EXCERPT: Henry M. Paulson Jr.'s: 'On the Brink'

When I woke the next morning, word of our plan to take control of Fannie and Freddie was bannered in all the major newspapers.

Then, when I got to the office, I told my staff about my conversation with Obama, and they got a bit panicky. Since some Republicans considered me to be a closet Democrat, my staff had misgivings about any action on my part that might be construed as favoring Obama. So we figured I had better put in a call to McCain to even things up.

I connected with the Republican candidate late in the morning. I had a cordial relationship with John, but we were not particularly close and had never discussed economic issues -- our most indepth conversations had concerned climate change. But that day McCain was ebullient and friendly. The Palin selection had clearly revitalized him, and he began by saying he wanted to introduce me to his running mate, whom he put on the phone with us.

McCain had little more to say as I described the actions we had taken and why, but Governor Palin immediately made her presence felt. Right away she started calling me Hank. Now, everyone calls me Hank. My assistant calls me Hank. Everyone on my staff, from top to bottom, calls me Hank. It's what I like. But for some reason, the way she said it over the phone like that, even though we'd never met, rubbed me the wrong way.

I'm also not sure she grasped the full dimensions of the situation I had sketched out -- or so some of her comments made me think. But she grasped the politics pretty quickly.

"Hank," she asked, "did any of their executives get golden parachutes? Did you fi re all the people you need to? Hank, can we claw back any of their compensation?"

From that call I went into a noon meeting that lasted perhaps an hour with the board of directors of Freddie Mac. In the afternoon, around 3:00 p.m., it was Fannie Mae's turn. To avoid publicity, we switched from FHFA headquarters to a ground-fl oor conference room at the Federal Housing Finance Board offices, a few blocks from Lafayette Square.

Lockhart, Bernanke, and I followed the same script from the previous afternoon: Jim led off explaining that we had decided on conservatorship, citing capital inadequacy and his list of infractions. I laid out our terms, and Ben followed with his description of the catastrophe that would occur if we did not take these actions.

Going into the weekend, there had been some trepidation among our team that the two government-sponsored enterprises (GSEs), especially Fannie, would resist. But after all my years as a Goldman Sachs banker I knew boards, and I felt sure that they would heed our call. They had fiduciary duties to their shareholders, so they would want us to make the strongest case we could.

We emphasized that if the government didn't put them into conservatorship, the companies would face insolvency and their shareholders would be worse off. I also knew that having these arguments made directly to them by their companies' regulator, the secretary of the Treasury, and the chairman of the Federal Reserve Board would carry immense weight.

Just like the initial meetings the day before, the session with the Freddie board went much easier than the one with its sister institution.

Fannie's directors, like its management, wanted to differentiate their company from Freddie, but we made clear we could do no such thing.

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