Paulson's Handling Of Crisis Draws Mixed Reviews

Ultimately, historians will judge how Treasury Secretary Henry Paulson has managed the nation's worst financial crisis since the 1930s. But financial experts are already beginning to weigh in, and the report card so far is mixed.

Fans and critics agree on one thing: Paulson is flexible.

In late September, he dismissed the idea of pumping taxpayer money into troubled banks. But after several weeks of stock market hell and no improvement in the credit markets, Paulson reversed himself.

"Government owning a stake in any private U.S. company is objectionable to most Americans, me included," he said Tuesday. "Yet, the alternative of leaving businesses and consumers without access to financing is totally unacceptable."

Robert Litan, who served on the Council of Economic Advisers during the Carter administration, says Paulson has shown a striking ability to switch gears in a fast-moving crisis. He notes that government attempts to address the Great Depression played out over years. Paulson — on the other hand — tries something one week, and when the markets reject it, he tries something else.

"I think history is going to say that Secretary Paulson was doing New Deal experimentation on Internet time," Litan says.

But where some see dexterity, others see an ad hoc approach.

Brian Wesbury, chief economist at the investment company First Trust Portfolios, says Paulson's decisions earlier this year to let some companies survive — while letting others fall — confused investors.

"It's almost been — 'willy-nilly' is a bad phrase, but it gets to the point," Wesbury says. He adds that when government policy seems inconsistent, it makes investors nervous.

Most observers say Paulson has made at least one big mistake: allowing Lehman Brothers to go bankrupt. The collapse rippled through the financial system and triggered the fall of insurance giant AIG.

In fairness, many people agreed with the move at the time. They didn't think the government should keep bailing out Wall Street firms.

Paulson wasn't available to speak with NPR for this story, but he defended his Lehman decision Wednesday on CNBC.

"We worked very hard on Lehman," he said, but "it turns out there wasn't a buyer."

Vincent Reinhart, who used to run the Federal Reserve Board's Division of Monetary Affairs, says one of Paulson's biggest problems is that he has trouble explaining himself to ordinary people.

Paulson is a creature of Wall Street and took the Treasury job after working as the CEO of Goldman Sachs, the storied investment bank.

Reinhart says Paulson is "someone who is used to exercising authority and dealing at the highest levels of corporate finance."

But, Reinhart adds, he's not someone "who can be folksy with the person on the street and explaining exactly why [his policy] matters."

But Paulson's ability to talk to Wall Street proved valuable this week.

He gathered the heads of America's biggest banks — former colleagues — and told them they were taking government funds whether they liked it or not. In a few hours, all nine CEOs had signed.

Most experts who've followed this crisis say that was remarkable.

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