In My Time - Dick Cheney [267]
Finally, in July 2008, with the financial crisis looming, legislation that provided for regulation was passed, and it brought about a careful examination of Fannie’s and Freddie’s books. Treasury Secretary Paulson recommended taking both institutions into government conservatorship, the president approved, and on September 7, the government took control.
But there seemed no end to the crisis. Lehman Brothers, another major American financial institution, was on the brink of collapse, and we had to decide whether to step in and keep it afloat. The key was finding an interested buyer, but it turned out there wasn’t one. Lehman declared bankruptcy on September 15, 2008. Some have charged that letting Lehman go under was a grave error that somehow caused the financial crisis, but as Hank Paulson and others have pointed out, there was no legal, workable way to save Lehman. Moreover, the events of September 2008 followed upon one another in such rapid succession that no single event can be said to have precipitated them.
On the weekend of the Lehman failure, Merrill Lynch agreed to be purchased by Bank of America on the following Tuesday, in order to prevent the failure of American International Group, a huge international insurance and financial firm that had insured mortgage-backed obligations. The Federal Reserve stepped in with an $85 billion loan, in exchange for which the U.S. government assumed ownership of nearly 80 percent of AIG.
It was clear that what we were facing called for more than individual interventions, particularly as it became apparent that America’s credit markets were shutting down. Huge companies with top credit ratings, such as General Electric, were unable to meet their short-term capital requirements. One money market fund “broke the buck”—was unable to return at least a dollar for every dollar invested. And the ramifications were economy-wide. People often talk about the difference between Wall Street and Main Street, but in this instance, credit was becoming a problem for everyone from GE to the businesswoman who owned a McDonald’s franchise. This crisis was going to affect not only CEOs, but also retirees depending on their 401(k)s. I thought of my great-grandfather, Samuel Fletcher Cheney, who in 1896 had lost his homestead when he couldn’t borrow money. I thought of my grandfather who’d lost almost everything when his bank failed at the beginning of the Great Depression. What the United States was facing in September 2008 had the potential to devastate Americans in all walks of life, just as the Great Depression had.
The country was fortunate that the president had such an outstanding economic team to work the crisis that confronted us. Eddie Lazear, chairman of the Council of Economic Advisers, was the kind of creative thinker who’s always appreciated, but never more so than in the unprecedented situation we faced. Ben Bernanke, chairman of the Federal Reserve, was a cool and thoughtful presence. He was a scholar of the Great Depression, and when he told you that the situation we were in might be even worse than that, you listened. I thought he had been a very effective chairman of the Council of Economic Advisors, and when I’d interviewed him as we were looking for a Federal Reserve chairman to take over when Alan Greenspan left, I had been impressed. I was even more impressed during the crisis of 2008. His quiet manner may have obscured the very aggressive actions to which he committed the Fed in order to pull us away from the abyss. The role he played has, I think, been generally underappreciated.
Treasury Secretary Hank Paulson was a booming presence whose experience as chairman and chief executive officer of Goldman Sachs gave him a hands-on knowledge of Wall Street that no one else in the administration could match. It was invaluable as