Former Treasury Secretary Henry Paulson addressed his involvement in the Bank of America/Merrill Lynch deal in front of Congress Thursday, saying his threats to BofA CEO Ken Lewis were justified. Following is a copy of his testimony:
Chairman Towns, Ranking Member Issa, and distinguished Members of the Committee.
I served as Secretary of the Treasury from July 2006 to January 2009. During my tenure, the world experienced a financial crisis unprecedented in our lifetimes. The crisis presented a relentless series of novel challenges that required swift, innovative, and dramatic responses. I am proud to have been among the many public servants-in the Congress and at Treasury, the Federal Reserve, the FDIC, the OCC, and other agencies of the government-who came together to confront these challenges and to prevent a far more damaging meltdown of our financial system.
Had the crisis of 2008 been left to unfold without strong federal reaction and intervention, the world of 2009 would look very different from the world we live in today. Many more Americans would be without their homes, their jobs, their businesses, their savings, and their way of life. Although commentary on the crisis often focuses on events at financial institutions, the human suffering of the crisis has been staggering in ways that are beyond measure. Unemployment reached historic levels.
Savings were depleted. Americans lost trillions of dollars in home value, and many lost their homes. Yet without the actions taken in 2008, that suffering would have been far more profound and disturbing. Our financial system underpins our modern economy; commerce today requires a string of payments, whether that string of payments is for delivering a gallon of milk from farm to consumer or for delivering a new product from idea to production. And that string of payments depends on trust. Our financial system works because consumers and investors have confidence in the strength of financial institutions.
Last fall, that confidence was largely gone, especially among those who lend to financial institutions by purchasing their debt. The crisis of confidence threatened to disrupt our entire financial system-not just the institutions that had high credit losses on their mortgage investments, but all financial firms, whether weak or solvent, would have suffered as widespread fear prevented investors from lending to any financial institution.
As liquidity dried up, the continued collapse of financial institutions that provide credit and handle payments for our economy would have meant that firms across industries — not just Wall Street, but every street-would have seen a massive curtailment of their access to liquidity and thus their ability to purchase supplies and pay employees. Missed payrolls would quickly have turned into even more millions of layoffs, and this in turn would have meant an even greater retreat of consumer spending than we have witnessed since last September. It would have been extremely difficult to break the momentum of this downward spiral.
Fortunately, the most dire of consequences were averted. I am proud that, along with many others, I brought what experience, talent, and efforts I could to right our nation's course.
Now that the financial system has stabilized, many, including this Committee, have begun to look back to analyze the efficacy of our responses to the crisis as it unfolded. Learning the lessons of the past is a necessary and important step as we forge our way forward. The complexity of the crisis and the multifaceted character of the solutions, coupled with the short time in which decisions had to be made, will all require careful consideration and analysis to help the current Administration and future generations understand and confront issues of economic crisis.