On the Brink: Inside the Race to Stop the Collapse of the Global Financial System [Hardcover]

Henry M. Paulson (Author)

Editorial Reviews

Amazon.com Review

When Hank Paulson, the former CEO of Goldman Sachs, was appointed in 2006 to become the nation's next Secretary of the Treasury, he knew that his move from Wall Street to Washington would be daunting and challenging.

But Paulson had no idea that a year later, he would find himself at the very epicenter of the world's most cataclysmic financial crisis since the Great Depression. Major institutions including Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Merrill Lynch, and Citigroup, among others-all steeped in rich, longstanding tradition-literally teetered at the edge of collapse. Panic ensnared international markets. Worst of all, the credit crisis spread to all parts of the U.S. economy and grew more ominous with each passing day, destroying jobs across America and undermining the financial security millions of families had spent their lifetimes building.

This was truly a once-in-a-lifetime economic nightmare. Events no one had thought possible were happening in quick succession, and people all over the globe were terrified that the continuing downward spiral would bring unprecedented chaos. All eyes turned to the United States Treasury Secretary to avert the disaster.

This, then, is Hank Paulson's first-person account. From the man who was in the very middle of this perfect economic storm, On the Brink is Paulson's fast-paced retelling of the key decisions that had to be made with lightning speed. Paulson puts the reader in the room for all the intense moments as he addressed urgent market conditions, weighed critical decisions, and debated policy and economic considerations with of all the notable players-including the CEOs of top Wall Street firms as well as Ben Bernanke, Timothy Geithner, Sheila Bair, Nancy Pelosi, Barney Frank, presidential candidates Barack Obama and John McCain, and then-President George W. Bush.

More than an account about numbers and credit risks gone bad, On the Brink is an extraordinary story about people and politics-all brought together during the world's impending financial Armageddon.

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Read the Author's Note from On the Brink

The pace of events during the financial crisis of 2008 was truly breathtaking. In this book, I have done my best to describe my actions and the thinking behind them during that time, and to convey the breakneck speed at which events were happening all around us.

I believe the most important part of this story is the way Ben Bernanke, Tim Geithner, and I worked as a team through the worst financial crisis since the Great Depression. There can't be many other examples of economic leaders managing a crisis who had as much trust in one another as we did. Our partnership proved to be an enormous asset during an incredibly difficult period. But at the same time, this is my story, and as hard as I have tried to reflect the contributions made by everyone involved, it is primarily about my work and that of my talented and dedicated team at Treasury.

--Henry M. Paulson

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Amazon Interview: Henry M. Paulson on On the Brink

We spoke with Henry M. Paulson in late January 2010, just before the release of On the Brink. You can listen to parts one and two of the Omnivoracious Podcast of the interview, and read a full transcript, in addition to these excerpts:

Amazon.com: You accepted the job as Treasury secretary in 2006, with some reluctance. Did you have any idea what you were getting into?

Paulson: I had a pretty clear idea that there would be a credit crisis sometime when I was in Washington. And I told the president I thought there'd be one, and the first major meeting I had with him I spent just talking about that topic. But I did not anticipate a crisis of the magnitude we faced--didn't anticipate that at all--and I certainly was bordering on naive in my understanding of the regulatory powers and authorities in Washington.

Amazon.com: You talked about [Ben] Bernanke's great knowledge of history. How much of a guide could history be?

Paulson: I can answer that two ways. First of all, history is a guide in one very real sense: that if you let the financial system collapse, and don't do enough to stave off disaster, the people who are going to suffer, the innocent victims, are going to be the American people. It's not going to be the banks, or the financial sector. So you need to do everything you can to put out the fire before it gets out of control. I think to that extent history was an important guide.

Otherwise, there wasn't much you could learn from history. That's a big lesson, but we were dealing with a financial system and markets very different from what had existed many years ago. Huge concentration in the industry, so if you had two or three firms go down in succession you'd have a domino effect. The whole system could collapse, and it wouldn't take much to have unemployment levels equal to what we had at the Great Depression, and it could happen very quickly. And we didn't have the tools we needed to work with. The regulatory system hadn't been updated since the Great Depression, essentially; the regulatory authorities hadn't. We didn't have the authorities for dealing with major non-banks, and winding them down. So in many ways what were doing was we were dealing with--I said in the book--duct tape and baling wire. We were making do with the authorities we had, which were woefully inadequate.

Amazon.com: And scrambling to get more authories.

Paulson: And scrambling to get more authorities. And in many ways this book is the story of the collision of politics and markets, and it's the story of a race against time to get more authorities. And I think one of the things that really comes through in the book is all of the different elements of the crisis that were coming at us simultaneously.

You could just see it. We could see it and it was one of the most frustrating--when I look at the things I could have done better, there were a lot of them and they come out in the book, but the communications challenges were huge. I mean, I sat there when the capital markets froze, before we went to Congress, and the money markets weren't working, and I just tried to think about how to explain this. Because I knew--I was seeing major, blue-chip industrial companies that were having trouble raising financing, so I knew with $3.4 trillion of money market funds, and with everything that was just getting ready to break apart, that if the system had collapsed there'd be thousands and thousands and thousands of mainstream industrial companies--middle-sized companies, large companies--that wouldn't be able to raise their short-term funding, finance their inventories, pay their people. People wouldn't have been able to pay their bills. This would have rippled through the economy. We would then have had--well, today we have over 10% unemployment. That's terrible. And that's after everything we've done. If the system had collapsed, when we were on the brink, unemployement easily could have been at the 25% level that we saw at the Great Depression, and the value destruction--much greater than we've had in terms of home prices and in terms of people's savings accounts and stock portfolios and so on.

Amazon.com: And now it looks like 2010 is going to be the year that the Obama administration tackles financial reform. In the last section of your book you mention some lessons that you took out of the crisis.

Paulson: Yeah, this is absolutely critical. And I am not shocked but very unhappy we don't have this yet, because people in this country are angry. Now they're very angry about bonuses and compensation levels on Wall Street, and rightfully so, after everything that's been done to save Wall Street. But what they should be angry about is that we have a system that made this necessary. And so what we need to do is we need to channel some of that anger toward fixing the system so never again do we have major financial institutions that are too big to fail.

Amazon.com: And do you worry that the further we get from the crisis the harder it will be to make those necessary reforms?

Paulson: Of course I do. The thing I worry about the most is I don't want another Treasury secretary to ever be sitting there like I was, without the tools and authorities you need to protect our country, protect our economy, and protect the people. It's a helpless feeling and it's a terrible feeling, and we should never be in this place. Our authorities need to be updated, our financial regulatory structure needs to be updated, and I'm optimistic about the future if we do this.

If we don't, we will have another crisis. You always do. That's the history of mankind. If you go back, as long as we've had banks and financial institutions, there have been excesses, no matter how hard you try to avoid them, and there are going to be financial crises, and we need the tools in place and the regulatory system in place to be able to have a better visibility into what's going on and then be able to put out the fire when it starts, without costing the American people as much as this one did.

Read the full interview.

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From Publishers Weekly

Paulson (U.S. Treasury Secretary from July '07 to January '09) has come under sharp criticism from both sides of the political spectrum for his role in bailing out the banks. In this fast-moving, insider's account of "the worst financial crisis since the Great Depression," he tells his side of the story. Working closely with Treasury Secretary Timothy Geithner (then president of the New York Federal Reserve Bank) and Ben Bernanke (chairman of the Federal Reserve Board), he cobbled together a series of rescue operations to prevent the collapse of major U.S. financial institutions. Paulson, and the rest of the team who worked tirelessly to avert an economic catastrophe, command respect, but his contention that their actions were the only possible approach to the crisis leaves many open questions. He has little of substance to say about the precipitating events, and his equally Reaganesque and Kafkaesque calls to get "the government out of the private sector as quickly as possible" result in a somewhat unconvincing page turner.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

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Product Details

• Hardcover: 496 pages
• Publisher: Business Plus; 1 edition (February 1, 2010)
• Language: English
• ISBN-10: 0446561932
• ISBN-13: 978-0446561938
• Product Dimensions: 9.1 x 6.2 x 1.6 inches
• Shipping Weight: 1.6 pounds (View shipping rates and policies)
• Average Customer Review: 3.7 out of 5 stars  See all reviews (91 customer reviews)
• Amazon Bestsellers Rank: #6,042 in Books (See Top 100 in Books)

  #17 in	Books > Nonfiction > Social Sciences > Political Science > United States > Executive Branch
  #18 in	Books > Biographies & Memoirs > Professionals & Academics > Business
  #12 in	Books > Business & Investing > Economics > Economic Policy & Development

Customer Reviews

Most Helpful Customer Reviews

91 of 118 people found the following review helpful:

4.0 out of 5 stars Insider narrative, but still ignores a few important factors, February 1, 2010

By	Jim Galt (St. Louis MO) - See all my reviews

This review is from: On the Brink: Inside the Race to Stop the Collapse of the Global Financial System (Hardcover)

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.

8 of 11 people found the following review helpful:

2.0 out of 5 stars Yawn and you'll miss it, June 28, 2010

By	T. Edmund Jenkin - See all my reviews

This review is from: On the Brink: Inside the Race to Stop the Collapse of the Global Financial System (Hardcover)

If you're looking for a book that details page by page - day by day the events building up to the global credit crisis and subsequent recession read this.

Say what you want about Paulson, he obviously has a head for dates and numbers. Unfortunately: literary skills - Not so much.

On The Brink can't seem to make up its mind whether it's an autobiography, political polemic or factual work. Ultimately the mish-mash comes out as an apologetic piece which seems more about Paulson trying to prove himself to critics. He even provides an exemplar of one of his 12+ hour days.

I have absolutely no doubt that this man worked his butt off during this difficult time but that's no excuse for writing a confusing non-fiction work which is impossible to discern between memoir and text-book.

Overall the most interesting parts are where Paulson discussing his interactions with the two presidential candidates during 2008, however the lack of any philosophising (usually you can't get people to stop once they start writing on the subject) or extrapolation past `what we did in response to this crisis' makes On the Brink an extremely dull read. Perhaps Paulson thought it would broaden the appeal of his work if he didn't get into too much discussion but personally I would prefer to read a work that I disagreed with then one that bored me to sleep.

67 of 98 people found the following review helpful:

4.0 out of 5 stars A first-hand riveting account of the 2008 financial meltdown, February 1, 2010

By	Bojan Tunguz "Dr. Bojan Tunguz" (Greencastle, IN USA) - See all my reviews (TOP 500 REVIEWER)    (VINE VOICE)    (REAL NAME)

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This review is from: On the Brink: Inside the Race to Stop the Collapse of the Global Financial System (Hardcover)

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%... Read more ›