Dear Hank (A Letter to the Departing Treasury Secretary)

Dear Hank,

It has been over six years since I left Goldman Sachs and my position in the executive office where I had the honor of working for you. My how quickly time flies? Although we have not seen each other in person since my last day at the firm, for me it certainly feels like we have. Every since you took the job of Treasury Secretary I see you on TV, on magazine covers, and in the newspapers I read daily. Today I read the very comprehensive piece about you in the Financial Times and felt compelled to write you this note.

Earlier this year, January 18th to be exact, I wrote a piece about you called "The Confidence Man." Just that day I decided I was going to start writing opinion pieces on issues I felt passionately about and I just happened to turn on the TV and heard you tell America that everything was going to be ok if people just kept on spending! That got me a little fired up as I felt strongly that we were in deep trouble and that America better wake up to that fact sooner versus later. You see I had been deeply worried about our economy and the financial markets in general and that was exactly why I decided to start blogging. It was strange as I knew you, personally, and I could not believe that you really felt that way. I asked myself "did you really think that the solution to the troubles plaguing our economy could be fixed by a few trips to the mall?" I sure didn't and felt driven to share that publicly. I went on the record saying that we were already in a recession and I suggested that supplying liquidity to the banking system was a good plan. If only I had your number I would have given you a call.

On January 22nd I wrote another piece called "The Confidence Man Two" and well, I am sorry but I said that I thought you and the administration were, well, out to lunch. I referenced you being quoted as saying that "after taking to knowledgeable people on all parts of the economy... that although our economy was growing slower than expected...I am confident in our long-term economic strength." I guess the long term must have meant years from now, and not for the rest of 2008, 2009, and as many are predicting right now, 2010. That piece was quite strongly worded and in hindsight, too aggressive given the nature of our relationship. I go on to say that I thought the policies of the moment were woefully inadequate and "may well prove a ridiculous suggestion for an economy diseased from extreme over-consumption in part caused by a lack of appropriate financial oversight as well as overly stimulating monetary policy." Now having been proven very right I feel bad, and wish I would have tried to get in touch personally.

In yet another piece back in January called "Quickfixonomics: Fannie Mae and Freddie Mac," I was also quite critical. Though increasing their loan limits might have helped a little, I was deeply worried about their financial position. You may not remember but I used to run the mortgage trading desk at Goldman, and I can recall saying more than a few times over the years to anyone that would listen that these agencies were government sponsored hedge funds and were heading straight towards the cliff. I blame myself for not speaking up more about this but mind you, that was over six years ago.

Anyways, I am sorry that your time serving our great country was not more of a rewarding experience for you. As the Financial Times article points out, you were most certainly given a tough hand of cards and it is questionable which ones were even in the deck. I winced a little when they said that "the past year and a half has been a sobering experience" for you as I hadreferenced the program of Alcoholics Anonymous as one the government should consult when looking for help solving the credit addiction that plagues this country. That day, January 22nd, the S&P hit a high of 1350, and we certainly are a long way from that now.

On a more positive note I did write a very nice piece about Goldman's 10,000 Women Initiative, which when you have time, I hope you read. You must be so proud that Goldman launched such an incredible program despite the market conditions. Their belief that by investing in women you can make the world a better place is one I hold near and dear to my heart. In fact, Investing in Women is a subject I hope to write and speak a lot more about in 2009. Although the stock price is not pretty at the moment I believe that Goldman's commitment to initiatives such as these really will pay off in the long-term.

When the history books are written about this year, and there will be many, I truly hope that you are given the credit you deserve. As I wrote earlier in the year, "I find you a very thoughtful and honest man." There is no doubt in my mind that you did your very best. It was an honor to work for you for so many years at Goldman Sachs, and I would have welcomed the opportunity to have worked with you again in your new role, or at least just stayed in touch. You will be happy to know that a group of us from Goldman recently met with some government folks to share some ideas we had to make things better, and we hope that dialogue to continue. Sadly, as you know, the residential mortgage foreclosure problem is not an easy one to fix.

Though I know you are not the kind of person that takes things too personally, I just wanted to write to say that although I was critical of some of the decisions that were made; I always have, and always will have tremendous respect for you. Instead of taking your millions, buying some big fancy houses, and spending your time playing golf and eating candy you chose to take what proved to be one of the most challenging jobs ever in the history of the financial markets. You chose to serve this country and for that I, we, owe you many thanks. I believe that we all have to do more to help make this world a better place and please know I am trying to do my part. In this piece I wrote in November, I call on every single person to do just a little more as well. My favorite saying is this one by Theodore Roosevelt: "do what you can, where you are, with what you have," and you most certainly did that this year.

Enjoy a much deserved vacation and I truly hope I see you again. Happy New Year Hank.

Very Sincerely,

Jacki Zehner
Former Goldman Sachs Partner

Comments

[spinns17]

i somehow think much of this money is in a big offshore account somewhere.paulson ,bush and many others need to be put in jail.thanks huff for jackie.time to rip open wall street.a cleanup overdue

[Jacki Zehner - Huffpost Blogger]

Thanks ABC Voter and all who continue to add resources on this important topic. I have posted one long and final comment on this piece on my blog if you want to link over. Why? Because this piece was in my inbox this morning....
http://baselinescenario.com/2009/01/05/causes-hank-paulson/#comment-2444
Causes: Hank Paulson
my blog entry
http://pursepundit.blogspot.com/2009/01/ok-this-is-freakyi-am-up-early-again.html
Until next time.............

[ABCVoter]

Thanks for the baseline link, Jacki. It confirms my thoughts about how the financial crisis is being explained.

Apart from the blame game what's noticeable about the fallout from the Great Mortgage Mushroom Cloud is the need for more media nous when it comes to VISUALLY informing people about how and where CDOs are connected to homeowners, their mortgages, other investors, hedge funds, the money markets, etc. and their dynamics (central banks with ratings agencies with Joe Main Street and Jane Wall Street).

Here's a presentation on slideshare which may clarify more than the baseline articles:

* www.slideshare.net/twain/credit-crunch-2008-everything-explained-twain-presentation

The slide contains a table of each bank's writedowns to date as well as a guide on what CDOs are, plus a map tracking the US$3.2 TRILLION pledged in global government support to handle the situation.

Yes, US$3.2 TRILLION (and rising).

Unfortunately, none of us can change the fact toxic assets were allowed to accumulate off balance sheets and then to infect ordinary investors' funds and now their taxes.

What matters most is what can be done moving forward:

HOW CAN WE HARNESS TECHNOLOGY AND COLLECTIVE HUMAN SMARTS TO REDUCE THE LIKELIHOOD OF A REPEAT OF THIS SITUATION?

This may be a more productive avenue to exercise our gray cells over than reflect upon an outgoing Treasury Secretary, his legacy and his ability to deal with an unprecedented cardiac arrest of the global financial system.

[indy100]

I hope this letter was pure sarcasm.

[Huffingbrownbag]

Ms. Jacki Zehner, you wrote:
When the history books are written about this year, and there will be many, I truly hope that you are given the credit you deserve. As I wrote earlier in the year, "I find you a very thoughtful and honest man." There is no doubt in my mind that you did your very best.
Heny Paulson is like other Bush appointees. He's grossly incompetent and is taking crony capitalism to new highs in payoff$. He took the job at Treasury as a short term play to make a lot of money. See July 11, 2006 Paulson's Special Tax Deal By Bruce Bartlett http://www.realclearpolitics.com/articles/2006/07/paulsons_special_tax_deal.html

[Jacki Zehner - Huffpost Blogger]

Thanks again for all the great comments. I feel like I need to write a DEAR Hank (II) to both clarify my intent and address the many issues brought forward. I have learned so much. A few final notes... Great article by Michael Lewis and here is part two where we tells the gov't what to do. http://www.nytimes.com/2009/01/04/opinion/04lewiseinhornb.html?pagewanted=print
I do not agree with all of his points, but certainly some. Second, by before CDOS/CLOS - I meant before the market exploded with toxic assets over the past 8 years. Third here is a GREAT site for background on the financial crisis and what you need to know. http://baselinescenario.com/financial-crisis-for-beginners/ . Fourth for those who want insightful commentaries delivered to your inbox I would suggest John Mauldin http://www.frontlinethoughts.com/gateway.asp and Bill Gross. www.pimco.com .Until next time.....

[joebaggadonuts]

I wrote before complaining that basically the system is at fault, but enabling it are people like you and "Hank". A couple of guys wrote a nice opinion piece in the NYT that lays it out pretty well.

If you really care about fixing things instead of appologizing for them, read it.

It's called: The End of the Financial World as We Know It ... http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?hp

[truthforme]

Excellent article. For years I maxed my 401K like all the "experts" said to do, blindly following the crowd. The Enron scandal caused me to finally sit up and REALLY take a hard look at Wall Street, and I didn't like what I saw. My husband and I made the decision to take the penalty hit and pull all our money out of our 401K. We have not regretted that decision ONCE.

When our government finally addresses the MANY abuses being perpetrated in the name of greed I may consider participating again. (I'm not holding my breath)

Until then . . . count me out.

[mjschatham]

This was caused by Greed pure and simple.

Why didn't the media report about the dangers of CDO's before the meltdown?
Could it be that the CNBC and Fox Business crowd is as cozy with the financial people they report on as Fox News and MSNBC are with the lobbyists and politicians they report on and party with?

[Myneonly]

Caused by greed, yes... BUT CNBC did report it, you just didn't listen. CNBC had both sides view.

[Harrier]

i've never worked in the executive office and don't care what happens in this crisis. I grew up in a big city and middle class means and got a scholarship to a middle class school reading the same books they do in the Ivy league and older than you. In March 2003, I had a friend "Jeff." Jeff could never manage his money. When he was able to get an $800K load, I knew it was time to remove every penny from the market and real estate. "The law of Jeff." Any institution and any countries system that loans money to Jeff is absolutely upside down period. When former Treasury Secretary Ruben was working with Citibank to to overturn control that were designed to prevent a depression, there was no secret to what was happening that the system was so corrupt it was going down big time. The finance is not rocket science or complicated. If the US goes down, no problem-I will be fine-but don't think for a minute, one guy will fix this economy when everyone still has their hands in the cookie jar.

There's no secret to what happened, how it happened or why it happened. Nancy Pelosi is openly investing in companies who fate she controls. Charlie Rangle has opened a slush fund for Freddie and Fannie-which is a main reason how the two gained power and exerted it to get those elements out of control.

[WeTellTheTruth]

Harrier

You say you dont care....... and then you write a long comment........ which seems to indicate that....... you care?

[ABCVoter]

Jacki,

Like you I worked in Executive Office, albeit for a different (bigger) Tier 1. Like you I was there during the period you recall as, "In 2000....Yes before CDOs and CDS."

Let me share this.

In 2002 I analyzed the mortgage CDOs market using 5-year data to project 2003-2008 opportunities (so those instruments were definitely around back then; see also Michael Lewis' 'Liars' Poker' which charts them back to early 1980s). Anyway, my strategic analysis did NOT support venturing into the US mortgage CDOs sector but rather build up advisory capabilities in the BRICs and IP securitization for the telcos sector.

Needless to say senior management went ahead into US mortgages and prop trading regardless. I left to join a start-up.

Five years down the line as the mortgage CDO sector combusts, I find myself not apologizing or make excuses for what I did / didn't do to try and prevent it.

By now, we would imagine that Wall St would have LEARNT ITS LESSONS. Yet, every decade a mortgage-related securities scandal erupts.....

1988 -- Drexel
1997 -- Asia
2008 -- US sub-primes causing global contagion

and we've gone from a localized incidence in one Wall Street firm and its clients to a continent (although it mostly affected Japan) to an entire global financial system.

It may be time to move away from the Darwinian 'Survival of the fittest' mantra and adopt a new one.

REWARD SENSE, THE GREATER GOOD + THE SMARTEST.

[Cogitoe]

To borrow from Albus Dumbledore, "It takes a great deal of bravery to stand up to our enemies, but just as much to stand up to our friends, I therefore award ten points to" Ms. Jackie Zehner.

It is not easy to criticize an old friend in any situation, but certainly to do so publicly and for a friend who has risen to great power must be particularly brave.

[WeTellTheTruth]

Jackie

You just made my point.

I Quote you...."Yes before CDOs and CDS". You try to claim that your time at GS was "before" CDO's but in truth it was "after" and "during" the use of these so called "products." I think you know this.

CDO"s were invented in 1987 by Michael Milken's Drexel Burnham Lambert....... which SUPRISE SUPRISE went bankrupt and Michael Milken went to prison. "Before" and "during" your time at GS the use of CDO's was in full swing.

[Cogitoe]

Milken did not go to prison for inventing CDOs or high yield bonds. He violated securities laws already on the books. CDOs and high yield bonds are valid and useful financial securities. They are tools just like fire and guns. They can be used for good or bad. CDOs will not cease to exist just becuase they were abused and under regulated in the last many years.

[WeTellTheTruth]

My neighbor used "fire and guns" as tools to remodel his house...... he burned down his house and blew a huge hole in the side of his garage...... he had to rebuild his house but he left the hole in his garage in order to remind himself NOT to use a gun as a tool........

[billw8017]

WeTellTheTruth does not say that Michael Milken went to prison for inventing CDOs. He writes that Milken invented CDOs and went to prison. CDOs are legal, and WT3 seems to question the attitude implying someone capable of inventing CDOs is capable of finding his way to jail.

In the simpler world, one buys stock to get more in dividends than he would have gotten from interest in the bonds. Direct insurance or investing in contradictionary markets would be a pointless expense. Certainly, the best investment is the one with the greatest and surest return. It calls for something like insider knowledge, sad to say. However, you cannot count on getting rich by playing somebody else's game.

[Jacki Zehner - Huffpost Blogger]

Dear NeoCon. I am far from writer then snow and if portrayed myself that way, I take it back. I am truly just trying to do the best I can with the GIFTS that have been given to me. I did not start writing before this year, but I did start, and I am putting myself out there ( to take a lot of shots I might add ) because I want to be part of the solution. I want to help make the world a better place and inspire others to do so. Yes I made a lot of money on Wall Street which has given me a lot of options and I accept some responsilibity for any role I had in this mess. I give and I serve because I believe that is what we are meant to do. I take very seriously the notion that 'to whom much is given, much is expected." Yes I should have been more vocal earlier and I am trying to make up for it now. Thank you for holding me accountable.

[ProudNeoCon]

Fair enought. As for taking shots - do not worry too much. Most of the people on this board did not do a fraction of you have done. So take their (and mine) shots with a lot of salt.

At least your screen name is not NeoCon :)

One thing which I think the new administration can change is to bring people like you into regulatory bodies. Given the difference in pay, goverment will never be able to get as good people as Wall Street. So the only way to police the street is to bring back people who made money, know all the tricks and are willing to spend few years paying back the country which gave us so much...

[DiogenesOfAlaska]

One thing people like you could do would be to think for one second about the argument

'Given the difference in pay, goverment will never be able to get as good people as Wall Street.'

You haven't. Why don't you try?

Try harder.

[Jacki Zehner - Huffpost Blogger]

To clarify something - I tried to write this piece with a blend of both sarcasm and compassion. For the person who wanted my further background - I started at gs in 1988 as an analyst having grown up in a small town in Canada. I started trading in 1990 - mortgage backed bonds. In 2000 i left my position as manager of the mortgage trading desk to work in the exec office for Hank Paulson, John Thain and John Thorton. Yes before CDOs and CDS. I left in 2002 in part so my husband could return to school full time to get his Masters of Divinity. He is now a pastor (yes I do live in the real world), and I serve on many non profit boards, have started a small business, invest, write, volunteer, be a mom and try to do my best to be the change I want to see in the world.

[ProudNeoCon]

With all due respect but the reason you were able to leave is GS IPO where you made tens of millions. Nothing wrong with that. I salute you for making them. We need more people like you. However, I think that your attempts to be "whiter than snow" are disingenuous. First of all, CDS already existed by the time you left. But more importantly people who you trained have carried your work and were partially responsible for this mess.

I have looked through the internet and yet to find any article where you ring the alarm bell BEFORE it became clear to everyone that we have a problem. The problem we are facing with now took decades, not years to be created.

BTW, nether you or I (or most of the people on Wall Street) do not live in the "real world", at least not anymore. Real world is living paycheck-to-paycheck and worries about what happens if they lose a job even for 1 month. So maybe you do see the real world and try to help it (God Bless you for that), but you do not live in it anymore¦

[DiogenesOfAlaska]

I have looked through the internet and I have yet to find a NeoCon who has figured out that markets are a solution to a specific kind of problem which under very specific conditions happen to be optimal in some respects, if you are in an idealized setting.

And are otherwise just as much prone to failure than the manner in which you are paid.

Provide proof that your salary is sensitive to the long-term financial performance of your activity. Otherwise don't act like you understand a word about what you're talking about.

Because you don't.

Taking on tail risks and herding due to benchmark-tracking are the sinners in this game. Take a flawless market and add players who don't understand this and you have a bubble with more certainty than you pride yourself of being a NeoCon.

The only thing you don't know is when it will burst.

[truthforme]

Compassion? Really? I find this statement most offensive. Your letter was puzzeling enough but the only real compassion I could discern in your article seemed to be directed toward your former colleague.

People are losing their jobs, their homes, their retirement savings they have worked a lifetime to achieve and you take the time to write an article directing your compassion towards Paulson?

You will find few here who share your sympathetic point of view.

[grateful4thedead]

Thank you for the clarification in regards your history on the mortgage trading desk at GS. Obviously, you left that position prior to the cdo mess.
Could you also answer the other poster's question about the Paulson capital gains tax post of yours that seems to have disappeared from the thread?
I look forward to your future essays as your professional background brings an insight that is rare indeed.
As my original post in this thread stated, I have a genuine distaste for Goldman Sachs and the culture that permeates the organization. My negativity towards GS has nothing to do with Ms. Zehner in terms of her previous position as a partner. My skepticism towards Ms. Zehner does relate to posts of hers that were on this thread and then disappeared. She has said 'sorry' for one of them but I still find it a bit odd that her intent was to add a comment yet the post was deleted. Couldn't hitting the "reply" icon served all of us well?
As to the disappearing Paulson capital gains tax post, was this an accident as well? Perhaps I don't understand the rules, to wit, does a blog author commonly exercise a privilege to state their opinion and then have a unilateral right to delete it? If the answer is 'yes', so be it and I will understand the rules. I am always open to learning as well.

[WeTellTheTruth]

Wow
This thread should be required reading for anyone trying to understand the current crisis......not because I have posted hear but because of the amazing comments written by so many on this thread. If you read this thread from the very beginning to the latest post you get a crystal clear view of something called the "Informed Citizen". An informed citizen does not come about just from reading and research. It comes from living life in the mainstream .... not in an ivory tower filled with millions of dollars and fancy suits. The beauty of all this is that it turns out that the common man, the everyday American in not less intelligent..... nor are they equal in intellect..... but instead they posess superior wisdom and knowledge that our politicians and business leaders can only wish for.......

[rnadna]

Yes - in retrospect! If we, the common folk are so intelligent and so full of wisdom, why did we elect bush, twice!, let him start a war, make torture de rigur, de-regulate everything in sight, and let him do this economically to this country, not to mention all the other catastrophes and fiascos! you have to be kidding! Right?

The real intelligent part would of been to avoid this. And of course we didn't. You know what they say about hindsight....

[rgblue]

To be honest, we really didn't elect Bush twice although I agree way too many people voted for him.

Supreme Court Justice Sandra Day O"Conner actually "elected" Bush single-handedly in 2000, and I suspect the non-verifiable electronic voting machines "elected" him in 2004. After all, 16 states flipped at or outside the margin of error FROM Kerry TO Bush later in the day. The odds of that happening naturally? 1.4 billion to one.

All I'm saying is there's a strong possibility Bush was never actually elected.