hank is indiscreet.” “Hank is decisive; Hank acts too quickly.”

The essential ingredient to the success of these CEOs was the team they put around them. If you don’t put people around you to compensate for your flaws, these big jobs always uncover them.

http://www.businessweek.com/articles/2013-09-12/hank-paulson-this-is-what-it-was-like-to-face-the-financial-crisis?google_editors_picks=true

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