Transactions: Dec. 15, 2008

Why is the world so hard? You go along and you sweat to figure it out. You win some, you lose some, you tie a lot (and like quarterback Donovan McNabb, you sometimes don't even know ties are allowed). You age. Your hair falls out. But over time, you feel like you're getting somewhere. And then the damn thing changes on you. Boom. Suddenly, everything you thought you knew seems wrong. This is more than just an attraction toward certain dot-coms that, in retrospect, appeared ridiculous. This is nearly everything. Buying over renting. SUVs over Smart Cars. Stocks over bonds. Deficits over surpluses. A new plasma TV over debt reduction. Today over tomorrow. The notion of smart money. The infallibility of Warren Buffett. That is the bottom line of this unfolding crisis: Everything, every shred of insight you thought you had extracted, has depreciated as dramatically as your 401(k). I exaggerate: but only a little. It's like the leaves blanketing my lawn. Rake them and rake them and still the buggers fall, until it seems as if there is no lawn at all, just a bottomless pit of shifting, dead organic matter.

It's unsettling. It's like starting the semester in Economics 101 and, at exam time, discovering you're in Epistemology 302. And who's sitting next to you? Big, gawky guy: Hank Paulson, glaring at the essay question through his spectacles and grinding his pencil to a nub. Poor Hank. He took possesson of the big Treasury office as a prince of Wall Street after decades of world-beating success, shaped by notions like competitiveness, market efficiency, entrepreneurship, the government as a drag on a market revving toward frictionless optimality. He believed in merit, accountability, hierarchy, in a tight band of colleagues led by a Leader (himself). He believed in action, focus, execution. He believed in a good offensive line. He did not believe in second-guessing (even from the White House) or necessarily sharing (see Corzine, Jon). And he was hampered by limitations. The president, Coach Decider, had no interest in Treasury preoccupations, like worrying about the dollar, London IPOs or Chinese foot-dragging. Coach, in fact, was less a Leader every day; and beyond him was a public Paulson had rarely considered. When crisis hit, he found himself alone on a muddy field, an offensive lineman with the ball in his hands and no idea where the goal line was located. Run, man.

Paulson's problem was that the world had changed and he hadn't gotten the memo. He was a master of the old way, but these were new realities. The signs flew at him slowly, then more quickly. The challenges mounted that fit no known formulation: Bear Stearns, Lehman Brothers, Freddie, Fannie, AIG. He grasped at moral hazard as a beacon -- only to discover that, in a collapsing world, moral hazard was meaningless. He resisted nationalization; he turned to the Federal Reserve until Ben Bernanke said, "No more." By the AIG rescue, even he, the rock, was tumbling down the hill. Now Morgan Stanley and -- how disorienting is this? -- Goldman, Sachs & Co. shuddered. Still, he retreated from some truths grudgingly. He understood the necessity of saving financial giants like AIG or Citigroup, but he failed to perceive -- or he appeared to fail to perceive -- how it looked to a populace that had not registered for Econ 101. He did not grasp the potency of the Wall Street-Main Street metaphor, silly as it was. He did not cotton onto the sensitivity over bonuses. He did not see how a bailout of Citi would be compared with a nonbailout of Detroit. He did not seem to care that changing his mind would not be viewed as the flexibility of a rational man faced with unprecedented circumstances. The crowd he stared at did not resemble Goldman Sachs partners. It consisted of ordinary, scared-to-friggin'-death taxpayers, who in turn found him confusing, impulsive, bullying, or, worse, self-interested, or, even worse, wrong.

A new team now lines up to take the field. This gang -- Geithner, Summers, Volcker, Romer, Goolsbee -- actually seem focused on current realities. And they have a Leader who appears interested: Barack Obama. They have a plan. They are smart, though Paulson was smart too. The deeper question here with this new team, which has studied the experience of the '30s until the pages fell out of the textbook, remains a matter of epistemology: Are they studying the relevant past? What don't they know? We now sense Paulson was invested in a past that was no longer meaningful. What we don't know is whether the new gang has fully grasped the dynamics of the new age and whether, when they rake those leaves, they'll finally hit the crabgrass below.