"I Didn't See This Coming, Either"

In the past couple of months I've seen the documentary, Inside Job, a competent explanation of how the financial industry crisis arose, and of the ensuing collapse and bail-out. There are no big surprises for those who followed the crisis, but it's a good refresher course - and probably a good primer for those who are still wondering how the crisis occurred. I also saw the star-studded HBO dramatization of Andrew Ross Sorkin's novel, "I Love You, Hank Paulson" Too Big to Fail. That production offers a frenzied account of how the crisis was handled, but (in my opinion deliberately) omits mention of how the crisis arose or what has happened since Paulson "forced" the nation's biggest banks to accept billions of taxpayer dollars, no strings attached.

Two things struck me about the HBO production. First, if Sorkin's account is accurate, perhaps Henry Paulson's epitaph should be, "I didn't see this coming, either." Perhaps in order to maintain him as a sympathetic character, there's next to no mention of Paulson's background in Goldman Sachs, and what mention there is comes in the form of telling us how unfair it is that the government is viewed as being unduly influenced by the former Goldman Sachs employees who manage the treasury, or how hard Paulson worked to save Lehman Brothers (merely, we are told, the seventh largest investment banking firm in the country - why would Goldman Sachs care about such a minor player) and how it was that bank's intransigence and not Paulson's policy that resulted in its bankruptcy. There may be truth to that, but it's still very interesting how much effort Sorkin applies to salvaging Paulson's reputation as opposed to explaining how Paulson managed to avoid recognizing the perilous condition of the financial sector before we reached the crisis point. Seriously - thanks to Sorkin I now know Paulson's religion and that he has to be arm-twisted to take a sleeping pill (which he may or may not have actually taken), than I do about his history with Goldman Sachs.

The film ends with Paulson expressing a hopeful but concerned expectation that the banks would follow through on their implied promise to lend out the billions of "no strings attached" dollars to boost the economy, but unlike the rest of the film in which Sorkin's interpretations and conclusions are spoon-fed to the audience, you only "get" the ending if you already know that the banks did no such thing - but you're expected to believe that Paulson didn't see that coming. From Sorkin, you get no sense of any of the inside dealing and willful blindness that was behind the bubble or AIG's failure. This is stuff that just happened - a perfect storm, it would seem, of industry actions for for which nobody should be held accountable. You get no sense of regulatory capture - but as I've commented, Sorkin's coverage of the financial industry seems to me to be the journalistic equivalent of regulatory capture. The dramatization of his book reinforces that perception, and then some.

Some of the explanations for policy choices are left with the not-so-credible statements we've previously received. For example, we have no choice but to give the nation's biggest banks all those billions of dollars because if only the failing banks are given money everybody will know which banks are failing. The competing explanation, that it would not be fair to the non-failing banks if their incompetent competitors get that kind of boost and they do not, is omitted. But by the time of that cash infusion, everybody who was following the crisis knew or could easily determine which banks needed the money and which did not. The "we need to maintain a level playing field" argument would have been more credible; although I suppose that would have undermined Sorkin's explanation for why no strings could be attached to the money. You could achieve that level playing field by offering the money, strings attached, on equal terms to every bank. And not so much as a whisper about how your word is your bond in the financial and insurance sectors - maybe that's a rule only for insurance companies?

Timothy Geithner, on the other hand, gets no similar amount of love. When he's on screen the goal seems primarily to be to attribute to him some of the worst and least popular aspects of the bail-out - blank checks for the banks, "cash for trash".... That may be entirely fair. Whatever I can make of defenses of his intentions and integrity, I can't recall the last time I've heard a defense of his competence in relation to the management of this crisis. But really, given how a simple measure such as some form of bankruptcy cram-down for homeowners' first mortgages could have helped over the past two years, simplifying the process of getting people out of their upside-down homes without foreclosures or short sales, keeping struggling people in their homes, and in stabilizing housing prices, who could muster an energetic defense for a guy whose only concern was in shoveling as much taxpayer cash as possible, no strings attached, into the institutions most responsible for the nation's problems.