BEVERLY HILLS — Three architects of the Troubled Asset Relief Program defended their efforts to fend off a collapse of the financial system last year.
During a panel discussion at a Milken Institute conference here Wednesday, the former Treasury Department officials acknowledged that many of the programs enacted by the agency were hastily put together with a short-term focus of stabilizing the financial markets.
Many Treasury officials slept in their offices as they crafted programs to pump credit into the economy, the panelists said; there was little time to analyze the long-term impact of the programs the department had created.
"We didn't have a second to second-guess," said David Nason, a former assistant secretary for financial institutions. "The only constant about this crisis is that it was extremely unpredictable."
Kevin Fromer, the former assistant secretary for legislative affairs, described as "breathtaking" the swiftness with which Bear Stearns Cos. went from being called "viable" by the Securities and Exchange Commission in March 2008 to its sale days later to JPMorgan Chase & Co. (with financing from the Federal Reserve Bank of New York).
"We knew the times had changed," Fromer said.
By July, Nason said, Treasury officials were receiving calls from finance ministers "around the world," asking whether they would support the government-sponsored enterprises Fannie Mae and Freddie Mac, which together had $1.4 trillion of debt and $5 trillion of exposure to the housing market.
"It was very clear that there was no way the U.S. financial system could allow Fannie and Freddie to collapse," said Nason, who is now a managing director at the Washington consulting firm Promontory Financial Group LLC. "We absolutely, positively had to support the GSEs."
The officials said that even when they tried to anticipate market reactions, they often got it wrong.
Phillip Swagel, a former assistant secretary for economic policy, said that when investors made "a panicked flight from money market funds," the Treasury did not anticipate that the commercial paper market would collapse.
"We had to imagine what would happen if every Fortune 500 company could not make their payroll," he said.
In response to an audience member's question, the former Treasury officials also described the differences in their handling of Washington Mutual Inc. and Wachovia Corp.
When Wamu was treated as a failed depository, forcing its bondholders to take losses, the Treasury was inundated with criticism, the former officials said. That sparked a debate about how Wachovia would be treated. "The consensus view among the leaders in the regulatory community was that it would destroy confidence in the banking system if we liquidated Wachovia," Nason said.
An initial agreement to sell Wachovia's banking business to Citigroup Inc. fell through after Wells Fargo & Co. came up with a bid that, unlike Citi's, did not require government funding.
That came as a relief. "Citi was always something that you worried about," Nason said.
The officials also said they were disappointed that many of the financial institutions that failed, particularly Lehman Brothers, had not taken offers to buy their illiquid assets, particularly in commercial real estate. The assets ultimately were liquidated for far less than they could have been.
"You're seeing that right now, where there is an enormous resistance to sell these assets" among institutions that are still around, Nason said. "At some point these sales have to clear."
