In a rare TV appearance, former Treasury secretary Hank Paulson was on CNBC this morning to discuss the recent global economic conditions and offer his opinion on recent turmoil in the U.S. banking industry.Paulson, who is known for arranging the numerous bailouts of banks and other non-bank financial companies during the height of the financial crisis, suggested that the blame being passed around for the 2008 downturn was unevenly spread.
“It has happened with every financial crisis, it has from the beginning of time. Financial crises stem from flawed government policies…. I’m saying there’s plenty of blame to go around. But the root causes are this was a huge credit crisis. Why do Americans borrow too much, save too little? Why did we overstimulate housing? There are flawed government policies. There are everywhere. What’s going on in Europe… are you going to blame the banks? … So what happens is, because the banks always make mistakes… people pile on the banks and they work to correct the mistakes.
So far we’ve done a lot to strengthen the banking system. But the government policies that got us here—no one’s dealt with those big issues.”
On the contentious Volcker Rule:
“I advocated very strong tough regulation on the big banks. But I didn’t advocate the Volcker Rule as the way to go. And the reason I didn’t was, at least from my experience, that when I looked at the failures and the problems… it didn’t come from propriety trading.
A prop trade clearly brings with it risks, but there are many practices that do. And from my experience, banks get in trouble even more, from customer accommodating trades, bridge loans or stepping in to do a big oil-hedging transaction or whatever. So I think it can be counterproductive to single out one area.”
Before taking his position as Treasury Secretary, Paulson was famous in the financial world as the CEO of Goldman Sachs. He took time to comment on the state of Wall Street these days as it sufferings from negative public sentiment and huge job and salary cuts:
“It’s so, so sad. because I believe banking is and should be a noble profession, it’s vital. Capital markets are just very very important to any economy. So when I go and talk to business schools or undergraduates, and people talk about their career, I encourage them to consider banking along with all sorts of other careers. And Wall Street will get through this.”
Here’s a video of the interview:
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