The Boss of the Bailout

As recently as June, the man anointed by the Treasury Department to steward Wall Street's bailout package was playing down the subprime-mortgage crisis in presentations to private industry groups. In a PowerPoint presentation to Nevada bankers, Neel Kashkari, a former Goldman Sachs banker who is now interim assistant Treasury secretary for financial stability, suggested that only 9 percent of U.S. mortgage holders were behind in their payments compared with "50 percent seriously delinquent in the 1930s." Other slides touted the success of Hope Now, a program to help struggling homeowners renegotiate mortgage terms. But two industry officials who attended the presentations, and who asked for anonymity when discussing private meetings, said Kashkari's overall theme was that massive federal intervention was unnecessary. The message, according to one of the bankers: "There is no problem here." Steven Adamske, a spokesman for Rep. Barney Frank, the Democratic chair of the House Financial Services Committee, said the panel got similar briefings and concluded that the numbers were "dubious."

At the time, chief Treasury spokeswoman Michele Davis acknowledged in e-mails to NEWSWEEK, "Neel was reflecting the Department's view that drastic legislation wasn't needed to deal with the housing correction … but that housing posed the biggest downside risk to the economy." Even though the Bush administration wasn't expecting a meltdown, Davis added, Treasury Secretary Henry Paulson had earlier "directed Neel and others … to do contingency planning … to examine the various policy options out there so if we needed to take stronger action, we'd be prepared to do so." That contingency planning, however, yielded Treasury's initial three-page bailout proposal—which Congress swiftly discarded. A Treasury official, who also asked for anonymity, insisted that the proposal was purposefully thin "so that Congress could add to the proposal to make it their own."

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