Customer Reviews

On the Brink HARDCOVER

5 star:		(41)
4 star:		(38)
3 star:		(15)
2 star:		(6)
1 star:		(15)

 

 

A book like this should be read only along with books like The Failure of Risk Management: Why It's Broken and How to Fix It or The Black Swan: The Impact of the Highly Improbable. These books are about the much broader topics of risk management and risk in finance, respectively, but they do put On the Brink in context.

Paulson has written a detailed, blow by blow, narrative account of several specific meetings leading up to and during the financial crisis. Less of the book deals with stepping outside of these meetings to analyze other specific causes, but there is some of that. The reader has to be careful of an attempt by Paulson to recast his own role in a more favorable light, but I haven't seen anything detailed enough to specifically contradict him, yet.

Paulson does mention an interesting and almost complete list of players in this crisis - Freddie, Fannie, Bernanke, Bush, etc. But he is almost silent on some of the more subtle players like the mathematical models that underestimated these risks (Taleb and Hubbard do and excellent job of this). He reiterates throughout the book that the events seemed "impossible" and yet they are events that seem to happen once or twice a century (Especially considering some of the relaxed regulation and oversight that preceeeded it).

He does mention the role of Credit Default Swaps in the crisis but not, say, the Gaussian Copula, Options, or Value at Risk. The use of such methods are at least partly to blame.

The reader has to assume Paulson's agenda of getting history to come out the way that casts him the way he would like to see it. But it is still an excellent account. We should like to see the accounts of Bernanke and Geithner someday and compare them side-by-side.

Like so many "over the shoulder" assessments of major historical events, Mr. Paulson's account is very self-serving.

He doesn't bother to address why - when the government had tremendous leverage in working out the bailout of AIG - it did next to nothing in holding banks like Goldman Sachs accountable for their poor decision-making. So AIG, propped up by American taxpayers, paid 100 cents on the dollar for the credit default swaps purchased by Goldman Sachs. These swaps in themselves were a suspect approach to managing risk. Moreover, the government never required the investment firms - whose senior management made atrocious gambles - to replace these inept executives (such as GS's Lloyd "We're doing God's work" Blankfein) although they didn't hesitate to take out the head of GM (Rick Wagoner)when we bailed out the auto industry.

So how to explain Mr. Paulson's role in all this and his self-justifying apologies for greed? Well here's an astonishing coincidence: he's the former CEO of Goldman Sachs. Surprise, surprise! And another tidbit about where Mr. Paulson acquired his ethical compass: he was a special assistant to John Ehrlichman in the Nixon White House.

I invite people to read this book, but I would advise against attaching any credibility to Mr. Paulson's view of the near collapse of our financial system.

On the Brink is basically a diary of Paulson's time as Treasury Secretary, which ran from 2006 to 2008. That, of course, encompasses the most dramatic period of the financial crisis, running from when things started coming unglued in 2007 to the point at the end of the Bush administration when the financial markets were just about finally stabilized. The book details the sequence of events which covers the Bear Stearns take-over, the Lehman collapse, the receivership of Fannie Mae and Freddie Mac, the AIG bailout, TARP and just about everything in between.

This is NOT a history of the financial crisis. Paulson doesn't really get into the "How did we get here?" in any dedicated or focused fashion (for something more along those lines you may want to read Financial Shock by Mark Zandi). This book is Paulson telling the story of how Treasury, the Fed, the FDIC, the SEC, Congress, the President and others worked together to try to resolve the problems facing the financial markets during the timeframe in question from his perspective. As such, one may be inclined to think of it as an individual trying to establish his legacy. Perhaps it is, but I also found it to be a very honest telling. The book doesn't shy away from Paulson's insecurity at different points, or the impact the long hours and intense stress had. I didn't come away from the book thinking Paulson had portrayed himself as the hero of the tale. If anything, he spends considerable time talking about the tireless work of the numerous people involved.

From a reading perspective, I found the book well-paced and fairly easy to get through in general terms. I think Paulson does a very good job of reflecting the uncertainty and rapid development of events during the timespan in question. He also presents an interesting view of some of the major political movers of the time, many of whom are still involved in things today. We in the public don't often get that sort of thing, as we mostly see the made-for-TV moments of press events and committee testimony.

On the negative side, my guess is that some subjects might trip up the reader who isn't familiar with the deeper elements of the financial markets. The book could have probably done with explanations at a few points to make things more clear for the lay person - like why short selling was so bad, why AIG was bleeding cash, etc. The lack of such explanations does not detract from the main narrative, but no doubt some readers would find them useful in helping understand why things were the way they were.

Overall, I think On the Brink is a very worthwhile read for those interested in understanding how things developed and progressed during the financial crisis.

I generally agree with some of the critics that Mr. Paulson's book is self-serving in many respects, but it was still avery good read, especially if you want to see an inside view of what went on in politics and finance during this country's recent economic crisis. It really "woke me up" in the sense that I realized how uninformed I have been concerning our Country's governance. His job or Geithner's or Bernanke's is not a job I would envy or want. In addition to being the anointed ones, they are also prisoners of history and popular opinion, all in all a rather difficult and unenviable life. The Tea Party rants and raves against them, but I am convinced they performed a necessary act which actually did prevent a true economic meltdown, a meltdown which would have made most of us envy those people who lived through the 1932 depression. I mean that; if you read the book you begin to have an understanding of this complicated Global economy we are living in and how all of our lives are inextricably tied to it. For better or worse, we are all married to it. If someone can come up with a better financial system than what we have now, I would be all for it. But for the moment, at least, I will tip my hat to these financial masters and offer them a simple "thank you" for what they have done.

Another "hey it's not REALLY our fault... really!" apologist for avarice, greed, and murdering orphans. Now he's writing a book for himself and the rest of the most destructive terrorists since 9-11. Arguably, they caused more fiscal damage (destroyed ~33 trillion USD in wealth since 2006) and if you count the additional suicides above the rate in 2005, 86,000 deaths. So they killed more people AND destroyed more wealth than the people who rammed two planes into the WTC, one into the Pentagon and one into a cornfield. We've been going after the wrong people this whole time... go figure.

When I read this book, it was similar to viewing the crisis through a polarizing lens. It blocked out all of the information along the axis that would make Goldman look bad, and skewed the information about the rest of the wall street morons who didn't know enough about math to realize that their models were hopelessly inadequate. If you want a real idea of why they're such fools, read "On Default Correlation: A Copula Function Approach", by David Xi. Then read the conclusion- HE SAYS CLEARLY THAT IT'S AN APPROXIMATE MODEL AND NOT AN EXACT MEASURE. It's based off of Gaussian electrostatics and magnetism, like all of Carl's other work. I guess the hedge fund managers who used David's function were too busy wallowing in their recently appropriated wealth to bother trying to understand the mechanics of what was actually making them money.

The book wastes no time on lengthy introductions or narrative preambles. The very first sentence is a direct question from President Bush to Paulson. ("Do they know it's coming Hank?" - "they" being Fannie Mae and Freddie Mac, and "it" being the seizure of the control of those companies by the government.) The overall narrative style of the book is very direct and conversational, which makes for an easy and straightforward read. This tone of voice is at odds with the more deliberate and cerebral image that we've got of Paulson from his public appearances. In my opinion, this is one of the virtues of the book - I don't think I would be able to sit through this many pages of Paulson's monotone, and all the technical jargon would have been unbearable. Instead, we get a very personal and personable account of one of the most difficult moments in the history of US financial system. Paulson is also very generous with bringing up details of his own life, which make him even more relatable. My personal favorite was his admission that he needs eight hours of sleep at night. It may be a small thing, but I believe that good night's rest is severely underappreciated and undervalued, especially in high-power circles like the financial sector.

In the chapter on Paulson's personal life before joining the Bush administration we learn about the main highlights of his biography. The chapter is not long, even though Paulson has enjoyed a very versatile and interesting career. He had worked in Nixon administration, but since then has largely stayed out of politics. His family is very liberal, which makes for some interesting conversations at the dinner table and family reunions I'd imagine.

The chapter on the economic and financial turbulence that preceded the great banking crash of 2008 is very fascinating and educational. Even though it deals with many subtle and technical topics, it is written extremely well and even people who have never been exposed to the inner workings of the financial system should be able to follow it without much difficulty. Even so, it is impossible to keep track of all the moving parts that constitute such a complex system, so if you feel that you still don't understand everything that went wrong, you are not alone. It is doubtful that even those who were in charge of situation at the time fully appreciated the problems that were brewing.

The chapter on Bear Stearns crisis in March of 2008 is a fascinating study in behind-the-scenes happenings of one dire crisis. Most of the most important events happened over one tumultuous weekend, and this chapter details all of the relevant negotiations that were going on at the time. We are led to believe that the bailout of Bear Stearns was inevitable, and the least evil of all options that were on the table at the time. Paulson keeps stressing that a failure of the government to act at that moment would have had major serious ramifications for the entire financial sector (a theme that he comes back to throughout the book), but he doesn't go into the details of why in fact this would have been the case.

By late March, however, it became increasingly obvious that another major financial institution was working under an increased strain. Lehman Brothers was having major difficulties, and unless something got done about it the company was headed for a collapse. However, it is still not entirely clear why this should be the government's problem. A collapse of such an important player would certainly have dire consequences and would unsettle many investors, but it is not clear that this would cause the collapse of the entire financial system. Meanwhile, the problems with Fannie Mae and Freddie Mac continued to simmer, with no immediate political solution in sight.

When the summer rolled in, the crisis with Fannie Mae and Freddie Mac was coming to a head. For better or worse the requisite government measures that Paulson was proposing had much more support among the Democrats than Republicans. This is not surprising at all - they were in control of Congress and had much more leverage which to use to get their own legislative agenda through, including the very unpalatable block grants. Fannie Mae and Freddie Mac were becoming amenable to government's terms, and by the end of summer it started to seem that the worst was over.

Unfortunately, the sense of calm was not to last. In September it became obvious that Lehman Brothers would not survive and to Paulson and others in the Treasury Department it became an imperative to work out a deal with private buyers to rescue Lehman. Paulson insists that during the negotiation with the potential buyers the position of the US government was very clear: there will be no government financing of the rescue. However, the very fact that the government worked so industriously and doggedly at rescuing Lehman must have sent a signal to anyone that government felt that it had to do absolutely anything in its power to help Lehman survive. It is hard to imagine that this not have a very strong impact on potential buyers when they were looking into their options. At the very least it would have made them extremely skittish to risk their own money to bail out a competitor when it was more than likely that the government would eventually have to do the same without their help. In fact, there was no legal way for the government to help, but that was not exactly clear to the potential buyers. In the end the most serious potential buyer, UK's Barclays, decided against buying. After that the faith of Lehman Brothers was sealed; they had to file for Chapter 11 bankruptcy within a week.

And that's when the wheels really started to come off the cart. The bankruptcy of Lehman Brothers sent shockwaves through the World markets that no one had anticipated, or so are we led to believe. Soon enough investors around the world started having doubts in solvency of other major investments banks, and it started to look like all of them might soon be under the peril of having to declare bankruptcy. The whole World financial system, so it seemed, was on a brink of total collapse. The consequences of such a dire predicament would have been catastrophic indeed, on par with the Great Depression, or worse.

We also finally learn where the $700 billion dollar TARP price tag came from. In a nutshell, if the total value of all the mortgages in the US is $11 trillion, and only about 10% of those are in a peril of imminent foreclosure, then about $1 trillion would sound like a reasonable amount of money that needed to be available for a bailout. However, $1 trillion sounds pretty bad, so if you can make it look like much less than that it would politically be much more feasible to get the Congress to foot the bill. Many pundits in the media had suspected as much, but it's good to finally get a confirmation from Paulson himself. To me at least, it looks rather sketchy that the secretary of the Treasury would be making such off-the-cuff estimates of required funds. I would have much preferred that there were a much more solid technical analysis that had led to this number.

Most of the rest of the book is a blow-by-blow narrative of how Paulson worked with various government officials, prominent politicians from both houses, and top-level bankers on coming up with the plan and legislation that would help prevent the total financial collapse. This narrative can be rather gripping and high-paced at times, but there are also moments when it overwhelms with technical details. However, these details in my opinion are absolutely necessary for the purpose of this story.

Fortunately, there is a glossary of all the terms and acronyms at the end of the book. There is also a list of all the main protagonists at the beginning. Unless you are complete political and economic information junky, you will definitely appreciate both of these lists.

In one aspect this book may not be able to achieve its goals. In terms of pure politics, the narrative raises many red flags for those who have a nagging suspicion that Paulson is in fact a committed big-government Republican, or even worse - a RINO. He is a bit too quick to praise some very prominent Democrats (like Barney Frank, Barack Obama, Chris Dodd, etc.) and is either mute on characterizing some Republican political operatives (Karl Rove), mostly critical (John McCain), or largely critical (Sarah Palin). His appraisal of President Bush is rather too defensive (He's a good guy, honest!) and seems to be geared more towards appeasing liberals (including all the members of his immediate family) than towards reaffirming his standing with the small-government conservatives. In fact, Bush is the only Republican politician that features even remotely prominently throughout the book. His attitude towards Chinese government officials is a bit troubling as well. I understand that as the chairman of Goldman Sachs he had built his reputation and fortunes by working closely with Chinese market, but it's a not a good sign when on several occasions a Chinese official that Paulson interacted with comes across as a more market-oriented of the two. I might be misreading those particular anecdotes, but my gut-level impression supports the notion of Paulson being a big-government politician, his repeated support for free markets notwithstanding.

The final chapter of the book ("The Afterward") is a bit puzzling as well. It is not strictly speaking an afterward of the policies that had been implemented, but more of a chapter dedicated to the lessons that he took home from the crises. Most of those lessons seem very plausible, but I feel that there is an inherent contradiction between some of his positions. On one hand he decries the fact that the top ten US financial institutions control some 60% of the overall market, and yet he calls for an increased control and regulation. The last time I checked it is exactly the excessive regulation that is favorable to the existence of few big companies. The smaller ones just don't have enough resources to invest into the ever more burdensome regulatory compliance.

However, the strangest aspect of the afterward is that there is no reappraisal of TARP and other controversial policies that had been talked about in this book. A year has passed since Paulson left the office, and even thought it still might be too early to make a complete analysis, certain general comments could have been made. As is we are left to make up our own mind about the legacy of those policies. In particular, I would have liked to hear his take on other major financial interventions that have happened under the Obama administration. Many of those policies, rightly or wrongly, see TARP as the template on which they were based. I was really surprised to find Paulson mum on this subject.

All of the shortcomings aside, this is an extremely fascinating and very readable book. It gives a first-hand account of the epicenter of the worst financial crisis since the Great Depression, and the seriousness of the situation is very palpable from every page. The dire situation could also be compared to some other non-financial crises, like the Cuban Missile Crises for instance. In fact, I think it would even make a good movie. It would be fun to see who would get to play Paulson.

Read this book and Too Big To Fail after seeing the HBO movie. Paulson intrigued me partially because he's from a couple towns down the road from me. This book is very approachable and kept me wanting to turn the page on my Nook. Sometimes the cast of characters and government agencies and programs get a bit confusing, but it didn't take away from this remarkable story. Paulson presents himself as a practical man grounded in his Midwest roots devoted to his family and religion. One irony is when he remarks that he often chastised is fellow bankers for living in lavish mansions, meanwhile he goes off and buys an island. He states throughout the book that he admires how President Bush handled the crisis and that he got skeptical family members to feel the same. However, except for getting accounts of the President saying do whatever is needed, we aren't given any insight into the Presidents handling of the crisis.

Since Mr. Paulson was the CEO at Goldman Sachs while this crisis was brewing, I would love to read his take on what was happening out on the street that brought this crisis to bear. Maybe a prequel?

Brian McAndrews

This book gives a great perspective to why such controversial decisions were made. The story is easy to follow with detailed descriptions of the atmosphere surrounding high level meetings, politicians playing politics, and the the volatility of the markets.

I bought this book after watching "Too Big to Fail" on HBO. I wanted too see the reasoning behind bailing out banks as well as what they were thinking during this historic time in capitalism.

Great book, worth getting if you like finance, wall street, politics, or are curious of why we had a recession.

5 Star

Paulson was a life-long Democrat running Goldman Sachs when President Bush tapped him for the top Treasury post in the summer of 2006. What follows is a detailed look at the global financial crisis that happens to read like Paulson's diary. One pictures a decent man driven relentlessly from one crisis to the next. Paulson's respect for President Bush as well as Candidate Obama is evident. The financial crisis came home for Americans in September of 2008 when Paulson urged a government takeover of Fanny Mae and Freddy Mac. Then followed the collapse of Lehman Brothers, and the crises with Bear Stearns, AIG, and Citigroup.

Mixed in with this first person account of a technical subject are personal details making the book readable: many Treasury officials come from Goldman, Paulson is a Christian Scientist and a bird watcher, and Paulson is a Keynesian who believed the crisis was based on a lack of liquidity in the markets. The triumvirate of Paulson, Bernanke, and Geitner is key to understanding the plays. Paulson does not point to root causes--the book is his manifesto explaining why he did what he did. I got the impression that the key players were running on adrenaline and never left the mode of "we've got to do something now!" The question I'd love to ask him: did all the government interventions really help? Others believe we have and had a solvency problem--such as is coming to bite Europe now. If this is so, different strategies are imperative.

If you're looking for one definitive book to tell the story of the financial crisis, this isn't it (try Andrew Ross Sorkin's "Too Big to Fail"). If you're looking for deep economic analysis of the problems that got us into the crisis, this isn't it either (try Joe Stiglitz's "Freefall" or Simon Johnson's "13 Bankers"). Luckily, Paulson realizes that what he's writing isn't a work of philosophy or THE definitive narrative, but his own experience. With that in mind, he does an admirable job. He's frank, clear, unpretentious, and (mostly) not deluding himself. I suppose plenty of readers will open this book expecting Paulson either to spend the entire text justifying the decisions he made, or apologizing for some policies that were initially unpopular (TARP), or playing the blame game. Luckily for readers, he doesn't do any of the above. The book is essentially a recounting of the major decisions he and his team at Treasury made during the crisis, and the major insight that comes out of the book is the sense that he conveys of the massive challenges he and his team at Treasury faced (along with the Fed, FDIC, and other government actors) in trying to put out fire after fire in the last year-plus of the Bush Administration.

I suppose what keeps this from being a 5-star book is it doesn't necessarily say much that others don't say, and it doesn't do much grappling with the various options that were on the table for the policymakers as the financial system melted down. The public debate during those months was vigorous, and everything from doing nothing to Sweden in the 90's-style nationaliation was put on the table, but Paulson tends to give short shrift to that debate. Otherwise, though, definitely worth a read.