Hank Paulson, 74th U.S. Secretary of the Treasury: "It’s the People Skills that Matter"
Stanford Graduate School of Business2016-10-31
stanford graduate school of business#stanford gsb#stanford business#view from the top#leadership lessons
100K views|7 years ago
💫 Short Summary
The speaker recounts his unexpected journey from English major to Harvard Business School, emphasizing seizing opportunities. He reflects on his career in investment banking, highlighting the importance of working with the right people. Transitioning to public office, he stresses adaptability and seizing opportunities. Balancing work and family life, he prioritizes personal time. Advocating work-life balance, he underscores finding happiness outside of work. Discussing financial crises, he emphasizes building relationships. Addressing the public perception of TARP, he explains its impact on stabilizing the economy. During a financial crisis, decisions prioritized stability over popularity. Reflecting on his career in Asia, he emphasizes enjoying his work. Emphasizing the importance of maintaining a strong marriage, he highlights communication. Discussing financial technology, he warns against complexity and emphasizes regulation. The speaker argues against bailouts and advocates for addressing systemic issues to prevent future crises.
✨ Highlights
📊 Transcript
✦
Speaker's unexpected journey from English major at Dartmouth to Harvard Business School.
02:55Despite lack of business experience, speaker joined analysis group and missed Navy cruise.
Ended up alongside future CEOs and influential figures at Harvard Business School.
Unexpected path shaped speaker's career, emphasizing the importance of seizing opportunities.
Value of being open to new experiences highlighted in speaker's journey.
✦
Speaker's journey into investment banking.
07:09Lack of business experience led to learning valuable people skills at Goldman Sachs.
Found enjoyment in financial problem-solving, choosing investment banking over other career paths.
Emphasizes importance of working with the right people and how it influenced decision-making process.
Positive culture and relationships with key individuals led to joining Goldman Sachs.
✦
Career journey focused on working with clients over planning a path.
08:40Turned down promotions, led private equity division, managed diverse portfolios.
Unexpectedly transitioned to Secretary of Treasury by seizing opportunities.
Embraced change, highlighted unpredictability of career trajectory.
Value of adaptability and seizing unexpected opportunities in career growth emphasized.
✦
Speaker's journey from initially declining a position at the White House to accepting the role of Treasury Secretary.
14:43The speaker's decision was influenced by family opinions and fear of failure before ultimately accepting the position.
Despite initial shock from his family, the speaker gained respect for his decision.
Emphasis on the importance of work-life balance and seizing opportunities as they come in one's career trajectory.
✦
Importance of Work-Life Balance at Goldman Sachs.
16:39Setting boundaries and prioritizing personal time over excessive work hours is crucial for a healthy work-life balance.
The story resonates with women and mothers who face challenges in balancing work and family responsibilities.
Taking control of one's schedule and investing in family life is emphasized over being overly dedicated to one's career.
The speaker advises against sacrificing personal relationships for career success.
✦
Importance of Work-Life Balance
21:56Speaker advises finding a balance between work and personal life to achieve happiness and fulfillment.
Personal experiences with clients like CEOs and heads of state emphasize the significance of building relationships and pursuing interests beyond work.
Involvement in non-profit activities can enhance career skills and overall well-being.
Taking personal responsibility for maintaining a balanced life is essential, rather than relying solely on employers for fulfillment.
✦
Discussion on the unpredictability of financial crises, focusing on credit default swaps and hedge funds' connections to banks.
24:35Working with Tim Geithner to address financial crisis issues.
Lack of foresight regarding the housing market crash and the importance of building relationships to address financial crises effectively.
Reflection on negotiation skills and the need for interpersonal relationships in navigating political and economic challenges.
Acknowledgment of the delay in obtaining necessary powers due to the 2008 financial crisis, emphasizing the significance of crisis-driven changes in Congress.
✦
Public perception of TARP by Hank Paulson.
28:46Majority of people opposed TARP without understanding its impact on preventing a financial crisis.
Funds from TARP benefited the American people, not just Wall Street.
Money invested in banks and insurance companies through TARP was returned with a profit.
Innovative approach of buying liquid assets instead of injecting capital into banks aimed at preventing nationalization of failing institutions.
✦
Decisions made during a financial crisis.
32:21Recapitalizing banks and putting provisions in place to address the crisis.
Controversy surrounding bonuses and reasoning behind actions.
Emphasis on stability over popularity and success of recapitalizing banking system.
Concern over bonuses, importance of self-awareness and decency in financial matters, and quick recovery attributed to actions.
✦
Speaker's career revival in Asia due to meeting Chinese leaders.
35:56Involvement in significant deals and interactions with top Chinese officials, including President Xi Jinping.
Emphasis on conservation and climate change, highlighting China's progress in these areas.
Setting up the Paulson Institute and working with the Nature Conservancy in China and Latin America.
Collaboration with top business leaders on sustainable urbanization efforts in China.
✦
Importance of growing together in marriage.
41:20Working on conservation projects and finding common interests are key.
Communication, learning to apologize, and continuous investment in the relationship are crucial.
Personal anecdotes like going for walks and bike rides together.
Prioritizing and nurturing the marriage to prevent growing apart over time.
✦
Rapid growth of financial technology sector, particularly in China with platforms like Alipay.
44:26Benefits of a paperless financial system for transparency and tax purposes.
Caution against excessive complexity and the need for proper regulation to prevent another financial crisis.
Concerns about the impact of technology on traditional business models.
Importance of personalized advice alongside technological advancements.
✦
Importance of a Political System for Democracy.
51:00Continuous learning and growth are essential in any job.
Challenges faced during the financial crisis.
Actions taken to prevent further collapse of institutions like Lehman Brothers, AIG, and Merrill Lynch.
✦
Importance of Individual Responsibility in Financial Success and Failure.
53:30Government policies, not banks, are the root cause of financial crises.
Focusing solely on regulating big banks may shift risk elsewhere in the financial system.
Addressing basic problems like excessive borrowing and saving inadequacies is crucial.
Tackling systemic issues is key to preventing future financial crises.
00:00[MUSIC].
00:04[APPLAUSE]
>> Thank you.
00:07Please if you can go for the far seat.
00:09>> [APPLAUSE]
>> It's an absolute honor
00:16to have you here, and if you don't mind we
want to take you back in time a little bit
00:20and ask about your time or your thinking
straight out of business school.
00:24So we were very lucky to get
enrolled into this program and
00:26we got two years to add
value to ourselves.
00:29But most importantly we
are encouraged to take time off to
00:33reflect on our career choices and what
it is that we want to do after school.
00:37Naturally we are very,
very confused at this point.
00:39Take that advice to heart.
00:40So how intentional were you about your
career coming out of business school?
00:44>> I would tell you, I was sort of
an accidental investment banker and
00:48an accidental CEO.
00:52And a matter of fact,
when I was recruiting at Goldman Sachs,
00:57I was always very suspicious
of students who said they
01:00came out of their mother's womb knowing
they wanted to be an investment banker.
01:05So to step back,
you won't hear many stories like mine,
01:10because I was an English
major at Dartmouth.
01:15I went there thinking I wanted
to be a forest ranger or
01:17work somehow in conservation.
01:20I was going to go to Oxford.
01:22I had a rental scholarship.
01:23I was going to study English.
01:25But I had a very low draft number.
01:28And I could get into the ROTC at Harvard.
01:32And so I went to Harvard Business School.
01:35I just turned 22,
I hardly knew what business was.
01:39In those days, if you were a good
student in an Ivy League School,
01:43you didn't admit you wanted
to go into business.
01:45So when I told some of my friends I was
going to business school they almost
01:50throw up.
01:52So I went with no business experience,
01:58and I got to Harvard and
I'd been a very serious student.
02:05And I worked hard in college, but
everybody seemed so much older.
02:10You know, they were 27 or 28.
02:12Some of them were married,
and I was dating my wife,
02:17Wendy, who was at Wellesley.
02:18So I was out at Wellesley really
more than I was at business school.
02:22And so
I didn't even know what an investment
02:27banker was, and I certainly wouldn't have
02:33said I wanted to be an investment banker.
02:38I did a lot of work in one of
the professor's classes, and
02:42he had worked in the Pentagon.
02:47And so there is this small group,
02:50this analysis group that McNamara
had started when he was there.
02:55And I got asked one day whether I
want to interview for this group.
03:02And since I was going to
go in the Navy anyway,
03:07then this meant I wasn't going to
have to go on my Navy cruise and
03:10I could be with my wife to be and so on.
03:15It seemed like a pretty good deal.
03:17And it turns out that this group,
there were six people,
03:23four of us went on to become CEOs.
03:26One was Steve Hadley who became the
national security advisor to George Bush.
03:32Another was John Sprat who was
a couple years older who became
03:36Chairman of
the House Financial Services Committee.
03:38So it was an interesting
group to work with..
03:43So that's how my career took shape.
03:47>> So
you actually came out of business school,
03:49you took the two public office positions,
Department of Defense and
03:52then followed by
the President Nixon's administration.
03:55>From the outside it looked like
you had it all figured out and
03:58you were well on the way to
getting a Senate seat [LAUGH].
04:00>> No, I did not have it all figured out,
and I never worked in business.
04:08So I wore a suit on special
occasions to go to church.
04:12I never worked in business.
04:15And so I got there to this analysis group,
and I learned a lot when I was there.
04:24It's amazing how much I
learned because I have this
04:29view that it's not just
coming up with a right idea.
04:34Everybody can learn the computational
skills, analytical skills and so on.
04:40But it's the people skills that matter.
04:42>> So why the shift into Goldman Sachs?
04:45>> Well, I would say this.
04:46You're moving faster than I.
04:49>> [LAUGH]
>> Because literally, what I learned when
04:53I was there was I didn't know
what the word mentor was.
05:00But I found that when I would work for
five or
05:03six different people and on different
assignments, so I did the same work.
05:09And some really appreciated my skills and
others didn't.
05:13Some gave me the help I needed,
others didn't.
05:16And one of the things I worked on,
I worked on my first bail-out there,
05:19believe it or not.
05:20It was the Lockheed failure and
the Lockheed loan guarantee.
05:25So I had a chance to do that, and I got
to see how the political process worked.
05:32And as a result of that
John Connolly had introduced
05:37me to some people in the White House
who wanted me to go there.
05:41And then I learned
05:46that almost as important as what I was
doing was who I was doing it with.
05:51It really made a big difference.
05:52So I interviewed all of the six different
directors of the Domestic Council, and
05:57I picked the guy that maybe
the least interesting work
06:00was going to be under him.
06:02But I thought I would
learn a lot from him.
06:04And then it turned out I got to work
on something I was very interested in,
06:09minimum wage, tax policy,
I was the liaison for Treasury.
06:14And so one of the things I
learned was that it was fun for
06:20me to work on financial problems.
06:23And that's why I decided
on investment banking.
06:31And even investment banking
06:36was accidental because I knew I
06:41didn't want to work in New York.
06:46So I talked to regional investment banks,
and it was only when I had a job
06:51offer from a company called
William Blair where the CEO said,
06:55yeah we'd like to have you come here but
you're very aggressive, ambitious.
07:00We don't think you'll be
happy with a regional firm.
07:03Why don't you talk to Goldman Sachs and
Saloman Brothers?
07:07And with Goldman Sachs,
07:09they rank like number ten in
the league tables in those days.
07:14And I ended up talking with a few
other firms, Morgan Stanley,
07:18White Weld, so on, but I really
liked the people at Goldman Sachs.
07:23I met people like Bob Rubin and
Steve Freedman and
07:27a whole bunch of names you wouldn't know,
but they were.
07:30>> [LAUGH]
>> People weren't there, but
07:33they made a big.
07:34So I just basically said,
I feel comfortable with the culture.
07:38And I learned that almost as important
as what you do, is who you do it with.
07:44But if you had asked me out of college,
was I going to be an investment banker,
07:48I couldn't have told you what
an investment banker was.
07:51And in business school when I was
there The hot thing in those days,
07:56when I graduated from
Harvard Business School, let me say,
08:00the first two years I was at Goldman
Sachs, they lost money in '73 and '74.
08:05That people weren't going to investment
banks out of business school,
08:10they all wanted to go to Mackenzie or BCG.
08:14And the hottest thing was Hilton Head.
08:16You know, Sea Pines,
real estate development.
08:19You pictured people lighting
cigars with hundred dollar bills.
08:22>> [LAUGH]
>> And
08:22so, wherever the students
wanted to go that was all,
08:25just about before it would blow up,
that's where they wanted to go.
08:28>> [LAUGH]
>> So, 32 years later, you made the exact
08:33opposite transition going into public
office as the Secretary of Treasury.
08:40So can you walk us through how you made
that decision and how were you a different
08:43person then than the person who
went into finance 32 years ago?
08:46>> Yeah, but again, brevity may not be
one of my virtues but will say this.
08:54That when you went to Goldman Sachs,
and you went into investment banking,
08:59you didn't go because you
wanted to run something,
09:01you wanted to work with clients, okay?
09:04If you wanted to run something,
you went to work for a real company.
09:07So I had no interest in running something,
I wanted to work with clients.
09:13And so again I'm just saying
this in terms of career advice
09:17because I am suspicious
of career engineers.
09:21People that plan it out
every step of the way.
09:24And I'd had people come up to me at
all the time at Goldman Sachs and
09:27say Hank, should I do arbitrage or
should I do
09:34private equity or
should I be doing corporate finance?
09:37And I'd say, what is it you like,
what is it you're going to do well?
09:42And so I only wanted to work with clients.
09:47And so
I was in Chicago working with clients and
09:52was really focused on
a wide range of clients.
09:55I turned down a variety of promotions,
I stayed in Chicago.
10:01When finally they put me on
the management committee,
10:04I ended up starting a private
equity division from Chicago.
10:09Co-heading investment banking
from Chicago and getting
10:14Asia in my portfolio because my partner
in New York said he wanted Europe and
10:19he said, Asia's closer to Chicago.
10:23>> [LAUGH]
>> So that's how, and I did.
10:27So my career took a whole lot of,
10:30only as time went on that I
learned that I enjoyed managing.
10:36And then only when we had
Bob Rubin went to run,
10:41went to work for Bill Clinton in
the White House and then Treasury.
10:49And his co-head had a physical problem and
10:52had to leave at the same time
Goldman Sachs had trading losses.
10:56And I was in Chicago and
10:57the management committee had to
pick the next management team.
11:00I told my wife it's going to happen over
the weekend, don't worry, I'll come back.
11:04And Goldman Sachs had losses and
I had to have her send a couple suits.
11:10I had to go buy stuff, I stayed there.
11:13And I told her, I would just do this for
two years and it was a rolling two years.
11:17I was there for 12 years.
11:18So I would just,
11:20I tell that story to say that if I think
I had said I want to run Goldman Sachs,
11:26I would have come in and I don't think
I would ever want to run Goldman Sachs.
11:30I just focused on doing what
I was doing in front of me.
11:34Enjoying it, learning and growing.
11:37Now in terms of, boy, being Secretary
of the Treasury, it was interesting.
11:46I sit in this group because I
think back to 2006 because I
11:51had agreed to be a speaker at
Harvard Business School and
11:56I had agreed to do that long before
I thought I'd be Treasury Secretary.
12:04And so
I was standing up talking to students
12:07knowing that I was going to
be Treasury Secretary.
12:10And I remember thinking, I use to go and
recruit all the time, and
12:14I would say to people, you know,
the world is changing quickly.
12:18The pace of change is increasing,
12:21embrace change,
change is your friend, etc, etc.
12:26And I was thinking, my stomach was
churning as I was thinking about that
12:29change, and thinking my God,
I'm going to have to eat my own cooking.
12:32Because we all say we like change,
but we hate change, really.
12:36>> [LAUGH]
>> It's a difficult thing.
12:38And so as I was running Goldman Sachs,
I enjoyed it.
12:46I thought I was doing it well and
so when I got the first approach
12:51from the White House,
I immediately turned it down.
12:56I had a wife and a mother and two kids who
13:01were very, did not favor George Bush.
13:06>> [LAUGH]
13:11>> And so I turned it down and
13:15then they came back a second time.
13:21This was when I did a lot
of work with China, and
13:26so Hu Jintao,
who was the President of China,
13:29was going to be at the White House
sometime in the spring of 2006.
13:33And I was asked, they didn't want to
give the Chinese a state dinner so
13:36they gave them a state lunch
if you can believe that.
13:39So I was asked for the state lunch and
I was asked to have dinner or
13:44meet with George Bush in
the residence beforehand.
13:47When I do that and I'd agreed to do it and
13:49then as the time got closer I said I can't
do that, I can't turn down the president.
13:53I'm not going to leave Goldman Sachs and
join the administration.
13:55So I blew it off at the last minute.
13:57>> [LAUGH]
>> And so, I went into the White House for
14:02the lunch and everybody was sort
of a little bit cool to me.
14:07And as I was walking out with Wendy
it was a beautiful spring day and
14:11I was looking at the Treasury Building and
14:14I thought back to the days when I
was in the White House as a kid and
14:18I'd go over and meet with
George Schultz when he was at Treasury.
14:23And sort of a cloud came over my face and
14:25Wendy said to me, well I hope you
didn't turn it down for me, sweetie,
14:31because if it was really important
to you I would have agreed to do it.
14:35And I said no, no, no.
14:37And then when they came back the third
time I just realized that it was
14:42fear of failure.
14:43I realized that I knew I could do
a good job as Treasury Secretary.
14:47I couldn't think of many people that had
gone from business to government and
14:52come back, left with a higher
reputation than they'd come with.
14:56And so as soon as I realized that,
I said, we'll,
14:59I'm not going to give into that and
I accepted.
15:02And, my family was in shock for awhile.
15:05My mother said to me, by gosh,
you started off working for Nixon and
15:09you're going to now finish working for
Bush.
15:11You should be ashamed of yourself.
15:13>> [LAUGH]
>> So, I cried.
15:14[LAUGH] Etc, etc.
15:17And they all decided as I did
that they had great respect and
15:21liked when they saw how he worked with me.
15:24And I had great respect for him,
and it was a real pleasure.
15:27But so I tell you that in more detail,
do you see how some of these decisions.
15:31It's not like I said now I'm
going to go to Goldman Sachs and
15:33now be Treasury Secretary.
15:35Things just worked out.
15:37>> But my mother was not a big
fan of George Bush's vote and
15:40this actually makes me feel much better,
and
15:45I'm sure it does all of you, about not
having that strong of a plan coming up.
15:48So hopefully this will work out well.
15:51The next question I want to ask
is You stated several times that
15:56the work-life balance is
very important to you.
15:58And we are trying one
of the main skills or
16:01core skills we're trying to gain is the
ability to influence large institution.
16:05Now the cutthroat environment,
100 hour plus work weeks at Goldman Sachs,
16:10are to some extent in contradiction
with the work-life balance that you've
16:15stated several times that you value.
16:17So when you were rising through the ranks
and eventually running the organization,
16:22how did you think about managing or
influencing that culture?
16:25>> I'll tell you another
story because then,
16:30I think it was 1999 after we went public.
16:35I had a nephew who was graduating
from Kellogg Business School.
16:39So, I was the speaker there and
my speech was on work-life balance.
16:43And so, I told the story,
which was absolutely true,
16:48that I was in the Chicago
office of Goldman Sachs and
16:53I had a three year old and
a one year old and I was working hard,
16:59coming home late and my wife Wendy said
to me, Hank, this is unacceptable.
17:07And you either are going to come home and
17:11take an active part in raising the kids or
you're going to come
17:16home some night and the kids are still
going to be here and I'm going to be gone.
17:21>> [LAUGH]
>> And so, I went to my boss and
17:25I said I really need to
do something differently.
17:30I really do and
I was off to a very good start.
17:34And so he said, look it,
you do what you need to do.
17:38So my office was on the 60th
floor of the Sears Tower, and
17:42if you can believe this, I would run
at 4:30 from there to get the 4:42
17:47train from the Chicago Northwestern
to Barrington, Illinois.
17:51It got in at 5:25.
17:53I was home at quarter of six.
17:56I would give the kids dinner.
18:00I'd give them a bath and
I'd read the goodnight story.
18:04And I'd be reading In the Great Green Room
with the Red Balloon, Goodnight, Moon.
18:08I'd be going through this.
18:09>> [LAUGH]
>> And so, I do not read with expression
18:12and so once Wendy came in,
if you've heard me read a speech,
18:17you know it's not a very
pleasant thing to listen to.
18:20>> [LAUGH]
>> And so Wendy came in and she says,
18:23slow down, read with expression.
18:26When I did that the kids both
started crying and said,
18:29no, read like a daddy not like a mommy.
18:32>> [LAUGH]
>> So,
18:34I told that story to
the Kellogg Graduating Class.
18:41And just like this,
18:42It was the same way, everybody laughed and
particularly the women, they loved it.
18:46And the mothers loved it,
and they all liked me.
18:49And I walked out and
there was a competitive partner at
18:53Salomon Brothers at the time,
named J Ira Harris.
18:57And he said, you hypocrite.
18:59You're standing up there,
giving that speech and
19:03then you just work the living daylights
out of the kids at Goldman Sachs.
19:08How can you do this?
19:09Where does this come from?
19:11And I said well, I would just tell
you what I say to everybody that
19:16came to me for advice at Goldman Sachs.
19:20I said, you can't ask the firm to
19:24tell you how many hours
a week you're going to work.
19:26If you're working 50 how about 55,
60 how about 65?
19:33You have to learn to say no.
19:35You have to plan your own life.
19:38And that the people spend so
much time on their career and
19:44so little relative time on their family.
19:48And you just get out of it,
what you invest in it.
19:51And you can't be a grunt.
19:54Think people need to be very careful.
19:57You need to do things you enjoy and
that you're going to do well.
20:00And if the only way you can do well is
working more hours than someone else,
20:04you're going to lose out,
20:05because there's always going to be
someone else who's going to work more.
20:08And so you need to find something and
20:13you need to work to have
a life away from the job.
20:21And I can tell you this,
I know everybody has said this to you,
20:24but I can assure you this is this case,
probably the one thing I've done more
20:29than anyone else who has ever run
a Wall Street firm is work with clients.
20:34Because I worked from all the way
up in investment banking, and
20:39when I ran Goldman Sachs,
I still advised CEOs.
20:42And I handled clients,
because I thought that was important.
20:45I worked with heads of state,
I advised them.
20:47I advised the president of China,
Germany CEOs.
20:53I've worked with many, many of them that
have been successful professionally.
20:57I've worked with many, many people that
didn't get where they thought they were
21:01going to get and retired,
and came to me for advice.
21:04And I know of many, many people that
didn't quite get to where they wanted to
21:09get with their career, and they're happy.
21:12They're happy and they're well-balanced.
21:14I don't know anyone that says,
boy, I had a great career and
21:18I'm happy because I screwed up my life
outside of my career, my family life.
21:23There's no one that feels that way.
21:28And I take it to the point
where I encourage people to do
21:31things also In the not-for-profit area.
21:35When I ran Goldman Sachs,
I chaired the Nature Conservancy.
21:38I chaired the Peregrine Fund.
21:40I encouraged people to do these things.
21:44It makes you better at your career.
21:46It's not easy and don't expect
your bosses to take care of it.
21:54I think you need to take care of it.
21:56You need to get yourself in
a situation where you can balance it.
22:01It is really, really important,
really important.
22:05And you know, it's tricky.
22:09>> We have some class members
who got offers already, so
22:11I hope they can pull this off.
22:12Good luck.
22:13>> [LAUGH] Moving forward to the point
when you became the Secretary of Treasury,
22:18you've stated before that you identified
specific risks that the financial system
22:23was running,
specific financial industries and
22:26you've actually pointed it out to
President Bush well before the crises.
22:31One of the core skills we're trying to
gain out of our experience here is how to
22:36think and strategize in a preventive
manner to avoid crises.
22:41So what did you do between the years of
2006 and 2008 to implement that change?
22:46And for example, would it have been
possible to implement something like
22:51the Dodd-Frank Act earlier or
maybe in 2006,
22:54rather than only implement
it after hell broke loose?
22:57>> In 2006, after I became
Treasury Secretary of the President,
23:02my first meeting he took
the economic team to Camp David.
23:06And I was asked to talk about
entitlements, because that was one of
23:10the reasons that I was coming down
was to work on entitlement reform.
23:15And I said no,
I'd like to speak about financial crises,
23:18because I'd been through one in '94 and
'98 and I saw excesses in the system.
23:23Now, I saw nothing like
the one we had coming.
23:27And when the President said to me,
what will cause it?
23:32I said, I don't know.
23:35Afterwards, it'll be clear, people with
20/20 hindsight will say it's obvious and
23:40there will always be someone
that says I predicted it, but
23:43that person won't predict the next one.
23:46Okay, because they're unpredictable
in terms of the timing and the cause.
23:53>> If you don't mind me interrupting,
we're of the shelf.
23:55The derivatives and credit default swaps
not apparently toxic at that point.
24:00>> Yeah, so what I did when I came down.
24:03He said, what might cause it?
24:05I talked about credit default swaps.
24:07I talked about a huge problem I saw,
24:09which we were working with Tim Geithner
at the New York Fed to clean up.
24:14Where there just, I won't go into it, but
24:17there's a very big technical
problem with credit default swaps.
24:21I thought the hedge funds, hedge
fund's connectivity to banks, I didn't
24:26look at, say, mortgages, I knew there
were some issues with subprime.
24:31But the idea that the whole
housing marking would drop.
24:35We'd been looking at, I was born in 1946,
and ever since World War II,
24:42if you bought a diversified
portfolio of residential mortgages
24:48the only risk you had was you
got your money back too soon.
24:54Because there was no nationwide
decline of housing prices,
24:58it was a commercial mortgage market.
25:00And so we didn't see that,
we didn't see the money market.
25:04But the advantage of having said that was,
the huge advantage to me, was
25:11I had a year to build the relationships
we needed to build before the crisis.
25:15We couldn't,
the horse was already out of the barn,
25:18there were, the excesses were there.
25:23But I had a year where we had something
25:26called the President's working
group on financial markets.
25:29So then I started working
with Ben Bernanke and
25:33Tim Geithner, and
we didn't uncover the problems.
25:38We never thought about money markets,
or the tri-party repo market, but
25:42we did a lot of work together, and
we built strong relationships.
25:45And then most important of all,
25:47I had a chance to build a relationship
with George Bush, because,
25:52if there's any point I want to
make to you all, it's all about
25:57interpersonal relationships,
it's all about working with others.
26:03Getting anything done that's
important requires that.
26:06I had negotiated quite a deal
when I came to the white house,
26:10because I got turned down several
times when I came to Treasury.
26:13And so that I could make all
the appointments, regardless of political
26:18party, at treasury,
that I'd be their primary spokesman and
26:22adviser on domestic and economic issues,
how things would be staffed.
26:26But I realized when I got there
that no matter what I negotiated,
26:30if it didn't work between me and
the President the whole thing wasn't
26:35going to work, and
it would be my fault and not his.
26:38And I'd been trained as
an investment banker.
26:41I wasn't running a big firm
where people gave orders, I was,
26:45I had to get down on my knees and
26:46persuade certain partners to stay, most of
them thought they were smarter than I was.
26:51I had learned to work with clients, so
26:55I could run a firm and advise a principal.
26:59So I knew how to do that, and
27:02so I had an opportunity to build a very
close relationship with the President,
27:07a relationship of trust before
the crisis hit, and with Congress.
27:11So that was a key, and
27:13that was one of the benefits of getting
ready, but we certainly didn't.
27:19If I had been omniscient, and
I'd known exactly what was happening,
27:25I couldn't have got
the powers a day earlier.
27:26Because I started working in Fannie and
Freddie in 2006.
27:29It just it took a crisis to get
what we needed from Congress.
27:34>> TARP was labeled as as
the bailout of the guilty rich,
27:40at the expense of taxpayer money.
27:44So that was a very tough decision for
you to make, of course.
27:48But how did you think
about public messaging?
27:51Did you try to gain support, or
at least understanding of the necessity
27:55of the decision by the public,
and how did that go?
27:58>> So it's a very interesting thing.
28:00When I left Treasury,
there was a poll that showed, and
28:05I don't remember the numbers
exactly right, but
28:09something like 90% of the people
were against TARP, and
28:1460% or 70% were against torture.
28:17And yet, a big part of
the population was also scared to
28:22death we were going to
have a financial crisis.
28:26So I was never successful, that was one
of the big failings of letting people
28:31know what we did was for
the American people.
28:35It wasn't for Wall Street, and
28:41I think most people to this day still
don't know that all the money we
28:46put in that, when I left the programs
accounted for 95% of their programs,
28:51the programs accounted for 90% of
the TARP dollars that were in place and
28:5575% of the dollars were
already out the door.
28:58And the money we put into banks and
insurance companies all came back,
29:03plus just about $50 billion.
29:05And it prevented a disaster,
but you don't get credit for
29:11a disaster that people don't see.
29:14When we went in and asked for the TARP,
29:21and painted the picture of
the economy was turning way down.
29:26It was going to get much worse a number
of months out no matter what we did.
29:31Barney Frank said to me,
29:32Barney Frank was chairman of the House
Financial Services Committee, he said,
29:35Hank this is going to be very difficult
because you can't prove a counterfactual.
29:40And that was at midnight, and
I said what's a counterfactual?
29:42And he said,
well you're not going to get credit for,
29:45you know people are going to be very angry
because they're going to be hurting, and
29:48you're not going to get credit for
saving a disaster they didn't see.
29:53But the biggest thing we did
with TARP that was unpopular,
29:59was people wanted to punish the banks, and
30:05they wanted us to be tougher on the banks.
30:08And we did something with TARP that
was never been done before, was
30:15extraordinarily innovative, and I don't
think people to this day understand it.
30:20Which is when we switched,
which is another story, when
30:26I went to congress and said we're not
going to put capital in the banks.
30:32We are going to buy a liquid assets.
30:35And the reason I did that was, only time
I'd ever seen capital go in the banks,
30:40had been when they were nationalized.
30:43So bank is ready to fail, you nationalize
them, you're very tough on them, right?
30:47That's what you do with.
30:47That's we did with Fannie and Freddie.
30:49That's what the Europeans did,
you know, the British,
30:52they only put capital in two banks.
30:54They nationalized,
the Europeans, a handful.
30:57So I thought we needed to
recapitalize the system.
31:01And I had a theory about
buying liquid assets.
31:05But I told Barney Frank,
we need the authority to put capital in,
31:08because I thought we might
have to nationalize a few.
31:12So, when we got the, but
31:14the two weeks we were up in Congress,
the world seemed to change.
31:20Wachovia went down, Wamu went down,
the Europeans had to bail out their banks.
31:26So I went to George Bush, and
31:29I would say you're in a crisis,
you're dealing with big,
31:34ugly problems, there are not going to
be elegant, perfect solutions.
31:37So you gotta make decisions, and if you're
wrong, you gotta be willing to change.
31:41So I went and I said, guess what, it's not
going to work, buy your liquid assets.
31:46We have to put capital in banks.
31:47And he said, well, how are you going to
explain that to the whole world?
31:49I said, I don't know,
I'll just say, we made a mistake,
31:50we're going to put capital in the banks.
31:52And he said, good, do what you're
going to do to save the The economy.
31:57So, but then what we did was
we made attractive terms.
32:04Because we wanted to
recapitalize the banking system,
32:08and we put capital in 700 banks.
32:12So I chose stability over doing
what would be politically popular.
32:20>> And what about the misconceptions or
32:21the personal misconceptions when it came
to exaggerated bonuses, golden parachutes?
32:27Why not put something in place that
makes it very clear to the people that
32:31individuals within those
institutions are not benefiting?
32:34>> You're right, that of all the things,
well first of all, if we'd done that,
32:39if we had put all those conditions on, we
could have easily put those conditions on.
32:46And we did more than that when you
look at AIG or Fannie and Freddie.
32:53But if I'd done that,
then every bank is the tallest midget.
32:57They don't need capital
until they're ready to fail.
33:00And you just would have had
a number of serial failures.
33:03So what we did,
we put in a number of provisions, and
33:08we put in a provision on parachutes,
okay, but not bonuses.
33:14If we said we're going to determine how
you pay people, then many banks would say,
33:18well we're not going to fail.
33:19But we recapitalized the banking system.
33:22So it was very unpopular, but
look at where we are relative to Europe.
33:26The governments are bailing out the banks
which is bailing out the government
33:30and so on.
33:31Our banks were recapitalized.
33:34And that put everything in
place that was needed for
33:39the stress test and for
recapitalizing the banking system.
33:43But you're totally right.
33:44And of all the things that bothered me,
and
33:47I thought was egregious, I just thought it
was so beyond the pale, was those bonuses.
33:54Because after the fact, bankers didn't
have to say we've done anything wrong.
34:01They just have to say,
thank you to the United States of America.
34:05What was done saved the system,
even if our bank might not have gone down,
34:09which they all might have said.
34:11And so we are going to show
some self awareness and
34:16sense of decency and so on.
34:20So I sat there dying watching the bonuses,
but
34:23there weren't requirements and
I would do the same thing all over again.
34:29I tell you that's why we recovered so
quickly and
34:32why it worked, and the capital came back,
but people are angry.
34:37>> Thank you very much for that.
34:39You've been very accomplished.
34:41You've actually accomplished more than any
of us could wish to on several fronts.
34:46And after all of that,
34:47you decided to dedicate the rest of your
life to the work at the Paulson Institute.
34:50So what is it about the US-China
future collaboration that you place so
34:54much value on, and
are there any specific opportunities or
34:58sectors that you think we
should keep an eye on?
35:03>> Well, I would say this, first of all,
as I look around here at you all.
35:09Because you're here, we're all similar.
35:14We all want to make a difference, right?
35:17We all want to have a rich personal life.
35:20We want to do something professionally
where we make a difference.
35:24And my theory is always you need to say,
in today's world
35:30where there's so many talented people,
where do I have a comparative advantage?
35:35Where do I have the greatest chance
to make a difference where there's
35:40an intersection of something that I can
do well, and something that I enjoy?
35:45Okay, so two things happened
over the course of my career.
35:51One of them was serendipitously,
I got to Asia.
35:56I got there at the right time,
I met the Chinese leaders and I was there.
36:03And I would just say if you're interested,
my Chinese version of my book came out.
36:09Dealing with China,
which is the book I wrote.
36:11I wrote the first one on the crisis
was On the Brink, Dealing with China.
36:15The first third of the book is
about investment banking in China
36:24bringing how capital markets transactions
brought western know-how and
36:29capital, that the leaders used to
open up the country to competition.
36:34And so I was there.
36:35It really revived my career.
36:37I would've left Goldman Sachs.
36:38I was interested in maybe
doing some other things, and
36:42I worked on the first big public
offering for China Mobile privatization,
36:48then PetroChina,
then the first bank deal, Bank of China.
36:52So I worked alongside of people that
if you were to name the people,
36:59the guy who runs the Central Bank,
the Minister of Finance Lou Jiwei,
37:04Zhou Xiaochuan, the Central Bank,
Wang Qishan who
37:06now runs a big interdisciplinary committee
and who's on the standing committee.
37:11I worked with these people.
37:14President Xi Jinping, when I set up
the strategic economic dialogue,
37:19which I did as treasury secretary with
China, I've actually visited him in
37:24Hangzhou before I went to see the others,
the leaders in Beijing.
37:28And so I helped him plan, when Xi Jinping
visited the West Coast last September,
37:35he asked me to get together a group of
CEOs to moderate a discussion with him.
37:41So I know these people, so
I said I can make a difference there.
37:45And I always cared about conservation.
37:47Jim Morgan and
I worked on the Asia-Pacific Council of
37:52the Nature Conservancy, so my wife got
me involved in the Nature Conservancy.
37:59I worked in saving parks,
setting up parks in Hunan in China.
38:03So I've always cared about conservation.
38:06I've cared about the environment.
38:07And so if you care about the global
ecosystem, if you think climate
38:12change is the biggest economic
risk by far we face in the world,
38:17and you want to do something about it,
guess what?
38:21China's the place to be,
38:22because if they don't make progress
nothing else we do makes much difference.
38:27And so I basically said, I care about the
environment, I care about conservation.
38:34I've made enough money.
38:35I don't need to make more money,
I'm going to do an NGO.
38:37So I set up the Paulson Institute.
38:40And also, the Nature Conservancy asked me
to do for them what I've done in China,
38:44which I set up the Latin American Council
of the Nature Conservancy.
38:50So I got back from China on Saturday and
on the 9th, I'm going to Oaxaca,
38:54Mexico where we're going to have our
meeting with the Nature Conservancy.
38:58And so
I work with business because in China,
39:03I have a US-China CEO consul
on sustainable urbanization.
39:10So I go there with people like Tim Cook
from Apple and Doug MacMillon from
39:14Walmart and Ginny Rometty from IBM and
Mary Barrow from General Motors and
39:18we work with Jack Ma, Alibaba,
the State Grid construction companies.
39:23So we're doing the things that I
know how to do and I like to do.
39:28And I must like work, because I'm no
longer on a private plane going there,
39:35I'm on United Airlines, and-
>> [LAUGH]
39:39>> Thank you very much for that.
39:41>> And I mean I can do this,
39:42I'd love to do this for hours but
we're unfortunately out of time.
39:44So, one final question
before we move to Q&A.
39:48You and Wendy have been married for
just under 50 years.
39:51Myself and Donna, who's here with
us today, have been married for
39:54just under two months.
39:55>> [LAUGH]
>> So,
39:57[LAUGH] do you have any advice for us?
39:58[LAUGH]
>> Well,
40:00I would say people always make jokes and
so on about this, but to me it's serious.
40:06And I think the key thing is,
40:09[COUGH] we got married when we were young,
and
40:14we grew together, and
we kept common interest.
40:20I've seen so many couples,
they get married and they grow apart.
40:27And so we've done all of our
conservation work together.
40:32We've done so much jointly,
she's helped me immensely in China.
40:37Many of our most important relationships
were ones that we both built.
40:43We were in, last Thursday,
it's the two of us,
40:48I was asking her,
please stay an extra day.
40:52Because we're going to have dinner
with Premiere Li Keqiang and his wife,
40:56Cheng Hong, and
she speaks beautiful English.
40:59She studied American nature writing,
41:04literature study, the transcendentalists,
Thoreau and Emerson.
41:09And so Wendy was there,
we had a workshop on wetlands
41:15conservation, and
Wendy was there doing that with me.
41:20So I think that the key is, you need to
find things that you can do together.
41:29Everybody talks about me as
being a bird watcher, okay?
41:32I like being outdoors, I really don't
like bird watching as much as Wendy does.
41:36>> [LAUGH]
>> But I do it because I've got bad eyes,
41:39I don't see them as well, but
I do it because I enjoy it and
41:43I'm doing it with her, and
so we find those things.
41:47And then the other thing I really
find that is terribly important is,
41:53when there are differences,
to talk about them and learn,
41:58the most important thing you
can learn is to say I'm sorry,
42:03even if you think its
the other person's fault.
42:07>> [LAUGH]
>> If you learn to say you’re sorry and
42:11just really learn to say you’re sorry.
42:15So, we would always, every week,
42:18no matter what,
no matter how busy I was at Treasury or
42:22whatever, we would go for
a long walk or a bike ride.
42:27And she tells the story of the time when
we were going for a bike ride at Treasury,
42:32when I was so, when my mind was elsewhere.
42:34I rode the bike right into a gate and
collapsed on the pavement, so.
42:40>> [LAUGH]
>> But these relationships you get out of,
42:45I will just say this to you.
42:48There is nothing, there's not a perfect
job, there's nothing that's perfect.
42:53There's, I've got as close to perfect
wife as you can have but nothing,
42:57no marriage,
anything is going to be perfect.
43:00You get out of it what you put into it,
and so you need to keep investing.
43:05And if you don't continue to invest in
your marriage, no matter how much you're
43:10in love now 10, 15, or
20 years from now you'll grow apart.
43:14So you just, it's just like anything else,
if you value it you will keep it.
43:21>> Well I'm sorry, and
[LAUGH] we'll move on to Q and A now.
43:29So when you're asking the question
please stand up and state your name.
43:34>> I wanted to ask what do you think
of the financial technology sector?
43:39And how do you think
that's going to evolve and
43:41change the relationship between banks and
consumers?
43:48>> What do you think of the evolution
of the financial technology center?
43:52And how do you think this will effect
the relationship between the banks and
43:57the consumer?
43:58>> The evolution of what?
43:59>> The financial technology sector.
44:02>> The financial technology sector,
Fintech okay?
44:05>> Fintech.
44:05[LAUGH]
>> Sorry about that.
44:10>> Okay, because I tell you,
44:13it's amazing what's going on and the time,
44:18and you look at what's going on in China,
with Alipay and so on.
44:26So it's extraordinary, and
44:28it is in China in particular,
where you don't
44:34have all the financial infrastructure
that we've got in other countries.
44:39It is growing, very, very quickly,
I think it's exciting.
44:44I think a paperless, if we ever get
to a paperless financial system,
44:54it will make a big difference
in terms of transparency and
44:58all kinds of other things
in terms of taxes.
45:03And I think the thing we
need to be careful about is,
45:08I learned and one of the lessons
from the financial crisis is,
45:14you can sometimes have too
much complexity or innovation.
45:19And one of the things that happened
before the financial crisis,
45:23is our financial system
outgrew our regulatory system.
45:27And so I do worry about regulation,
45:35transparency in places, and
I watch the money market funds.
45:42The scariest thing for me, and
the closest I could see to the financial
45:48crisis bleeding over from Wall Street to
Main Street was when we had three and
45:54a half or four trillion dollars worth
of money market funds imploding.
46:00And they're the ones that were
funding the commercial paper.
46:03So I was hearing from AAA companies saying
we can't sell our commercial paper,
46:08and we're not going to be able to even
make our quarterly dividend payment.
46:13And I could realize if they start paying
their suppliers, then it goes, it just
46:18goes, pretty soon it hits small industrial
companies and the whole system collapses.
46:23And so I think to make sure that this,
46:28what I call fintech doesn't grow so
46:33quickly, that it's unregulated.
46:38And we needed to make sure that
there's the right protections and
46:42the right liquidity, and so on.
46:45>> So if there's an app that controls your
entire portfolio at the click of a button,
46:50how would that affect
Goldman's Private Wealth Management Team?
46:53>> [LAUGH] I'll tell you, for
46:59a long time, I remember,
47:04and this'll date me.
47:09So you all were in primary school,
47:14but when we had the telecom
internet bubble burst,
47:22when I was at Goldman Sachs in about 2000.
47:28And the years running up to that
everybody was saying, well,
47:33how's the internet going to
change our business model?
47:37How's it going to
disintermediate what we do?
47:39And I remember then we tried
to set up a technology
47:44platform for a high net worth force.
47:49And I continue to believe that
47:54there are going to be a good number
of people that are going to want
47:59real Advice and real judgment and
customized, but there's
48:04a lot that needs to be done and can be
done more efficiently through technology.
48:09So, but that's the story,
the concern and what you
48:15all are going to deal with, we're dealing
with right now, is going to be a big,
48:20big factor in your business lifetimes
is the dark side of technology.
48:25It makes all of our lives better, we're
not going to turn back the clock, but
48:29I will tell you, when you look
at automation and technology and
48:33what's doing the labor markets, and
the number of people that are going to be.
48:39Anything that can be automated or
routinized, will be.
48:42So that's,
48:43what you're going to see is people at
the top are going to do very well.
48:47And there's going to be a lot
of people without jobs or
48:50without the jobs they want.
48:52And how we come up with a political system
that lets our democracy work and lets our
48:58economy continue to flourish, is going to
take a lot of interesting thought.
49:04And there's nothing you
need to be afraid of but
49:06that's another reason why it
comes back to my advice to you.
49:08You can afford anything other than not,
you need to keep learning and
49:12growing in any job you get and
get something that plays to your skill.
49:16It's going to take judgement and
take wisdom and they can't be,
49:21you're not going to be
disintermediated by technology.
49:26>> I think we have time for
one more question.
49:33>> Peter Stradling, thank you for
coming to talk to us.
49:36So I was just thinking about, given
the immediate reporting on the crisis in
49:40the book Too Big to Fail and the narrative
that both those things cultivated.
49:45Is there anything about this prevailing
narrative that you feel is fundamentally
49:49misunderstood or
you would want the public to know?
49:51You mentioned TARP and it's
implementation but are there other things?
49:55>> I would say that I think Too Big
to Fail got it largely right.
50:01If you want to read the narrative that got
it totally right, you'd read On the Brink,
50:06because that was a first hand account,
50:12and no one has been able to quarrel with
any fact in the book the way it's written.
50:21But I would say that the other thing
that people ask about all the time.
50:26When they say if you made major mistakes
and I say, well I think the major ones, we
50:32made a lot of mistakes, but the major ones
we corrected right on the battlefield.
50:36So, putting, reversing ourselves, putting
capital in the banks, or with Fanny or
50:42Freddie, I remember I said, if we had
unlimited authorities or unspecified
50:46I wouldn't have to take the bazooka out,
and I took it out when I had to.
50:51But, I would say, we still have
a surprising number of people,
50:56that despite the fact that Bernanke,
Geithner, and I are all generally regarded
51:00to be straight shooters, don't believe
us when they say, we didn't have any
51:04authority, legal authority,
that would have worked to save Lehman.
51:08And the fact is, but no one can tell
us what that authority was we had.
51:12Because, we couldn't,
we had no authority to,
51:17guaranteed debt, or to put in capital.
51:21And, what we learned when
Bear Stearns was going down,
51:25was a fed loan didn't work when
a bank was, frankly, unravelling.
51:32Everybody pulls their money and run,
and so we were fortunate enough to
51:36have a buyer there, JP Morgan and
it guaranteed the trading book.
51:41And so when Lehman went,
we had AIG, Lehman,
51:43and Merrill all going at the same time.
51:46And frankly, it was terrible but we got
the best possible outcome because if
51:53Lehman had been bought, then they
wouldn't have been anyone to buy Merrill.
51:58And Merrill was bigger and
they were going down immediately.
52:02And with AIG,
we lucked out because the perception
52:07with all us was there's this big
liquidity crisis at the holding company.
52:12Which was like a big hedge fund and the
underlying insurance companies which had
52:17individual credit ratings were money good.
52:20So the treasury could loan against
those and the market accepted it.
52:25But by the time the market figured out,
guess what,
52:27that wasn't the case, we now had
the tarp and we could put capital in.
52:32But at the end of the day, I realized
52:37that I've given up trying to explain
that because unless you were close to it
52:43you're not going to really
understand it that well anyway.
52:47And the fact is, bailouts shouldn't be,
the whole thing was unpopular,
52:54and I don't think bailouts should
ever be popular in the United States.
53:02And when people screw up,
if they take a risk and
53:07they succeed they should be rewarded and
if they fail they should fail.
53:10But the financial system is such that
if it goes under everybody pays.
53:16The only other thing, which I think
I wish people know and understood and
53:21I think this is quite important.
53:24Is that when there's a financial crisis
everybody always blames the banks.
53:30>From the beginning of times
banks get 100% of the blame.
53:34And banks make all kinds of mistakes and
so some good comes out of that.
53:39But the root cause of a financial
crisis is never the banks.
53:44Don't let anybody tell you it is,
it is flawed government policies, and
53:49I don't care what the political system is.
53:52Whenever you've got a big economy and
53:54you've got a banking system,
there'll be flawed government policies.
53:59They lead to excesses, excesses manifest
themselves in the banking system and
54:03there'll be failures.
54:06So the best you can hope for
54:08is to get to it before the excesses become
too great and have the tools you need.
54:13And so the Fintech question,
54:16the thing I'd be asking myself
all the time about Fintech,
54:21is everybody now is
focused on the big banks.
54:25But I think the problem is that
if you regulate them so much and
54:30turn them into utilities you
force the risk out elsewhere.
54:35And a lot of the risk was in
the tri-party repo system,
54:39was in the shadow banking market,
money markets and so on.
54:43And the basic risk comes in our financial
system because whatever the size is,
54:49I forgot what number is, 13, $14 trillion
or whatever, 60% of that is deposits.
54:56Okay, the rest is wholesale funding and
so you're always going to have risk.
55:02And so the problem is if you
just only blame the banks
55:09you get to this,
it's going really far in the US, but
55:13then you don't focus on
cleaning up the basic problems.
55:18What leads us to borrow too much,
save too little, okay,
55:23why don't we get around to fixing Fanny or
Freddy?
55:26If we have a vocal rule and
banks can't do market making and
55:31you got liquidity problems and you've got
interest rates that are almost zero and
55:37money is seeking out yield.
55:39You're going to have bubbles and what
about the bond funds and liquidity there?
55:43There's so again I'd say don't
just focus on the banks and
55:48don't ever believe that the banks
are the only problem because that'll
55:54just cause you to beat up on the banks and
we won't deal with the root causes.
56:00>> Thank you very much for
your time Mr Secretary.
56:01>> Okay, thank you, thank you.
56:02>> [APPLAUSE]
56:05[MUSIC]
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