Economy

Former Treasury Secretary Says Market Ails Are Europe's Fault

As the closing bell approaches, after another dramatic day on Wall Street, Henry M. Paulson, the Treasury secretary under President George W. Bush told The New York Times that what's happening now in the markets is reminiscent of 2008. That's when the market tanked as Lehman Brothers was allowed to go bankrupt.

Paulson, who was at the helm during that crisis and helped make the case for the Troubled Asset Relief Program, said that the difference between 2008 and 2011 is the destabilizing factor is no longer U.S. banks but European countries.

Here's how the Times' Andrew Ross Sorkin, the author of Too Big To Fail, fleshes it out:

Pretend for a moment that countries like Greece, Spain and Italy are our banks in 2008. They are close to insolvent. (And the actual banks in Germany, Britain and France that are supposed to be strong are horribly undercapitalized and are holding too much debt from countries like Greece, Spain and Italy — all countries that truly may not be able to pay it back in full.)

As Mr. Paulson told me, "The most pressing and significant problems in the global economy are unsustainable structural issues with regard to the E.U. — fiscal deficits and the structure of the E.U. itself."

This story might not grab as much attention, but it is this plight that is manifesting itself in the market.

The problem is that without any one individual in charge in Europe, there is virtually no possibility for someone to emerge the way that Mr. Paulson did during the panic of 2008 with a lifeline like the Troubled Asset Relief Program, a plan he practically had to ram down the throat of Congress. (And there's no money for such a program unless a coalition is formed.)

There's much more of the interview at the Times site and it's very much worth the read.

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