Hank Paulson on The David Rubenstein Show

I see this climate risk is the single biggest and most certain and formidable a risk that that mankind faces had you had an interest in business subjects that she went right to Harvard Business School did the easiest place to get into in those days was Harvard Business School Lehmann wasn't on the verge of going bankrupt but in hindsight is there anything you could have done differently with respect to Lehman oh I tell you I don't think that it was woody fix your time please well people wouldn't recognize me if my tie was fixed but okay just steam it this way all right I don't consider myself a journalist and nobody else would consider myself a journalist I began to take on the life of being an interviewer even though I have a day job running a private equity firm how do you define leadership what is it that makes somebody tick [Music] after you left a Secretary of Treasury Hank you did something that was unusual for many secretaries of Treasury many of them go back into the finance world or they go into the finance world they hadn't been there before you chose not to do that well I really enjoyed my business career I had 32 years there I had you know an opportunity to serve my country and what I really wanted to do was take my experiences and apply them to addressing two of what I believe are the most pressing issues of our time us-china relations and climate change many people say that when you're in the finance world you get on a merry-go-round and you can't stop making money but you basically said when you left Treasury look I have enough money and I'm gonna go do nonprofit things is that right yeah I never had what would I call the the disease or the addiction to money you know when I went into went to goldman sachs it was 1974 the firm had a couple lost years the that I was interested at that time and really working on financial issues working with with clients I was interested in markets but when you were at Goldman you were not a person who bought your own private plane you were not a person who big had a big house in the Hamptons no we lived it continued to live in the same house we built when I was making $36,000 a year we we when I go skiing it's at little area called Arapahoe Basin where it's not a place where fancy people go in climate change is it your view that that climate changed as we have called that occurrence is it due to human activity or would it have occurred without human activity david has been well documented that it's largely caused by human conduct and this is poses an enormous risk for and for our economic security for our for really our social stability I see this climate risk is the single biggest and most certain and formidable a risk that that mankind faces you think the Paris Accord which the government current administration has pulled the u.s. out of it though I think technically we don't go out of it for another year or so those people who in the government say we don't want to take climate change actions that some people like you are advocating we want to get out of the Paris Accord what constituency are they appealing to who is the constituency that is saying please let's not do something on climate change I believe that there are very strong vested interests that have a different viewpoint than the average American if you look at the average American they had you know there's a high percentage of people that are concerned about climate change it's just not their number-one issue but when you look at the all of the industries that have a vested interest beginning with with the oil industry and all of the carbon-based fuels and for instance you know I think one of the one of the things that can be very important in dealing with this problem are economic incentives so I think there's a whole variety of economic as said as we could put in place to put a price on carbon taxes and in cap and trade systems but also eliminating the huge subsidies we put a pay to discover carbon-based fuels and we have no shortage of them today there's no excuse for doing that now today as we sit here I think you've been to China roughly a hundred and fifty times something like that a lot so how did you happen to come to deal with China so much almost David by accident I was in the Chicago office of Goldman Sachs working with clients in the Midwest and I wasn't looking to move to New York so the firm asked me to to be a co head of our investment banking division with a couple other individuals who were in the and we're looking at how we might divide things up where we had a big business in Europe and almost nothing in Asia well one of the guys said to me why don't you take take Asia take China because it's closer to Chicago then in New York and and I was I wasn't overly curious but I was interested and so I began going to to Asia and so I came back and I talked with my bosses Bob Rubin and Steve Friedman and I said you know I get the feeling China's about the take off and I would like to do a deep dive and look at opportunities in China and you know and and when I made the first trip there in in maybe it was 1991 we had five people in the Hong Kong office when I left to go to Treasury in 2006 I think we had 1500 people in Greater China so I put the pedal to the medal today we have two great economies in the world China and the United States in your view is there a clash between the two of them inevitable leading to a actually a real war not a cold war well I begin by saying that that China is a strategic competitor and there are some compelling differences when we look at our national security interests and there also are some some important shared interest in terms of global stability and things like climate change but to get to your question I'm concerned really very concerned about what I see is a militarization of the US view toward us china and i'll tell you what i mean by that I take national security very seriously but national security has bled into basically every aspect of the economic relationship and I look at it and and I say you know here a cold war all the time and there is no way this is a soviet-style cold war China is very integrated into the global economy we're looking at the number one manufacturer the number one trader a big exporter of capital we've got to sign them for a little bit of your time in government through the White House under President Nixon and you work for John Ehrlichman what was that like I started in the Pentagon in April of 1972 six weeks before the Watergate break-in let's talk about your background it might not have been predicted when you were growing up in Illinois that you'd be the Treasury secretary had a goldman sachs a leader in knowledge about china so you grew up in a farm in actually you were born in Palm Beach how did you come to be born in Palm Beach I ruined a vacation my parents were actually in a place called Stuart Florida and I came prematurely so I was born in the Palm Beach Hospital all right but your parents had a farm yeah and a forum yeah and you grew up on that farm I grew up on the farm right milking cows and milk some cows I slop some hogs I bailed a lot of hay you know I did a lot of weeding in the garden and you just said this is what I want to do the rest of my life no it sure wasn't I I loved being in the outdoors and my family god bless him would take me we could we could go up into the North Woods in Canada and take canoe trips up in the Boundary Waters we carried everything on our back we ate fish we caught big blueberries blueberry pancakes and so on and so I you know I wanted to be a forest ranger when I was when I was growing up and in high school okay did your parents talk you out of that no no they they encouraged me to do what I want to do and they really encouraged me to get a good education my mom had gone to Wellesley I'd had a her father had gone to Yale and so I I chose Dartmouth because it was in the North Woods and because it we had small classes and was focused on the undergraduate but before you got the Dartmouth you were a high school champion football player and wrestler yep so you were all Ivy football player as you were a defensive lineman offense offense if you're all ivy honorable mention all-american and you were also Phi Beta Kappa and your nickname was the hammer what was that associated with you're good at building homes what hammers or what no it wasn't I I attended to be a I hit pretty hard and and I tended to be a pretty forceful so when you graduated in 1968 you went to Harvard Business School had you had an interest in business subjects and she went right to Harvard Business School I'd want to go to Oxford and study English but the Vietnam War was in full force I had a low number in the draft I got into ROTC program I could get in at Harvard and it turned out the easiest place to get into in those days was Harvard Business School so I wish I could tell you this had been part of a career planning but that's how I ended up at Harvard Business School so you graduated in 1970 from Harvard Business School right and then you went to work at the Pentagon how did that happen it Harvard Business School you know I I basically had worked at Dartmouth at Harvard Business School I you know I didn't know have any business background I spent most of my time out at Wellesley according my wife-to-be but but I one class I did a fair amount of work in was a class that was taught by is someone who had been a former assistant secretary of defense and he recommended me to work in the Pentagon for a small analysis group that worked on projects for you know for further for the top leaders of the Pentagon and and that really transformed my life so you got to sign them for a little bit of your time in government through the White House under President Nixon and you work for John Ehrlichman what was that like I started in the Pentagon in April of 1972 six weeks before the Watergate break-in and so it looks sort of like a you know you didn't understand the implications at the time so I was there through the election there was a landslide victory over McGovern I got this big promotion and I was gonna be ehrlichman's deputy for the for economic policy area and then Watergate hit and blew up and I watched these people who had very senior positions get carried off and you know you know Ehrlichman you know got convicted after I'd left but I looked at a number of people there in deep deep trouble and it made a huge impression on me but the positive impression was George Shultz was secretary of the Treasury he had two guys that worked for him that I had a very good working relationship so you went back to your native Midwest Chicago and you joined goldman sachs how did that come about well I gotta tell you careers are a funny thing as I said I never been big on career engineering and when I graduated from Dartmouth I didn't know what an investment banker was and but I learned in government that I like multitasking and I liked economic policy and Finance and financial issues and problem solving so I figured out that that Investment Banking might be a good thing to explore and I also determined I never wanted to live in New York ask me why I don't know but that was what I that was my view so you write Goldman you obviously must have done a pretty good job because you got promoted successively every couple years or so and you wound up being the CEO of Goldman Sachs a job you did not aspire to right yeah you didn't pick you know remember what was like when we graduated from from from from college in business school if you wanted to run something you didn't go into finance or Investment Banking it went in because you liked the market you wanted to work with clients you wanted to work on multiple problems so that's why I picked all MICEX and then in 1994 the firm at some problems I went off to New York told Wendy where we're gonna pick the next hedge or heads of the firm don't worry I won't do that and then I called her and said well guess what I've been drafted to help turn things around but I'll be here only for two years and we always joked because that was a rolling two years I was there for 12 years in New York and I loved it all right she became the CEO and Goldman prospered did pretty well and then george w bush becomes president and i guess he made a couple entreaties to you too to be Secretary of Treasury but you repeatedly said you weren't interested is that right correct well why were you not interested well you know I enjoy doing what I was doing I had a family that was really opposed to to the president so my mother and my wife but my kids I think also at the root of things although I didn't tell myself that was a reason I didn't you know I knew I was doing a pretty good job running Goldman Sachs so I said I said no a few times and but they kept coming back and the last time Jim Baker made a pretty compelling case and and and then more than anything else what hit me was I I looked at things and I said guess what I go around I recruit all the time at business schools I tell people welcome change changes your friend and we all hate change and maybe it was fear of failure that was preventing me from serving my country and as soon as I saw that I said I'm not gonna let that stop me and so I I made the jump but when you joined the government as Secretary of Treasury you expect that the economy would be in reasonable shape those economy seem to be in reasonable shape is that correct yeah so what happened well very early on the very first meeting I had with President Bush at Camp David when he got his economic team together he wanted me to talk about entitlement reforms that was one of the things that brought me to Washington I told him I want to talk about a financial crisis I didn't see one coming like we had but I told him I saw excesses and I'd seen them in 94 in 98 I thought we were due for turbulence in the market so we did the whole discussion was about that ultimately the banking system came back and that angel system came back but as you look at the system today could something like that happen again I hate to say this but we have less authorities today than we had then so Lehman was one the verge of going bankrupt and you did not have at that time the authority to save Lee I mean I know everybody's asked you about that since then but in hindsight is there anything you could have done differently with respect to Lehman oh I tell ya I don't think there was we tried everything we could to get a buyer Lehman it was a bigger problem even the Bear Stearns because they were insolvent there was a big capital hole there was no way that alone was going to solve the problem it was going to capital or a loan guarantee and that and the other thing about Lehman as I look back we tried very hard and we came very close to getting a deal done with Barclays but as we look back on it as bad as that was that was not the worst outcome that was possible because the crisis had been grinding on for about a year there are many weak financial institutions we had three going down the same weekend Lehman Merrill and AIG it turns out we had one buyer if and BankAmerica bought Merrill if they bought Lehman Merrill would have failed and it would have been a bigger problem the other thing I will say about Lehman which was that as bad as it was and it accelerated the crisis that it was a symptom it wasn't the cause but ultimately tarp legislation so-called did get through Congress but it failed in the first vote in the house what did you think was going to happen then when it failed oh boy we had a number of terrifying moments and and that was really one of them because it was the best way to describe it for months we'd want it to go and get these fiscal authorities it was a big thing for the president to authorize this because there's no way you want to go and say we've got an emergency and give us these authorities and then that get them and be naked you know right there with with nothing you can do to to stave yeah to prevent the meltdown of the financial system so when we went to Congress the cupboard was bare the president needed to look then Bernanke in the eye and have a mature um there was no authorities the Fed had there was nothing more we could do we had to go and we absolutely had to get these authorities so now the legislation was designed to buy assets initially but you oughta me decided not to buy asset but to inject money in various banks is that the correct I had felt putting capital in banks would it was the only way I'd known to do it was nationalized banks and when you do that it's a very very costly thing to do and it precipitates other bank failures and I'd wanted to avoid that and I had this theory that it was these ill liquid mortgage securities that were clogging up the credit markets if we bought them it would increase capital and recapitalize the banks but in the two weeks were up at Congress the situation worsened we had two huge bank failures in in the US and so when I went to the President and basically said to them guess what sir illiquid assets purchases aren't going to work and he said well you told the whole world that's what you're gonna do what are you gonna do I said well we're just gonna have to explain we made a mistake and we need to put capital in the banks and and reverse ourselves and that's what we did okay and ultimately the banking system came back and the financial system came back but as you look at the system today could something like that happen again with the legislation we now have are we better able to protect against something like that first of all our financial system is much stronger that was the banks are better capitalized it's much less likely to start in in the US there's less dry tinder to start a fire but and I hate to say this but we have less authorities today than we had that and the number one problem we had then the number one problem by far was we had a financial system that outgoing our regulatory system our regulatory system and authorities have been put in place after the Great Depression when there was a run on banks and we had a situation where 60% of their credit was flowing outside of the banking system now you work closely with Ben Bernanke then and also Tim Geithner then the head of the New York Fed in the current administration there's been tension between the Fed and the Treasury and the Fed in the White House do you have any comment on whether the Fed is sufficiently independent or not and there should we do anything to make sure it is more independent than it already is I got to tell you the thing I'm most proud of was that this was the solution came on a bipartisan basis I think the last two times Congress has acted on a bipartisan basis and anything that was consequential was the tarp authorities and authorities for Fannie and Freddie so I think that where we worked and worked across administrations now to get to the to the to the current situation I never ever won a bet against what we can do as a crisis during a crisis so I do know Steven the notion is very competent and understands financial issues I have a very high regard for the for the chairman of the Fed and I believe that if we had a crisis they would figure out how to work together any regrets in this incredible career and what would you see as your legacy if we hadn't had the financial crisis you know I I set up the first environmental Department of Treasury I'd raised clean technology funds to be housed at the World Bank President Bush had said that I could work on coming up from some standards for carbon emissions you know because there are a lot of problems in the carbon market there's plenty of things I wouldn't do if I hadn't been waylaid by the financial crisis but I actually look back on it as sort of the honor my wife could get to serve my country during a time of crisis and help us get out of it thank you very much for a very interesting conversation Hank and thanks for a great career and your service to our country David thank you thanks very much

Channel: David Rubenstein

Views: 43,786

Rating: 4.6038833 out of 5

Keywords: Bloomberg

Id: JmZVoJ6sIZc

Length: 24min 6sec (1446 seconds)

Published: Thu Dec 19 2019