Too Big to Fail [23]
Dimon recounted to Paulson how Ed Moldaver, a longtime broker at Bear—“an asshole,” in Dimon’s estimation—had publicly mocked him during a meeting Dimon had called to explain the transaction to Bear employees. “This isn’t a shotgun marriage,” Moldaver scowled in front of hundreds of Bear staffers. “This is more like a rape.”
In Washington, Paulson now revealed to Dimon that he was facing a similar revolt, for most people in government thought everyone on Wall Street was greedy and overpaid, and bailing them out was about as popular a notion as raising taxes. “I’m getting it from all sides,” he confided.
To make matters worse, it was a presidential election year. On Monday, a day after the Bear Stearns deal was announced, Democratic candidate Senator Hillary Clinton, who at the time had a slight lead in national polls, criticized the bailout, going so far as to link the Bush administration’s rescue of Bear Stearns to the problems in Iraq.
Barney Frank, the Democratic chairman of the House Financial Services Committee, was every bit as harsh. He, too, turned the deal into an indictment of Paulson’s boss, President Bush. “All these years of deregulation by the Republicans and the absence of regulation as these new financial instruments have grown have allowed them to take a large chunk of the economy hostage,” Frank complained. “And we have to pay ransom, like it or not.”
While attacking the rescue plan was one of the few completely bipartisan affairs in town, the Republicans hated it for different reasons. The conservatives believed that the marketplace would take care of everything, and that any government intervention was bound to make things worse. “First, do no harm!” they’d say, quoting Hippocrates’ Epidemics. A little blood might be spilled, but creative destruction was one of the costs of capitalism. Moderate Republicans, meanwhile, were inundated with complaints from their constituents, who wondered why the parties responsible for decimating their 401(k)s deserved any taxpayer money at all.
Everyone was calling it a “bailout”—a word Paulson hated. As far as he was concerned, he had just helped save the American economy. It was a bailout in the literal sense of bailing water out of a sinking boat, not a handout. He didn’t understand why no one in Washington could see that distinction.
At some level, though, he knew there would be hell to pay, no matter how correct his prognosis proved to be. While the president publicly praised him and the deal, Bush, privately, was livid. The president understood the necessity of the bailout, but he also appreciated how it would be politicized. “We’re gonna get killed on this, aren’t we?” he had asked Paulson, knowing full well that the answer was yes.
Paulson didn’t need to be reminded where the president stood on the issue. The Wednesday before the Bear deal, Paulson had spent the afternoon in the Oval Office advising Bush on the speech he would give that coming Friday to the Economic Club of New York at the Hilton Hotel. Bush had included a line in his remarks asserting that there would be no bailouts.
“Don’t say that,” Paulson insisted, looking over the draft.
“Why?” Bush asked. “We’re not going to have a bailout.”
Paulson broke the bad news to him: “You may need a bailout, as bad as that sounds.”
All in all, the situation had become Paulson’s worst nightmare: The economy had turned into a political football, his reputation was on the line, and he was stuck playing by Washington rules.
Henry Paulson