Treasury Secretary Henry Paulson finally got one right.
According to news accounts, the secretary had a looooong weekend.
It started Friday when he and Federal Reserve Bank Chairman Ben Bernanke apparently called in the “sages” of Wall Street to inform them that there would be no more bailout money.
They were told, “There is no political will for a federal bailout,” according to The Wall Street Journal, and that they would need to come back Saturday morning and figure out what they were going to do—with the administration’s assistance, but without the taxpayers’ money.
For our part, we wish Paulson had taken this stand last March with Bear Stearns, or even last month with Fannie Mae and Freddie Mac. But better late than never. And while these are turbulent economic times, and even the best of people can be forgiven for wavering a little in a sea of uncertainty, it’s nice to see this one played appropriately.
Apparently the Bush administration has finally decided that enough is enough. Or maybe administration officials decided that there isn’t enough—money that is—to keep bailing out the high-rolling banks.
It had to be tough carrying that message. Paulson and Bernanke have operated in these financial circles for many years. Most of the 30 or so Wall Streeters called to the meeting were likely long-time acquaintances—or more.
We can imagine the conversations: “But Paul, you have to help. The bank’s on the line. Hundreds or thousands of people will lose their jobs. Paul, my reputation is at stake. I’ll be a national scandal.”
But Paulson, Bernanke and the Bush administration held firm. They realized there is no political will for a federal bailout of Wall Street, especially with the airlines and auto manufacturers also lining up for bailouts.
And maybe, just maybe, taking that firm stand will mark the end of the decline and finally allow for the shakeout and rebuilding. If Wall Street gets the message that there will be no bailout—and that the market will be allowed to accurately price not only failing securities but also failing institutions—then perhaps the companies will begin to make the cuts they need to make to move forward.
And perhaps they and future Wall Street CEOs will have learned a lesson. You take the risk and you reap the reward; but you—not the taxpayer—also pay the price of failure.