Paulson: Bully or Hero?

Which is true? (1) Last fall, Treasury Secretary Henry Paulson, working in conjunction with other regulators, strong-armed the nation's nine largest banks into taking government money. (2) Last fall, Treasury Secretary Henry Paulson, working in conjunction with other regulators, saved the global financial system from outright collapse.

The answer is: both are true. At the height of last fall's crisis, a banker close to the table told me in no uncertain terms: Paulson told us that we had to take the money (see Paulson's third talking point, second bullet). When I asked whether it might be in everyone's interest to keep the US financial system afloat, she demurred and said, "I guess so."

Going back to that insane period is useful not to recreate the past, but to inform the future. This is especially interesting as Congress attempts to reform/overhaul U.S. financial regulation. When Barney Frank and the House financial Services committee hold hearings next month, the goal should be to create a regulatory structure that can grow with the industry it oversees, not one that limits financial potential and ingenuity. We also need a mature financial services industry that seeks not to evade regulation, but to embrace it for what it is: a way to protect the overall system's health.