Think Twice Finance

Fighting Our Way Out of the Banking Crisis: Paulson Takes the Ball.

The Credit Crisis seems to be approaching its nadir, although it is clear that we will lose several more banks, perhaps many of the smaller “me too” banks, before this experience is over. We seem to be moving into a phase that happens in every crisis from war to basketball. In this phase many of the participants in the crisis become strangely distant. Somebody (Gandi and Michael Jordan come to mind in politics and basketball) takes charge. When ventures go well, there are many leaders, but when trouble is in the air, there are precious few.

It appears in the case of the Credit Crisis that Henry Paulson is going to lead the way out, for better or worse. There was a photo of him explaining the administration crisis plan on the steps of the Treasury in the Sunday Times that spoke volumes. No assistant secretaries, Fed leaders, politicians high or low stood beside him. He stood alone on those steps.

The reason is simple. From here on out, there are going to be no heroes. In one form or another, the taxpayer is going to bear the burden of digging our way out of this mess, and although Paulson, among the leadership candidates, is by far the least culpable in creating our unfortunate circumstances, he’s going to lead the way out. He spent his career among the leaders of an investment bank that had unparalleled success at taking calculated managed risk, rather than the government subsidized scams called banking that brought us to this sorry state.

He seems to be a person to be taken seriously. There is no preening, nor is there any shrinking away. If so, we’re lucky because there is much to be done and all of it will be criticized by the more simian of our legislative representatives.

Yet the Wall Street Journal Editorial today (July 15, 2008) raises the question whether Paulson became Secretary of the Treasury to “pad his obituary” or contribute to his country. In my mind, that question has already been answered.