Sunday, November 09, 2008

The Academic vs. The Salesman...

If only we were privy to the full transcripts of their conversations.

By Jon Hilsenrath, Deborah Solomon and Damian Paletta

WASHINGTON -- Federal Reserve Chairman Ben Bernanke reached the end of his
rope on Wednesday afternoon, Sept. 17. Lehman Brothers Holdings Inc. had
collapsed. American International Group Inc. had been effectively nationalized
with $85 billion of Fed money. Investors were stampeding out of money-market
mutual funds. Credit markets were reeling, stocks were wobbling and bank
failures loomed.

Mr. Bernanke called Treasury Secretary Henry Paulson. The Fed chairman, a
Princeton academic with an occasional quaver in his voice, leaned toward the
speakerphone on his office coffee table and spoke unusually bluntly to Mr.
Paulson, a strong-willed former college football player and Wall Street

The Fed had been stretched to its limits and couldn't do it any more, Mr.
Bernanke said. Although Mr. Paulson had been resisting such a move for months,
Mr. Bernanke said it was time for the Treasury secretary to go to Congress to
seek funds and authority for a broader rescue. Mr. Paulson didn't commit, but
by the next morning, he had.

In public, Messrs. Bernanke and Paulson marched in lock step. Behind the
scenes, the two men and their lieutenants sometimes tussled -- over the fate of
Lehman Brothers, how to handle Congress and the limits of the Fed's authority.

At times, each man felt handcuffed by legal limits on his own power, and
consequently pushed the other to move more aggressively. Their differences
helped define the government's approach to the crisis.

The debates helped shape an ad hoc strategy that at times sowed confusion
about Washington's approach, and sparked criticism of the nation's two top
economic physicians at a time when restoring confidence was a top priority.

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