Paulson Advocates Regulatory Reform
PAULSON: “We were staving off economic Armageddon.”
Photo by Andrew Harrer/Bloomberg via Getty Images
Hank Paulson (MBA ’70) is on a mission. As Treasury Secretary, the former Goldman Sachs CEO found himself in the distasteful position of championing massive taxpayer-funded bailouts for the nation’s leading financial institutions during the fall 2008 financial crisis. Now Paulson has emerged as a strong advocate for tough regulatory reforms.
Before a packed student audience in Burden Hall in late February, Paulson said, “At the time we went to Congress for TARP authority, I knew we were on the brink of financial collapse. The bailouts were a lot better than the alternative. We would have had a disaster on the order of the Great Depression.”
Paulson proposed two key reforms. The first would be the creation of a systemic risk regulator to monitor markets and intervene when any firm threatens marketplace stability. “We need someone who will look not at the trees, but at the whole forest.” He also called for new government power to impose an orderly liquidation of any failing financial institution. Lacking that authority, Paulson said he had to use “duct tape and baling wire to keep the system from falling apart.” “I don’t think any institution should be too big to fail,” he added.
But regulation alone is not enough. Said Paulson, “We need a combination of regulation and market discipline,” an attribute in short supply in the run-up to the financial crisis.
