All the Devils Are Here [221]
So long as there was that deep uncertainty of how big the black hole was—that paralyzing fear that nobody knew anymore what anything was worth—the crisis didn’t abate. “The way I think about the crisis is that it occurred because of the systemic abuse of trust in capital markets,” says Australian financial analyst and historian John Hempton. “The blowups of subprime, then of Bear Stearns, and then of Fannie exposed massive lies. Then we went from a collective belief in soundness to a collective belief in insolvency.”
It took the absolute certainty that the United States government would use its financial might to prevent that insolvency to stanch the bleeding. That was Paulson’s most famous act during the crisis: along with Bernanke, he pleaded with Congress to give Treasury $700 billion that he could use to shore up the system. The money was called the Troubled Asset Relief Program, or TARP. On October 13, his $700 billion in hand, Paulson met the CEOs of the eight biggest banks in a Treasury conference room. He told them that they would all be taking money from the government, like it or not. Although several came to regret taking it, none had the nerve to say no to Hank Paulson.
The passage of the TARP marked the first outpouring of populist fury. Despite all the apocalyptic talk that the financial system was at stake, you had to feel that in your gut to believe it, because the only way anyone could prove it would have been to not pass the bill and see if the financial system went under. It was hard to make the connection between a big bank in New York that traded credit derivatives and a family in Ohio that couldn’t get a loan if that faraway bank went under. All people could really know for sure was that taxpayers’ money was going to prop up the very firms whose greed and mistakes helped cause the crisis.
The anger didn’t subside after the danger had passed. If anything, it grew stronger. It would build in waves, crest, and then take aim at a different target.
People raged at the Bank of America-Merrill Lynch deal—at the way John Thain had accelerated the payment of $3.6 billion in bonuses to Merrill traders days before the deal was completed; at the way Ken Lewis had averted his eyes; at the way Bernanke and Paulson had pushed and prodded and bludgeoned Lewis into completing the deal when the CEO got cold feet at the last minute. The deal almost certainly averted Merrill’s bankruptcy. It didn’t matter; people wanted blood. Congress held three hearings on the Bank of America-Merrill Lynch deal, mainly so that members of Congress could vent on behalf of their constituents.
By March, the fury had found a new outlet: AIG. In March 2009, the news broke that AIG-FP was going to pay $165 million in bonuses to its traders and executives. Although most of them had had nothing to do with the destruction, the payments became a huge scandal. The House wasted no time in passing a bill taxing all bonuses—at 90 cents on the dollar—for any household that made more than $250,000. Republicans and Democrats vied to outdo each other. “This is absolutely appalling,” said Senate Minority Leader Mitch McConnell. “It’s like taking the American people’s hard-earned tax dollars and slapping them in the face with it,” said Elijah Cummings, a Democratic congressman from Maryland. “There are a lot of terrible things that have happened in the last eighteen months, but what’s