Decision Points Part 29

It soon became clear that Bank of America had its eyes on another purchase, Merrill Lynch Merrill Lynch. That left Barclays as Lehman's last hope. But on Sunday, less than twelve hours before the Asian markets opened for Monday trading, financial regulators in London informed the Fed and SEC they were unwilling to approve a purchase by the British bank.

"What the h.e.l.l is going on?" I asked Hank. "I thought we were going to get a deal."

"The British aren't prepared to approve," he said.

While Hank and I spoke all the time, those phone calls on Sunday-the supposed day of rest-always seemed to be the worst. It felt like we were having the same conversation again and again. The only thing changing was the name of the failing firms. But this time, we weren't going to be able to stop the domino from toppling over.

"Will we be able to explain why Lehman is different from Bear Stearns?" I asked Hank.

"Without JPMorgan as a buyer for Bear, it would have failed. We just couldn't find a buyer for Lehman," he said.

I felt we had done the best we could. But time had run out for Lehman. The 158-year-old investment house filed for bankruptcy just after midnight on Monday, September 15.

All h.e.l.l broke loose in the morning. Legislators praised our decision not to intervene. The Washington Post Washington Post editorialized, "The U.S. government was right to let Lehman tank." The stock market was not so positive. The Dow Jones plunged more than five hundred points. editorialized, "The U.S. government was right to let Lehman tank." The stock market was not so positive. The Dow Jones plunged more than five hundred points.

A panic mentality set in. Investors started selling off securities and buying Treasury bills and gold. Clients pulled their accounts from investment banks. The credit markets tightened as lenders held on to their cash. The gears of the financial system, which depend on liquidity to serve as the grease, were grinding to a halt.

As if that weren't enough, the American International Group American International Group, a giant insurance company, was facing its own crisis. AIG wrote property and life insurance policies and insured munic.i.p.alities, pension funds, 401(k)s, and other investment vehicles that affected everyday Americans. All those businesses were healthy. Yet the firm was somehow on the brink of implosion.

"How did this happen?" I asked Hank.

The answer was that one unit of the firm, AIG Financial Products, had insured large amounts of mortgage-backed obligations-and invested in even more. With mortgages defaulting in record numbers, the firm was facing cash calls for at least $85 billion that it did not have. If the company didn't come up with the money immediately, it would not only fail, it would bring down major financial inst.i.tutions and international investors with it.

The New York Fed had tried to line up a private-sector solution. But no bank could raise the kind of money AIG needed in such little time. There was only one way to keep the firm alive: The federal government would have to step in. Ben Bernanke Ben Bernanke reported that AIG, unlike Lehman, held enough collateral from its stable insurance businesses to qualify for an emergency Fed loan. He laid out the terms: The New York Fed would lend AIG $85 billion secured by AIG's stable and valuable insurance subsidiaries. In return, the government would receive a warrant for 79.9 percent of AIG's shares. reported that AIG, unlike Lehman, held enough collateral from its stable insurance businesses to qualify for an emergency Fed loan. He laid out the terms: The New York Fed would lend AIG $85 billion secured by AIG's stable and valuable insurance subsidiaries. In return, the government would receive a warrant for 79.9 percent of AIG's shares.

There was nothing appealing about the deal. It was basically a nationalization of America's largest insurance company. Less than forty-eight hours after Lehman filed for bankruptcy, saving AIG would look like a glaring contradiction. But that was a h.e.l.l of a lot better than a financial collapse.

With the AIG rescue AIG rescue, we had endured three weeks of financial agony. Day after day, the news kept getting worse. I'd go into a meeting with the Dow up two hundred points and come out thirty minutes later with it down three hundred. The markets were anxious, and so was I. I felt like the captain of a sinking ship. The Treasury, the Fed, and my White House team were working around the clock, but all we were doing was bailing water. I decided that we couldn't keep going like this. We had to patch the boat.

On Thursday, September 18-three days after Lehman declared bankruptcy-the economic team convened in the Roosevelt Room. Ben raised the possibility of another Great Depression. Then Hank and SEC Chairman Chris c.o.x Chris c.o.x laid out the plan: guarantee all money market deposits, launch a new lending vehicle to restart the commercial paper market, temporarily ban the short sale of leading financial stocks, and purchase hundreds of billions of dollars in mortgage-backed securities-the initiative that would become known as the laid out the plan: guarantee all money market deposits, launch a new lending vehicle to restart the commercial paper market, temporarily ban the short sale of leading financial stocks, and purchase hundreds of billions of dollars in mortgage-backed securities-the initiative that would become known as the Troubled a.s.set Relief Program Troubled a.s.set Relief Program, or TARP.

The strategy was a breathtaking intervention in the free market. It flew against all my instincts. But it was necessary to pull the country out of the panic. I decided that the only way to preserve the free market in the long run was to intervene in the short run.

"You've got my backing, one hundred percent," I told the team. "This is no longer a case-by-case deal. We tried to stem the tide, but the problem is deeper than we thought. This is systemic."

The conversation moved to a discussion of all the difficulties we would face on Capitol Hill. "We don't have time to worry about politics," I said. "Let's figure out the right thing to do and do it."

I had made up my mind: The U.S. government was going all in.

I reflected on everything we were facing. Over the past few weeks we had seen the failure of America's two largest mortgage ent.i.ties, the bankruptcy of a major investment bank, the sale of another, the nationalization of the world's largest insurance company, and now the most drastic intervention in the free market since the presidency of Franklin Roosevelt. At the same time, Russia had invaded and occupied Georgia, Hurricane Ike had hit Texas, and America was fighting a two-front war in Iraq and Afghanistan. This was one ugly way to end the presidency.

I didn't feel sorry for myself. I knew there would be tough days. Self-pity is a pathetic quality in a leader. It sends such demoralizing signals to the team and the country. As well, I was comforted by my conviction that the Good Lord wouldn't give a believer a burden he couldn't handle.

After the meeting, I walked around the Roosevelt Room and thanked everyone. I told them how grateful I was for their hard work, and how fortunate America was that they had chosen to serve. In the presidency, as in life, you have to play the hand you're dealt. This wasn't the hand any of us had hoped for, but we were d.a.m.n sure going to play it as best we could.

Hank and his team at Treasury pitched Congress hard on the financial rescue package. We proposed an appropriation of $700 billion-about 5 percent of the mortgage market, which we thought would be big enough to make a difference. Many legislators recognized the need for a large and decisive measure, but that didn't diminish their shock or anger. Democrats complained that the executive branch was seizing too much authority. One Republican senator said our plan would "take away the free market and inst.i.tute socialism in America."

In some ways, I sympathized with the critics. The last thing I wanted to do was bail out Wall Street. As I told Josh Bolten Josh Bolten, "My friends back home in Midland are going to ask what happened to the free-market guy they knew. They're going to wonder why we're spending their money to save the firms that created the crisis in the first place."

I wished there were some way to hold individual firms to account while sparing the rest of the country. But every economist I trusted told me that was impossible. The well-being of Main Street was directly linked to the fate of Wall Street.

If credit markets remained frozen, the heaviest burdens would fall on American families: steep drops in the value of retirement accounts, ma.s.sive job losses, and further falling home values. On September 24, I gave a primetime address to the nation to explain the need for the rescue package. "I [understand] the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15, and are reluctant to pay the cost of excesses on Wall Street," I said. "But given the situation we are facing, not pa.s.sing a bill now would cost these Americans much more later."

A few hours before I went on the air to deliver the speech, my personal aide, Jared Weinstein Jared Weinstein, told me John McCain needed to speak to me immediately. I asked John how he was feeling about the campaign, but he went directly to the reason for his call. He wanted me to convene a White House meeting on the rescue package.

"Give me some time to talk to Hank," I said. I wanted to make sure a White House meeting wouldn't undermine my treasury secretary's efforts to structure a deal with Congress. John said he was going to issue a statement. Minutes later, he was on TV. He called for the meeting and announced he was suspending his campaign to work full-time on the legislation.

I knew John was in a tough position. He was trailing in the polls to Senator Barack Obama Barack Obama of Illinois, who had stunned of Illinois, who had stunned Hillary Clinton Hillary Clinton in the Democratic primaries. No question the economic trouble was hurting John. Our party controlled the White House, so we were the natural target of the finger-pointing. Yet I thought the financial crisis gave John his best chance to mount a comeback. In periods of crisis, voters value experience and judgment over youth and charisma. By handling the challenge in a statesmanlike way, John could make the case that he was the better candidate for the times. in the Democratic primaries. No question the economic trouble was hurting John. Our party controlled the White House, so we were the natural target of the finger-pointing. Yet I thought the financial crisis gave John his best chance to mount a comeback. In periods of crisis, voters value experience and judgment over youth and charisma. By handling the challenge in a statesmanlike way, John could make the case that he was the better candidate for the times.

I walked over to the Oval Office, where Josh Bolten Josh Bolten was waiting with his deputy, was waiting with his deputy, Joel Kaplan Joel Kaplan, and Counselor Ed Gillespie Ed Gillespie. n.o.body was keen on the idea of the meeting. Josh said Hank opposed it. But how could I say no to John's request? I could see the headlines: "Even Bush Thinks McCain's Idea Is a Bad One."

Conferring with Ed Gillespie (left) and Josh Bolten, two trusted aides and good friends, in the trying final months of the administration. White House/Eric Draper White House/Eric Draper We notified Speaker Nancy Pelosi Nancy Pelosi and Senate Majority Leader and Senate Majority Leader Harry Reid Harry Reid that the meeting would take place the next afternoon, Thursday, September 25. I called Senator Obama and told him I appreciated his interrupting his campaign schedule. "Anytime the president calls, I will take it," he said graciously. I extended the invitation to the meeting and made clear it was not a political trap. He agreed to attend. that the meeting would take place the next afternoon, Thursday, September 25. I called Senator Obama and told him I appreciated his interrupting his campaign schedule. "Anytime the president calls, I will take it," he said graciously. I extended the invitation to the meeting and made clear it was not a political trap. He agreed to attend.

At around 3:30 p.m. the next day, the partic.i.p.ants began to arrive. Although I did not venture to the narrow parking strip between the White House and the Eisenhower Executive Office Building, I was told it looked like an SUV convention. Before the meeting started, I had a quick discussion with Senate Minority Leader Mitch McConnell Mitch McConnell and House Minority Leader and House Minority Leader John Boehner John Boehner. We spent most of our time talking about how tough it would be to structure a deal that could garner Republican votes in the House. I told them it would be a disaster if Republicans killed the TARP bill and the economy collapsed.

Just before I sat down in the Cabinet Room, I had a moment with Speaker Pelosi. I told her I planned to call on her after Hank and I had made our opening remarks. She clearly suspected that my motive was to sabotage the Democrats. Like a volcano ready to erupt, she said, "Barack Obama will be our spokesman."

I took my seat at the center of the large wooden table Richard Nixon Richard Nixon had donated to the White House. had donated to the White House. Hank Paulson Hank Paulson, d.i.c.k Cheney d.i.c.k Cheney, Josh Bolten, and I represented the administration. The party leaders and key committee chairmen represented Congress. Presidential candidates McCain and Obama took their seats at opposite ends of the table. Members of our staffs were sardined into the room. n.o.body wanted to miss the marquee event in Washington's political theater.

The emergency Cabinet Room meeting about the rescue package. White House/Eric Draper White House/Eric Draper I opened the meeting by stressing the urgency of pa.s.sing legislation as soon as possible. The world was watching to see if America would act, and both parties had to rise to the challenge. Hank gave an update on the volatile markets and echoed my call for speedy pa.s.sage.

I turned to the speaker. True to her word, she deferred to Senator Obama. He had a calm demeanor and spoke about the broad outlines of the package. I thought it was smart when he informed the gathering that he was in constant contact with Hank. His purpose was to show that he was aware, in touch, and prepared to help get a bill pa.s.sed.

When Obama finished, I turned to John McCain. He pa.s.sed. I was puzzled. He had called for this meeting. I a.s.sumed he would come prepared to outline a way to get the bill pa.s.sed.

What had started as a drama quickly descended into a farce. Tempers flared. Voices were raised. Some barbs were thrown. I was watching a verbal food fight, which would have been comical except that the stakes were so high.

Toward the end of the meeting, John did speak. He talked in general terms about the difficulty of the vote for Republican members and his hope that we could reach a consensus.

After everyone had their chance to vent, I decided there was nothing more we could accomplish. I asked the candidates not to use the White House as a backdrop to issue political statements. I asked the members of Congress to remember we needed to show a united front to avoid spooking the markets. Then I stood up and left.

Early in the afternoon of Monday, September 29, the House of Representatives held a vote on the financial rescue bill. The previous two days, our fifth weekend in a row spent dealing with the financial crisis, had been packed with negotiations. Hank and his Treasury staff-joined by Dan Meyer Dan Meyer, my cool-headed legislative affairs chief, and Keith Hennessey Keith Hennessey, my tireless National Economic Council director-had shuttled back and forth to Capitol Hill, working to resolve the remaining issues on TARP. Late Sat.u.r.day night, Speaker Pelosi and John Boehner John Boehner told me they had the outlines of a deal. On Monday morning, I stepped onto the South Lawn to congratulate Congress and urge the agreement's quick pa.s.sage. told me they had the outlines of a deal. On Monday morning, I stepped onto the South Lawn to congratulate Congress and urge the agreement's quick pa.s.sage.

Back in the Oval Office, I started calling Republican House members to lock in votes.

"We really need this package," I told one congressman after the next. They all had reasons why they couldn't vote for it. The price tag was too high. Their const.i.tuents opposed it.

"I just can't bail out Wall Street," one told me. "I'm not going to be part of the destruction of the free market."

"Do you think I like the idea of doing this?" I shot back. "Believe me, I'd be fine if these companies fail. But the whole economy is on the line. The son of a b.i.t.c.h is going to go down if we don't step in."

At 2:07 p.m., the final vote on the bill was cast. It failed, 228 to 205. Democrats had voted in favor of the legislation, 140 to 95. Republicans had rejected it, with 65 votes in favor and 133 opposed I knew the vote would be a disaster. My party had played the leading role in killing TARP. Now Republicans would be blamed for the consequences.

Within minutes, the stock market went into free fall. The Dow dropped 777 points, the largest single-day point loss in its 112-year history. The S&P 500 dropped 8.8 percent, its biggest percentage loss since the Black Monday crash of 1987. "This is panic...and fear run amok," one a.n.a.lyst told CNBC. "Right now we are in a cla.s.sic moment of financial meltdown."

Shortly after the vote, I met with Hank, Ben, and the rest of the economic team in the Roosevelt Room to figure out our next move. We really had only one option. We had to make another run at the legislation.

My hope was that the market's severe reaction would provide a wakeup call to Congress. Many of those who voted against the bill had based their opposition on the $700 billion price tag. Then they had watched the markets hemorrhage $1.2 trillion in less than three hours. Every const.i.tuent with an IRA, a pension, or an E*Trade account would be furious.

We devised a strategy, lead by Josh Bolten Josh Bolten, to bring the bill up in the Senate first and then make another run in the House. Harry Reid Harry Reid and and Mitch McConnell Mitch McConnell quickly moved a bill with several new provisions intended to attract greater support, including a temporary increase in FDIC insurance for depositors and protections for middle-cla.s.s families against the Alternative Minimum Tax. The core of the legislation-the $700 billion to strengthen the banks and unfreeze the credit markets-was unchanged. quickly moved a bill with several new provisions intended to attract greater support, including a temporary increase in FDIC insurance for depositors and protections for middle-cla.s.s families against the Alternative Minimum Tax. The core of the legislation-the $700 billion to strengthen the banks and unfreeze the credit markets-was unchanged.

The Senate held a vote Wednesday night, and the bill pa.s.sed 74 to 25. The House voted two days later, on Friday, October 3. I made another round of calls to wavering members. My warnings about the system going down had a lot more credibility this time. Thanks to strong leadership from Republican Whip Roy Blunt Roy Blunt and Democratic Majority Leader and Democratic Majority Leader Steny Hoyer Steny Hoyer, the bill pa.s.sed 263 to 171. "Monday I cast a blue collar vote," said one member who changed his position. "Today I'm going to cast a red, white, and blue collar vote."

Days after I signed TARP, Hank recommended a change in the way we deployed the $700 billion. Instead of buying toxic a.s.sets, he proposed that Treasury inject capital directly into struggling banks by purchasing non-voting preferred stock.

I loathed the idea of the government owning pieces of banks. I worried Congress would consider it a bait and switch to spend the money on something other than buying toxic a.s.sets. But that was a risk we had to take. The plan for TARP had to change because the financial situation was worsening rapidly. Designing a system to buy mortgage-backed securities would consume time that we didn't have to spare. Buying shares in banks was faster and more efficient. Purchasing equity would inject capital-the lifeblood of finance-directly into the undercapitalized banking system. That would reduce the risk of sudden failure and free up more money for banks to lend.

Capital injections would also offer more favorable terms for U.S. taxpayers. The banks would pay a 5 percent dividend for the first five years. The dividend would increase to 9 percent over time, creating an incentive for financial inst.i.tutions to raise less expensive private capital and buy back the preferred shares. The government would also receive stock warrants, which would give us the right to buy shares at low prices in the future. All this made it more likely that taxpayers would get their money back.

On October 13, Columbus Day, Hank, Tim Geithner Tim Geithner, and Ben revealed the capital purchase plan in dramatic fashion. They called the CEOs of nine major financial firms to the Treasury Department and told them that, for the good of the country, we expected them to take several billion dollars each. We worried some healthier banks would turn down the capital and stigmatize those who accepted. But Hank was persuasive. They all agreed to take the money.

Deploying TARP had the psychological impact we were hoping for. Combined with a new FDIC guarantee for bank debt, TARP sent an unmistakable signal that we would not let the American financial system fail. The Dow shot up 936 points, the largest single-day increase in stock market history.

TARP didn't end the financial problems. Over the next three months, Citigroup Citigroup and and Bank of America Bank of America required additional government funds. AIG continued to deteriorate and eventually needed nearly $100 billion more. The stock market remained highly volatile. required additional government funds. AIG continued to deteriorate and eventually needed nearly $100 billion more. The stock market remained highly volatile.

But with TARP in place, banks slowly began to resume lending. Companies began to find the liquidity needed to finance their operations. The panic that had consumed the markets receded. While we knew there was a tough recession ahead, I could feel the pressure ease. I had my first weekend in months without frantic calls about the crisis. Confidence, the foundation of a strong economy, was returning.

The financial crisis was global in scale, and one major decision was how to deal with it in the international arena. The turbulence came during France's turn as head of the European Union. Nicolas Sarkozy Nicolas Sarkozy, the dynamic French president who had run on a pro-American platform, urged me to host an international summit. I grew to like the idea. The question was which countries to invite. I heard that some European leaders preferred that we convene the G-7.***** But the G-7 included only about two thirds of the global economy. I decided to make the summit a gathering of the G-20, a group that included China, Russia, Brazil, Mexico, India, Australia, South Korea, Saudi Arabia, and other dynamic economies. But the G-7 included only about two thirds of the global economy. I decided to make the summit a gathering of the G-20, a group that included China, Russia, Brazil, Mexico, India, Australia, South Korea, Saudi Arabia, and other dynamic economies.

With Nicolas Sarkozy. White House/Eric Draper White House/Eric Draper I knew it wouldn't be easy to forge an agreement among the twenty leaders. But with hard work and some gentle arm-twisting, we got it done.****** On November 15, every leader at the summit signed on to a joint statement that read, "Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction." On November 15, every leader at the summit signed on to a joint statement that read, "Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction."

It sent a powerful signal to have countries representing nearly 90 percent of the world economy agree on principles to solve the crisis. Unlike during the Depression, the nations of the world would not turn inward. The framework we established at the Washington summit continues to guide global economic cooperation.

The economic summit was not the biggest event of November. That came on Tuesday, November 4, when Senator Barack Obama Barack Obama was elected president of the United States. was elected president of the United States.

My preference had been John McCain. I believed he was better prepared to a.s.sume the Oval Office amid a global war and financial crisis. I didn't campaign for him, in part because I was busy with the economic situation, but mostly because he didn't ask. I understood he had to establish his independence. I also suspected he was worried about the polls. I thought it looked defensive for John to distance himself from me. I was confident I could have helped him make his case. But the decision was his. I was disappointed I couldn't do more to help him.

With John McCain. White House/Eric Draper White House/Eric Draper The economy wasn't the only factor working against the Republican candidate. Like Dad in 1992 and Bob Dole in 1996, John McCain was on the wrong side of generational politics. At seventy-two, he was a decade older than I was and one of the oldest presidential nominees ever. Electing him would have meant skipping back a generation. By contrast, forty-seven-year-old Barack Obama represented a generational step forward. He had tremendous appeal to voters under fifty and ran a smart, disciplined, high-tech campaign to get his young supporters to the polls.

As an Obama win looked increasingly likely, I started to think more about what it would mean for an African American to win the presidency. I got an unexpected glimpse a few days before the election. An African American member of the White House residence staff brought his twin sons, age six, to the Oval Office for a farewell photo. One glanced up around the room and blurted out, "Where's Barack Obama?"

"He's not here yet," I deadpanned.

On election night, I was moved by images of black men and women crying on TV. More than one said, "I never thought I would live to see this day."

I called the president-elect to congratulate him. I also called John McCain to say he was a good man who'd given the race his best shot. Both were gracious. I told the president-elect I looked forward to welcoming him to the White House.

When I hung up the phone, I said a prayer that all would be well during my successor's time. I thought about one of my favorite presidential quotes, from a letter John Adams John Adams wrote to his wife, Abigail: "I pray Heaven to bestow the best blessings on this house and all that shall hereafter inhabit it. May none but honest and wise men ever rule under this roof." His words are carved into the mantel above the fireplace of the State Dining Room. wrote to his wife, Abigail: "I pray Heaven to bestow the best blessings on this house and all that shall hereafter inhabit it. May none but honest and wise men ever rule under this roof." His words are carved into the mantel above the fireplace of the State Dining Room.

Months before the 2008 election, I had decided to make it a priority to conduct a thorough, organized transition. The first change of power since 9/11 would be a period of vulnerability, and I felt a responsibility to give my successor the courtesy of a smooth entry into the White House. The transition was overseen by Josh Bolten Josh Bolten and one of his deputies, my talented former personal aide and one of his deputies, my talented former personal aide Blake Gottesman Blake Gottesman. They made sure the president-elect and his team received briefings, access to senior members of the administration, and office s.p.a.ce in their new departments.

Part of the transition involved economic policy. The financial crisis brought one final decision point: What to do about the reeling American auto industry? The Big Three firms of Ford, Chrysler, and General Motors had been experiencing problems for years. Decades of poor management decisions had saddled automakers with enormous health-care and pension costs. They had been slow to recognize changes in the market. As a result, they had been outcompeted by foreign manufacturers in product and price.

When the economy took a hit, auto sales dropped. Then the freeze in the credit markets stopped almost all car loans. Auto company stocks were battered in the stock market collapse of September and October. Their cash balances dwindled to dangerously low levels. They had little hope of raising new funds in the private markets.

In the fall of 2008, GM CEO Rick Wagoner Rick Wagoner started pressing for federal help. He warned that GM would fail, and then the other automakers would follow. I didn't think it was a coincidence that the warnings about bankruptcy came right before the upcoming elections. I refused to make a decision on the auto industry until after the vote. started pressing for federal help. He warned that GM would fail, and then the other automakers would follow. I didn't think it was a coincidence that the warnings about bankruptcy came right before the upcoming elections. I refused to make a decision on the auto industry until after the vote.

Six days after the election, I met with President-elect Obama in the Oval Office. Barack was gracious and confident. It seemed he felt the same sense of wonderment I had eight years earlier when Bill Clinton welcomed me to the Oval Office as president-elect. I could also see the sense of responsibility start to envelop him. He asked questions about how I structured my day and organized my staff. We talked about foreign policy, including America's relationships with China, Saudi Arabia, and other major powers. We also discussed the economy, including the auto companies' trouble.

With Barack Obama. White House/Eric Draper White House/Eric Draper Later that week, I sat down for a meeting with my economic team. "I told Barack Obama Barack Obama that I wouldn't let the automakers fail," I said. "I won't dump this mess on him." that I wouldn't let the automakers fail," I said. "I won't dump this mess on him."

I had opposed Jimmy Carter Jimmy Carter's bailout of Chrysler in 1979 and believed strongly that government should stay out of the auto business. Yet the economy was extremely fragile, and my economic advisers had warned that the immediate bankruptcy of the Big Three could cost more than a million jobs, decrease tax revenues by $150 billion, and set back America's GDP by hundreds of billions of dollars.

Congress had pa.s.sed a bill offering $25 billion in loans to the auto companies in exchange for making their fleets more fuel-efficient. I hoped we could convince Congress to release those loans immediately, so the companies could survive long enough to give the new president and his team time to address the situation.

My point man on the auto issue was Secretary of Commerce Carlos Gutierrez Carlos Gutierrez. Born in Cuba, Carlos had immigrated to Florida as a boy. His parents moved to Mexico, where Carlos took a job driving a delivery truck for Kellogg's. Twenty-four years later, Carlos became the youngest CEO in that company's history and the only Latino CEO of a Fortune 500 company. He joined my administration in 2005 and did an outstanding job promoting trade, defending tax relief, and advocating for freedom in Cuba.

Carlos and the team pushed Congress hard to release the auto loans. We made progress in the House, but the Senate wouldn't budge. The only option left was to loan money from TARP. I told the team I wanted to use the loans as an opportunity to insist that the automakers develop viable business plans. Under the loans' stringent terms, the companies would have until April 2009 to become fiscally viable and self-sustaining by restructuring their operations, renegotiating labor contracts, and reaching new agreements with bondholders. If they could not meet all those conditions, the loans would be immediately called, forcing bankruptcy.

The deal drew criticism from both sides of the aisle. The head of the autoworkers' union complained that the conditions were too harsh. Grover Norquist Grover Norquist, an influential advocate for fiscal conservatism, wrote me a public letter. It read, "Dear President Bush: No."

n.o.body was more frustrated than I was. While the restrictive short-term loans were better than an outright bailout, it was frustrating to have the automakers' rescue be my last major economic decision. But with the market not yet functioning, I had to safeguard American workers and families from a widespread collapse. I also had my successor in mind. I decided to treat him the way I would like to have been treated if I were in his position.

One of the best books I read during my presidency was Theodore Rex Theodore Rex, Edmund Morris Edmund Morris's biography of Teddy Roosevelt. At one point near the end of his eventful tenure, Roosevelt exclaimed, "I knew there would be a blizzard when I went out."

I know what he meant. The period between September and December 2008 was the most intense, turbulent, decision-packed stretch since those same months in 2001. Because the crisis arose so late in my administration, I wouldn't be in the White House to see the impact of most of the decisions I made. Fortunately, by the time I left in January 2009, the measures we had taken had stabilized the financial system. The threat of a systemic collapse had pa.s.sed. Once-frozen credit markets had begun flowing again. While the world still faced serious economic insecurity, the panic mentality was gone.

The following year brought a mixed picture. The stock market fell during the first two months of 2009 but ended the year up more than 19 percent. As banks rebuilt their balance sheets, they began to redeem government-owned shares. By the fall of 2010, the vast majority of the capital the Treasury injected into banks had been repaid. As the economy regains strength, more of that money will be repaid, plus dividends. A program derided for its costs could potentially end up making money for American taxpayers.

I've often reflected on whether we could have seen the financial crisis coming. In some respects, we did. We recognized the danger posed by Fannie and Freddie, and we repeatedly called on Congress to authorize stronger oversight and limit the size of their portfolios. We also understood the need for a new approach to regulation. In early 2008, Hank proposed a blueprint for a modernized regulatory structure that strengthened oversight of the financial sector and gave the government greater authority to wind down failing firms. Yet my administration and the regulators underestimated the extent of the risks taken by Wall Street. The ratings agencies created a false sense of security by blessing shaky a.s.sets. Financial firms built up too much leverage and hid some exposure with offbalance sheet accounting. Many new products were so complex that even their creators didn't fully understand them. For all these reasons, we were blindsided by a financial crisis that had been more than a decade in the making.