By Tom Curry, National Affairs Writer, NBC News
On the fifth anniversary of the collapse of Wall Street firm Lehman Brothers and the financial crisis that followed, former Treasury Secretary Hank Paulson told NBC’s Meet the Press Sunday that “we avoided a very bad fate, things could have been as bad as the Great Depression.” What happened in 2008 “easily could have been the Great Depression.”
Five years after the crisis that led Paulson and Federal Reserve chairman Ben Bernanke to lead an unprecedented taxpayer bailout of financial firms, Paulson said, “what we did was very unpopular” because “we never made the case – I was never able to make the case -- that what we did was for the American people, to prevent economic disaster. It wasn’t for the bankers….”
Before becoming Treasury secretary in 2006, Paulson served as chairman and chief executive officer of global investment firm Goldman Sachs.
Paulson predicted that “We will have other financial crises. That’s the history of mankind; as long as there are markets, there will be crises. Most of them have been manageable.”
The urgent task right now, he said, is to “clean up our messes” by reforming the federally-sponsored mortgage lenders Fannie Mae and Freddie Mac. As part of the 2008 bailout, the federal government took control of Fannie Mae and Freddie Mac after the collapse of the housing market threatened their solvency. Congress is debating whether to sell them or in some other way reduce the taxpayers’ support for them.
Paulson argued that the U.S. economy is now in fairly healthy shape, growing at 2 percent a year. “Although that's not enough, it's in many ways it's something we can take satisfaction in given the amount of deleveraging (debt reduction) that needed to be done” by consumers and corporations.
But Paulson acknowledged that growth in America is still sluggish and he suggested that this was at least partly due to chronic political impasses. “What we need to see is we need to see Democrats and Republicans coming together to deal with some of the big structural reforms we need: immigration reform, we need a new tax system. I could go on and on and so that's what Washington really needs to focus on.”
Former Rep. Barney Frank, who was the chairman of the Financial Services Committee and one of authors of the Dodd-Frank financial regulation law that President Barack Obama signed in 2010 to avert future financial crises, said the 2008 Wall Street debacle “could not happen in the same way” today. “The biggest single cause of the problem last time, I think everybody agrees, was that mortgages were being given to people by institutions that shouldn't have given them to people who shouldn't have received them and then they packaged them and sold them to people who didn't know what was in them.”
Frank said the Dodd-Frank law tells the Wall Street firms and other financial businesses, “If you going to take risks, you should be responsible if those risks go bad.”
He said, “What happened with (giant insurance firm) AIG, what happened with other institutions -- that cannot happen again. You cannot, if you are overly indebted, receive help from the federal government paying your debts and stay in existence.”