By Dave Shiflett (Bloomberg) – Credit is tight these days but we’re increasingly rich in recriminations over who’s to blame for the economic crisis. Former Treasury Secretary Henry Paulson is the designated goat in Frontline’s “Inside the Meltdown,” which airs on PBS Feb. 17 at 9 p.m. New York time, with supporting roles by Fed Chairman Ben Bernanke, a few CEOs and a confederacy of right-wingers. The show starts by recounting a Sept. 18, 2008, emergency meeting between Paulson, Bernanke and key congressional members. Paulson dramatically announced that if Congress didn’t pass a $700 billion bailout “tomorrow, we won’t have an economy on Monday.” "There was literally a pause in that room where the oxygen left," says Sen. Christopher Dodd (D-Conn.) Paulson’s plan, according to the show, was a total repudiation of his belief in “moral hazard,” which holds that one bailout is likely to beget additional bailouts. Earlier adherence to this doctrine, according to the show, made a bad situation much worse. The hour-long program, produced and directed by Michael Kirk, traces the rapid-fire catastrophe beginning with the collapse of Bear Stearns, followed by crises at Lehman Brothers, AIG, Fannie Mae and Freddie Mac and eventually spreading overseas. Along the way, viewers are reminded of the central role perception plays in markets. “Rumors are such that they can just plain put you out of business," says former Bear Stearns chief Alan "Ace" Greenberg, and he should know. After CNBC reported that Stearns was “dragging the rest of the markets down” Greenberg, though no longer running the operation, phoned in to insist rumors of the firm’s “eminent demise” were false. Jitters remained, so CEO Alan Schwartz went on-air with the hope that correspondent David Faber would pitch a few softballs, which he would knock out of the park and end the panic. Instead, Faber asked about rumors that Goldman Sachs might desert Stearns; Schwartz’s less than reassuring response was “the kiss of death,” according to author Bryan Burrough. Schwartz isn’t the only chief that takes a lashing. Lehman chief Dick Fuld oversaw a company that had become reckless. Former Lehman employee Michael Petrucelli says Lehman “kept pushing the envelope on acceptable loan terms,” a sensation likened to intoxication. “I think in hindsight it’s easy to see there was a bubble, but when you’re at a party having a good time, sometimes it’s hard to stop and leave the party.” Paulson’s refusal to bail out Lehman, the show suggests, was partially personal: he didn’t like Fuld, against whom he had competed during his Wall Street years. Though Paulson demanded that Fuld find a buyer for Lehman, the show says, Fuld declined because he “had watched the government save Bear Stearns.” While Bernanke is, for the most part, cast as a reasonable man, Paulson gets no breaks. He “personally made hundreds of millions of dollars believing the best government was no government,” the show says. Nobel Laureate/columnist Paul Krugman dismisses him as not “the most reflective guy” whose Lehman policy could be likened to “the decision that destroyed the world.” Also piling on is Rep. Barney Frank, chairman of the House Financial Services Committee, who performs a bit of ideological ax grinding. "You had a conservative secretary of the Treasury and conservative administration. There was a lot of right-wing criticism over Bear Stearns," Frank says. As there was over the demand for $700 billion to buy up toxic assets which, according to journalist Mark Landler, was “as close to a blank check as you can get without asking for a blank check.” “Right wing Republicans” opposed the plan, the show reminds, though reasonable people across the political spectrum are also wary of handing Congress a blank check for any reason. “Meltdown” would have benefited by reviewing how Congress created the sub-prime environment the bankers frolicked in, and from a short glance at the cozy relationship between congressional bigwigs, including Mr. Frank, and Fannie Mae. Those topics will no doubt be taken up elsewhere as we wait to see if our political and financial leadership has created a problem it can’t solve. (Dave Shiflett is a critic for Bloomberg News. The opinions expressed are his own.) To contact the writer of this story: Dave Shiflett at dshifl@aol.com.
