The WSJ reveals the behind-the-scenes disputes between Paulson and Bernanke and the motivations behind the past two months’ worth of bailouts.
WSJ: In public, Messrs. Bernanke and Paulson marched in lock step. Behind the scenes, the two men and their lieutenants sometimes tussled — over the fate of Lehman Brothers, how to handle Congress and the limits of the Fed’s authority. At times, each man felt handcuffed by legal limits on his own power, and consequently pushed the other to move more aggressively. Their differences helped define the government’s approach to the crisis…
The two men rarely allowed daylight to seep between them in public. “Bernanke is a very careful guy, and I believe that if he had any differences, he would have been talking to Paulson about them,” says House Financial Services Committee Chairman Barney Frank, the Massachusetts Democrat. “He would not deal with us directly.”
Their decisions have left many questions. Why did they let Lehman Brothers fail just six months after deciding its smaller rival, Bear Stearns Cos., couldn’t be allowed to collapse? Why didn’t they go to Congress sooner? When they did go, why did Mr. Paulson argue against an option pushed by the Fed — putting capital into banks — that he ended up embracing a few days later?
Read on to learn how Paulson resisted bailing out Lehman despite the Fed’s objections and how the broader rescue package came about. Plus, marvel at why Bernanke spoke to Paulson via speakerphone instead of picking up the headset and contemplate the meaning of Paulson’s “spraying foam on the runway” to soften Lehman’s crash metaphor.
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