Two False Narratives

The Henry Paulson book tour made its latest stop in Chicago, where, the Tribune reports, Mr. Paulson's narrative that his actions heroically averted a Great Depression-like catastrophe was challenged by a University of Chicago professor, Raghuram Rajan, who says that mid-crisis Mr. Paulson "should have insisted on cutting cash compensation, shutting off dividends, imposing losses on certain debt contracts and making bailed-out institutions pay for their recapitalization over time." Mr. Rajan complains that Mr. Paulson "treated the banks with kid gloves." Well, certainly Lehman Brothers and Bear Stearns weren't treated with kid gloves. Nor was Wells Fargo, which was forced to accept TARP money it didn't want. Nor is it clear that declaring war on the banks mid-crisis would have been the best way to boost confidence in the American economy, or to enable or encourage them to keep lending.