Hank Paulson Admits He Doesn't Understand Mortgage Securities

This quote, from Newsweek's piece on former Treasury Secretary Hank Paulson, strikes me as a bombshell:

Paulson--by his own admission--was not paying much attention to the way banks were slicing and dicing mortgages and selling them as complex securities. "I didn't understand the retail market; I just wasn't close to it," he told NEWSWEEK.

If Newsweek won't play prosecutor, I will: "Hank Paulson, you were Goldman's chief executive as mortgage securities boomed in 2004-5. Your earned an incredible severance, partly because of it. And you say you didn't understand mortgage securities? How is that remotely possible?"


I'd like to offer a bit of analysis, but all I've got is bewilderment. The reason I find the revolving door between Wall St. and Washington somewhat acceptable is that I think it's important that those who govern Wall Street understand it. But Paulson, by his own admission, didn't really. Think about this: A guy whose $46 million compensation package was made possible by leaving during Goldman's mortgage-security boom "was not paying much attention" to the mortgage-security boom! I don't know if Paulson is fibbing, or if mortgage-securities were such a specialized and esoteric money machine that basically nobody understood what was going on, but either way, this seems devastating.

Also in the department of buried leads, Paulson denies "secretly arranging" Bank of America's merger with Merrill Lynch. That also seems impossible to believe. New York Attorney General Andrew Cuomo testified in April that Paulson and Ben Bernanke did strong-arm Ken Lewis into eating Merrill's big ugly balance sheet. The article claims that B of A's chief exec Ken Lewis was interested in snagging Merrill's retail brokers. Well look, retail brokers are nice things to have, but clearly Lewis was more interested in the Feds not gutting his board in retribution!

Apparently Paulson is resuscitating his reputation like a doctor defibrillating a patient with wooden stakes, but just as culpable here is Newsweek. This was the magazine's fresh attempt to appear like something other than a bullhorn for conventional wisdom. It seems to me that one really good way to stop seeming like a mouthpiece for the half-truths of powerful people isn't more dynamic graphics -- it's to stop being a mouthpiece for the half-truths of powerful people.

Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

Video

The Rise of the Cat Tattoo

How a Brooklyn tattoo artist popularized the "cattoo"

More in Business

Just In