I was traveling all day yesterday, so I had a chance to read almost all of David Wessel's new book, In Fed We Trust. I think it's very good (and, just as importantly, accurate). Among the most interesting quotes/revelations from the book are:
- Hank Paulson, to Geithner and Bernanke, on the possibility of bailing out Lehman: "I'm being called Mr. Bailout. I can't do it again."
- Fed governor Kevin Warsh, on Lehman: "If there had been a buyer, the guys on the first floor [the Wall Street CEOs] would have filled the hole, and if they wouldn’t have, we would have."
- Bernanke, on Lehman (emphasis mine): "Bernanke also made it clear that had Congress given the Fed and the Treasury more authority sooner — for example, had the Troubled Assets Relief Program (TARP) been enacted earlier — he would not have let Lehman fail. 'We could have saved it. We would have saved it,' he said in an interview in October 2008. 'Even then, it would have been politically tough because of the risks to the taxpayer that would have been involved. And, of course, if Lehman hadn't failed, the public would not have seen the resulting damage and the story line would have been that such extraordinary intervention was unnecessary.'" (This actually strikes me as very politically astute. Bernanke was right, of course: if they had asked Congress for the TARP any sooner than they did, they would have been laughed out of the room.)
- Geithner, to Sheila Bair, who—amazingly—wanted to wipe out Wachovia bondholders: "It has to be this way. We just went to Congress for $700 billion. The policy of the U.S. government is that there will be no more WaMu's." [Emphasis mine]
- Geithner, on his decision to bail out AIG after initially indicating that he probably wouldn't: "I just changed my mind, and I wasn't alone in changing my mind."
- Harvard economist Martin Feldstein, in his capacity as an AIG board member, actually opposed accepting a Fed rescue. According to Wessel, Feldstein "said it wasn't the government's role to forcibly buy private companies." (Apparently Feldstein thought his duty was to his personal economic philosophy, rather than to the shareholders. What a clown.)
- Bernanke, on why they bailed out AIG but not Lehman: "'The impact of AIG's failure would have been enormous,' Bernanke [said]. 'AIG was bigger than Lehman and was involved in an enormous range of both retail and wholesale markets. For example, they wrote hundreds of billions of dollars of credit protection to banks, and the company's failure would have led to the immediate write-downs of tens of billions of dollars by banks. It would have been a major shock to the banking system.' Even banks that weren't intertwined with AIG would have been hurt, he said. 'Since nobody really knew the exposures of specific banks to AIG, confidence in the entire banking system would have plummeted, putting the whole system at risk.'"
- Sheila Bair sucks. Okay, this isn't really a new revelation, but still, Wessel's book drives home that Bair is truly an atrocious regulator. She sought to undermine Bernanke, Geithner, and Paulson's efforts to save the financial system whenever she got a chance. This is in addition to the colossal mistake she made in forcing WaMu's bondholders to take huge losses at the absolute height of the panic. No wonder the other regulators were so eager to avoid including her in any rescue policies. She has a grand total of 0 years of experience in banking, and is concerned with only one thing: her image. The sooner this walking train-wreck is out at the FDIC, the better.
- Sen. Harry Reid, cautioning Bernanke and Paulson (as well as Pelosi, Boehner, and McConnell) that TARP may not sail through the Senate quickly: "This is not an easy thing to do. ... This needs hearings. I know the Senate. It takes two weeks to pass a bill to flush the toilet."