Decision Points by George W. Bush - Excerpt

8/8/2019 Decision Points by George W. Bush - Excerpt

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14

FINANCIAL CRISIS

M

r. President, we are witnessinga nancial panic.

Tose were troubling words coming from Ben Bernanke, themild-mannered chairman of the Federal Reserve, who was seated across

from me in the Roosevelt Room. Over the previous two weeks, the gov-

ernment had se ized Fannie Mae a nd Freddie Mac , t wo g iant housing

entities. Lehman Brothers hadled the largest bankruptcy in American

history. Merrill Lynch had been sold under duress. Te Fed had granted

an $85 billion loan to save AIG. Now Wachovia and Washington Mutual

were teetering on the brink of collapse.With so much turbulence innancial institutions, credit markets had

seized up. Consumers couldnt get loans for homes or cars. Small busi-

nesses couldnt borrow tonance their operations. Te stock market had

taken its steepest plunge since the rst day of trading afer 9/11.

As we sat beneath the oil painting of Teddy Roosevelt charging on

horseback, we all knew America was facing its most dire economic chal-

lenge in decades.

I turned to t he Rough Rider of my nancial team, Secretary of the

Treasury Hank Paulson, a natural leader with decades of experience in

internationalnance.

Te s ituation is ex traordinarily se rious, H ank s aid. H e a nd t he

team briefed me on three measures to stem the crisis. First, the Treasury

would guarantee all $3.5 trillion in money market mutual funds, which

were facing depositor runs. Second, the Fed would launch a program to

unfreeze the market for commercial paper, a key source o nancing for

businesses across the country.Tird, the Securities and Exchange Com-

mission would issue a r ule temporarily preventing the short-selling of

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440 DECISION POINTS

nancial stocks. Tese are dramatic steps, Hank said, but Americas

nancial system is at stake.

He outlined an even bolder proposal. We need broad authority to

buy mortgage-backed securities, he said. Tose complex nancial assets

had lost va lue when the housing bubble burst, i mperiling t he ba lance

sheets ofnancial rms around the world. Hank recommended that we

ask Congress for hundreds of billions to buy up these toxic assets and

restore condence in the banking system.

Is this the worst crisis since the Great Depression? I asked.

Yes, Ben replied. In terms of the nancial system, we have not seen

anything like this since the 1930s, and it could get worse.His answer claried the decision I faced: Did I want to be the presi-

dent overseeing an economic calamity that could be worse than the

Great Depression?

I was furious the situation had reached this point. A relatively small

group of peoplemany on Wall Street, some nothad gambled that the

housing market would keep booming forever. It didnt. In a normal envi-

ronment, the free market would render its judgment and they could fail.I would have been happy to let them do so.

But t his wa s n ot a n ormal e nvironment. Te ma rket had cea sed

to function. And as B en had ex plained, the consequences of inaction

would be catastrophic. As unfair as it was to use the American peoples

money to prevent a collapse for which they werent responsible, it would

be even more unfair to do nothing and leave them to suffer the conse-

quences.

Get to work, I said, approving Hanks plan in full. We are going to

solve this.

I adjourned the meeting and walked across the hallway to the Oval

Office. Josh Bolten, Counselor Ed Gillespie, a nd Da na Perino, my t al-

ented and effective press secretary, followed me in. Bens historical com-

parison was still echoing in my mind.

If were really looking at another Great Depression, I said, you can

be damn sure Im going to be Roosevelt, not Hoover.

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