Maybe Hank Paulson Could've Been a Hero

I'll take the other side of Felix's Paulson trade. I thought his post about the secret meeting in Moscow was great, but I had a hard time getting worked up about it. Just because he's Secretary of the Treasury doesn't mean he no longer has a past. And in Sorkin's telling, it was purely a social call.

But on the bigger point, Paulson's imperiousness: I'd even say I prefer a too-aggressive Treasury secretary to a timid one. You're right. There are numerous moments in Sorkin's book when you wonder why Paulson needs to control the situation"”like when he orders Lehman into bankruptcy. The stated reason is that he wants the markets to have some certainty about the failed broker-dealer in the hopes it will calm them. But like his miscalculation on Fannie (FNM) and Freddie (FRE), where his precipitous move creates the very instability that pushes AIG (AIG) and Lehman toward the edge, the Lehman move only creates more panic and fear.

The last few chapters of the book"”many of which were excerpted in Vanity Fair"”really show how events got ahead of him. It's terrifying to read about the phone calls during which Geithner and Paulson are bullying CEOs into pell-mell negotiations. It's a fire drill where all the exits are locked.

Nonetheless, it's Paulson's goading that nearly gets a deal with Barclay's on Lehman. Sorkin shows so well how the competitive nature of these bankers worked against their own interest. Time and again, these guys would rather beat each other's brains out than come to an agreement that calms the situation. It took a strong-willed Treasury secretary who wasn't impressed or awed by any of the bank CEOs to get as far as he did organizing the Barclay's purchase of Lehman.

To me, one of the most important facts that Sorkin reveals is how the Barclay's deal was scuttled by the U.K.'s Chancellor of the Exchequer and the head of the FSA. We now know that Paulson wasn't telling the truth when he said there wasn't a buyer for Lehman. There was"”but the British blocked the deal.

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