In January 2008, I traveled to Abu Dhabi and Dubai, two Arab emirates that had embraced free trade and open societies. Their downtown centers boasted glittering skyscrapers filled with entrepreneurs and business professionals, men and women alike. In Dubai, I visited with university students studying in fields as diverse as business, science, and history.
On the last night of my visit, the forward-looking crown prince of Abu Dhabi, my friend Sheikh Mohammed bin Zayed, invited me to his desert retreat for a traditional dinner. He told me a number of government officials would join us. I expected middle-aged men. But I was wrong. The crown prince’s government included young, smart Muslim women. They spoke about their determination to continue reform and progress—and to deepen their friendship with the United States.
With Sheikh Mohammed bin Zayed. White House/Eric Draper
The sands of Abu Dhabi were a long way from the Inaugural platform that I stood atop in January 2005. But in the desert that night, I saw the future of the Middle East—a region that honors its ancient culture while embracing the modern world. It will take decades for the changes set in motion in recent years to be fully realized. There will be setbacks along the way. But I am confident in the destination: The people of the Middle East will be free, and America will be more secure as a result.
*Governor Mike Leavitt of Utah, who became my Environmental Protection Agency director and Health and Human Services secretary; Governor Paul Cellucci of Massachusetts, who served as my ambassador to Canada; and Governor Marc Racicot of Montana, who led the Republican National Committee from 2002 to 2003.
**Abdullah had ruled Saudi Arabia as regent since his half-brother, King Fahd, suffered an incapacitating stroke in 1995.
r. President, we are witnessing a financial panic.”
Those were troubling words coming from Ben Bernanke, the mild-mannered chairman of the Federal Reserve, who was seated across from me in the Roosevelt Room. Over the previous two weeks, the government had seized Fannie Mae and Freddie Mac, two giant housing entities. Lehman Brothers had filed the largest bankruptcy in American history. Merrill Lynch had been sold under duress. The Fed had granted an $85 billion loan to save AIG. Now Wachovia and Washington Mutual were teetering on the brink of collapse.
With so much turbulence in financial institutions, credit markets had seized up. Consumers couldn’t get loans for homes or cars. Small businesses couldn’t borrow to finance their operations. The stock market had taken its steepest plunge since the first day of trading after 9/11.
As we sat beneath the oil painting of Teddy Roosevelt charging on horseback, we all knew America was facing its most dire economic challenge in decades.
I turned to the Rough Rider of my financial team, Secretary of the Treasury Hank Paulson, a natural leader with decades of experience in international finance.
“The situation is extraordinarily serious,” Hank said. He and the team briefed me on three measures to stem the crisis. First, the Treasury would guarantee all $3.5 trillion in money market mutual funds, which were facing depositor runs. Second, the Fed would launch a program to unfreeze the market for commercial paper, a key source of financing for businesses across the country. Third, the Securities and Exchange Commission would issue a rule temporarily preventing the short-selling of financial stocks. “These are dramatic steps,” Hank said, “but America’s financial system is at stake.”
He outlined an even bolder proposal. “We need broad authority to buy mortgage-backed securities,” he said. Those complex financial assets had lost value when the housing bubble burst, imperiling the balance sheets of financial firms around the world. Hank recommended that we ask Congress for hundreds of billions to buy up these toxic assets and restore confidence in the banking system.
“Is this the worst crisis since the Great Depression?” I asked.
“Yes,” Ben replied. “In terms of the financial system, we have not seen anything like this since the 1930s, and it could get worse.”
His answer clarified the decision I faced: Did I want to be the president overseeing an economic calamity that could be worse than the Great Depression?
I was furious the situation had reached this point. A relatively small group of people—many on Wall Street, some not—had gambled that the housing market would keep booming forever. It didn’t. In a normal environment, the free market would render its judgment and they could fail. I would have been happy to let them do so.
But this was not a normal environment. The market had ceased to function. And as Ben had explained, the consequences of inaction would be catastrophic. As unfair as it was to use the American people’s money to prevent a collapse for which they weren’t responsible, it would be even more unfair to do nothing and leave them to suffer the consequences.
“Get to work,” I said, approving Hank’s plan in full. “We are going to solve this.”
I adjourned the meeting and walked across the hallway to the Oval Office. Josh Bolten, Counselor Ed Gillespie, and Dana Perino, my talented and effective press secretary, followed me in. Ben’s historical comparison was still echoing in my mind.
“If we’re really looking at another Great Depression,” I said, “you can be damn sure I’m going to be Roosevelt, not Hoover.”
Almost exactly twenty-five years earlier, in October 1983, I was drinking coffee in Midland with a Harvard Business School friend, Tom Kaneb. We heard someone mention that a line was forming outside the doors of Midland’s First National Bank. First National was Texas’s largest independent bank. It had been a fixture in Midland for ninety-three years.
Recently, rumors had been flying about the bank’s precarious financial position. First National had issued many of its loans when oil prices were rising. Then in the early 1980s, the price of crude dropped from almost forty dollars per barrel to under thirty dollars. The pace of drilling slowed. Loans defaulted. Depositors withdrew their cash. I transferred our exploration company’s account to a big New York bank. I was not going to gamble on First National’s solvency.
Tom and I hustled over to the bank. From the second-floor balcony, we watched people line up in the lobby to approach the tellers’ windows. Some carried paper sacks. Amid the crowd was a prominent old rancher, Frank Cowden. Like other West Texas ranchers, Mr. Cowden was fortunate that his land overlay a lot of oil. He was a large shareholder of First National. He was working the line, telling people that the federal government insured every deposit up to $100,000. The people just stared back at him. They wanted their money.
On October 14, 1983, the FDIC seized First National and sold it to First Republic in Dallas. The depositors were protected, but the shareholders were wiped out and a Midland institution was gone. Mayor Thane Atkins spoke for a lot of folks when he said, “I feel like hanging a black wreath on my door.”
I had read about the financial panics of 1893 and 1929. Now I had witnessed firsthand the bursting of a speculative bubble. First National, like all financial institutions, depended on the confidence of its customers. Once that confidence was lost, the bank had no chance to survive.
Sixteen years later, I was running for president. By nearly all measures, the economy was booming. America’s GDP had increased by more than $2.5 trillion since the recession that had cost Dad the election but ended before he left office. Fueled by new Internet stocks, the NASDAQ index had shot up from under 500 to over 4,000. Some economists argued that the Internet era had redefined the business cycle.