A recent news headline in the English newspaper The Independent caught my eye: Paulson reveals US concerns of breakdown in law and order. I only rarely post entire newspaper articles. But this article is particularly significant to the SurvivalBlog readership, and since it is brief, I’m posting it in full:
The Bush administration and Congress discussed the possibility of a breakdown in law and order and the logistics of feeding US citizens if commerce and banking collapsed as a result of last autumn’s financial panic, it was disclosed yesterday.
Making his first appearance on Capitol Hill since leaving office, the former Treasury secretary Hank Paulson said it was important at the time not to reveal the extent of officials’ concerns, for fear it would “terrify the American people and lead to an even bigger problem”.
Mr. Paulson testified to the House Oversight Committee on the Bush administration’s unpopular $700bn (£426bn) bailout of Wall Street, which was triggered by the failure of Lehman Brothers last September. In the days that followed, a run on some of the safest investment vehicles in the financial markets threatened to make it impossible for people to access their savings.
Paul Kanjorski, a Pennsylvania Democrat, asked Mr. Paulson to reveal details of officials’ concerns, which were relayed to Congress in hasty conference calls last year. The calls included discussion of law and order and whether it would be possible to feed the American people, and for how long, according to Mr. Kanjorski.
“In a world where information can flow, money can move with the speed of light electronically, I looked at the ripple effect, and looked at when a financial system fails, a whole country’s economic system can fail,” Mr. Paulson said. “I believe we could have gone back to the sorts of situations we saw in the Depression. I try not to use hyperbole. It’s impossible to prove now since it didn’t happen.”
The Oversight committee is investigating the takeover of Merrill Lynch by Bank of America, a deal forged in the desperate weekend that Lehman Brothers failed, and which later required government support because of Merrill’s spiraling losses.
Mr. Paulson defended putting pressure on Bank of America when it had last-minute doubts about the deal in December. Not to have done so could have rekindled the “financial havoc” the bailout had calmed.
(Special thanks to the publishers of The Independent.)
Hmm… This is certainly food for thought and grounds for further research. It notable to see the difference between public statements and what actually goes on behind closed doors. Compare the foregoing testimony with these excerpts from Paulson’s widely-circulated press release on October 14, 2008:
“America is a strong nation. We are a confident and optimistic people. Our confidence is born out of our long history of meeting every challenge we face. Time and time again our nation has faced adversity and time and time again we have overcome it and risen to new heights. This time will be no different…
…President Bush has directed me to consider all necessary steps to restore confidence and stability to our financial markets and get credit flowing again. Ten days ago Congress gave important new tools to the Treasury, the Federal Reserve and the FDIC to meet the challenges posed to our economy. My colleagues and I are working creatively and collaboratively to deploy these tools and direct our powers at this disruption to our economy.
Today we are taking decisive actions to protect the US economy. We regret having to take these actions. Today’s actions are not what we ever wanted to do – but today’s actions are what we must do to restore confidence to our financial system…
…While many banks have suffered significant losses during this period of market turmoil, many others have plenty of capital to get through this period, but are not positioned to lend as widely as is necessary to support our economy. Our goal is to see a wide array of healthy institutions sell preferred shares to the Treasury, and raise additional private capital, so that they can make more loans to businesses and consumers across the nation. At a time when events naturally make even the most daring investors more risk-averse, the needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it…
…These three steps significantly strengthen financial institutions and improve their access to funding, enabling them to increase financing of the consumption and business investment that drive U.S. economic growth. Market participants here and around the world can take confidence from the powerful actions taken today and our broad commitment to the health of the global financial system.
We are acting with unprecedented speed taking unprecedented measures that we never thought would be necessary. But they are necessary to get our economy back on an even keel, and secure the confidence and future of our markets, our economy and the economic well-being of all Americans.
By December of 2008 Paulson was browbeating Bank of America’s CEO Ken Lewis into a shotgun wedding with Merrill Lynch. Paulson now claims he did so, in part, because he was worried about a banking meltdown and the possibility of what we would call TEOTWAWKI. Perhaps he was reading too much SurvivalBlog, or someone gave him a copy of my novel and he was losing sleep over it.
What is to be learned from all this? Here is Rawles Axiom #1 on Political Awareness: Don’t trust or even pay much attention to what public officials say. Instead, concentrate on what they do, and more importantly on the subsequent results and consequences of what they do. Words don’t mean much to politicians. They all too frequently tailor their words to match their particular audience, with little regard to honesty or forthrightness.
If you think that I’ve over-reacted to the preceding cited quotes, take a moment to consider that this is the same Henry Paulson that had publicly declared just a few months before (on March 16, 2008): “I’ve got great confidence in our financial market, our financial institutions. Our markets are resilient and flexible. Our institutions, our investment banks are strong,”