Published October 22 2010
Conrad says financial collapse was imminent in 2008
Kent Conrad, a North Dakota Democrat and Senate Budget Committee chairman, was among the elite group.
He was called into a room on Capitol Hill with top members of Congress – a mix of Republicans and Democrats – to meet with President Bush’s Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.
“They told us they were taking over AIG the next morning,” Conrad recalled Thursday. “They weren’t seeking our approval – they told us they were doing it. They told us if they didn’t do it they believed there’d be a financial collapse within days.”
A couple weeks later, Conrad joined officials in another sobering meeting on a Saturday to finalize negotiations on the Troubled Asset Relief Program, or TARP – an unprecedented $700 billion bailout for AIG, the financial sector and two of Detroit’s auto giants.
During the all-night session, the other shoe dropped: Without U.S. government intervention, the global economy was hours away from collapse.
“We were told that if we didn’t reach a conclusion by 5 o’clock Sunday evening, the Asian markets would open and they would collapse,” Conrad said. “Our own markets would open Monday morning, and they would collapse.”
With less than two weeks to go before Election Day, Conrad opened up to The Forum’s editorial board on Thursday about his involvement in responding to the financial crisis of 2008.
Conrad and other Democrats have defended against critics of the bailouts this year, arguing that without action, the U.S. would be in a depression.
Conrad said that possibility was unsettlingly close.
“As somebody who was there the last night of the TARP negotiations, watching the secretary of the Treasury receive message after message from around the world … the pressure was incredible,” he said.
“(Paulson) was getting indications every half-hour, every hour of major financial institutions around the world going down, and their governments’ almost simultaneous decision to move in to rescue,” Conrad said. “I think it’s about as clear as it could be: Had we not done this, we’d be in a depression.”
Two years later, the massive bailout and the subsequent stimulus that sought to prevent collapse and revive a faltered economy have become prime targets for Republicans nationwide seeking to overthrow a Democratic majority.
In North Dakota, Republican U.S. House challenger Rick Berg has campaigned aggressively against “tax-payer funded bailouts” and the “failed stimulus.”
He told The Forum last month the government shouldn’t have intervened at all during the 2008 crisis.
Conrad said he’s concerned about “loose talk” from political campaigns that don’t acknowledge the dire straights federal officials faced then.
“If people could have been in that room and seen what I saw, what I heard – this notion that we should have just done nothing is so utterly far-fetched and detached from reality, that it really concerns me,” Conrad said.
“There seems to be an incredible disconnect between the reality of what we confronted and what some people believe were the alternatives,” he said.
Like Conrad, Democratic incumbent Rep. Earl Pomeroy has said the actions taken in 2008 prevented a depression.
Former Republican President George W. Bush – under whose leadership TARP was enacted – acknowledged the same conclusion this week.
Conrad said Thursday the Obama administration and Democratic leaders failed to properly explain why TARP was necessary – which might have contributed to the continued backlash from Republicans and the general public.
“We have done a horrible job of explaining to people why certain things had to be done, how serious the situation was,” he said.
At the time, a complete explanation would have made matters worse, though, Conrad said.
“I’ve thought back a lot: Why weren’t we more clear as to how serious this was?” Conrad said. “And I remember, we were told: ‘Look, if we say how serious the situation is, it could lead to a financial panic.’ ”
But, he added, “at some point, the people of the country needed to be told just how serious the situation had been and needed to be told why these steps had to be taken.”
Conrad said TARP’s success has been lost in political talking points. All but $29 billion of the $700 billion-package will be paid back by those companies that received aid, he said.
In some cases, such as the banks, taxpayers will actually profit from the legislation, Conrad said.
Particularly, it’s with Chrysler and embattled AIG, where the government might not get all its money back in full, he said.
Even if that’s the case, Conrad said, TARP demonstrated its worth by preventing the economy from hitting rock bottom.
Without any federal intervention, the U.S. would have had 8.1 million fewer jobs in the second quarter of 2010 than it did, Conrad said, citing calculations by leading economists.
The unemployment rate also would have climbed to Depression levels of 15 percent or more by this quarter of 2010, compared to the current rate of 9.7 percent, Conrad said.
Readers can reach Forum reporter Kristen Daum at (701) 241-5541