On Paulson’s Sole-Source Account in the WSJ’s News Pages

On page 350 of Too Big To Fail, Andrew Ross Sorkin reports on how Hank Paulson reacted that fateful Sunday, September 14, 2008, upon learning that the British government was refusing to approve an emergency deal to have Barclay’s buy Lehman Brothers, a move that could conceivably have averted the catastrophe that instead ensued.

The general opinion in the room was that they had been blindsided. Paulson merely shook his head and declared that the British had “grin-fucked us.”

This morning, The Wall Street Journal runs an excerpt of Paulson’s new book, On the Brink, in which Paulson quotes himself this way:

“The British screwed us,” I blurted out, more in frustration than anger.

What did Paulson really say? Unknown. Sorkin’s source notes say Sorkin had received notes of the meeting “with Paulson’s remarks dictated.” I’m not sure what that means exactly, but if you had to choose, the tie would go to the person with the greater distance from the subject, the reporter.

Altering quotes is considered a grave journalism sin in some circles, but I’ve never been as concerned about the issue as some. It’s also certainly possible that different people are remembering the same quote differently. The gist of the quote is identical. To me, that’s the important thing.

Even so, this minor scrub—if that’s what it was—does raise larger questions about the decision by the Journal to publish a public figure’s account of a major news event in its news pages.

Journal spokesman Robert H. Christie says in a note to me:

This was clearly marked a book excerpt. We ran a news story last week. It is hardly exceptional or even rare for a newspaper to run a book excerpt.

It’s true that it’s not unusual for a newspaper to run book excerpts in its news columns, but those generally are from books written by staffers who adhere to normal journalism protocols. A recent example was an excerpt from longtime staffer Gregory Zuckerman’s The Greatest Trade Ever, on how investor John Paulson (no relation, one hopes) made billions betting against the housing market.

The Hank Paulson excerpt isn’t particularly long, less than 1,400 words (it’s not that short, either), and it appears on page A6 of my print edition. So it’s not overly prominent, but it is solidly in the news section.

It’s worth considering whether some line has been crossed here.

On one hand, readers have to weigh the fact that the excerpt brings new information into the record, though, not, as far as I can tell, much of substance. These high-level tick-tocks are starting to run together at this point, and, as noted, details of U.S. officials’ account of the FSA’s decision not to back the Lehman deal have been reported elsewhere. Still, new information is good.

Second, new details aside, it can be argued that whatever Paulson says or writes about what happened back then is news, in and of itself. This is Paulson’s side of the story, right from the horse’s mouth.

Third, as Christie points out, the paper did run a news item on the book, viewing it from an appropriate distance: “Paulson, in Memoir, Defends Bailout.”

Finally, it’s also true that readers are given plenty of disclosure and don’t need help from me to figure out that this is the sole-source account of a media-savvy public figure bent on protecting his reputation. In general, readers should be given the benefit of the doubt in sorting through such questions.

But, it’s not all upside.

For one thing, there is a reason that news page are not typically open to sole-source accounts of major events by public officials involved in them—that’s usually where you go for the paper’s best effort to find out what actually happened. This is not that.

Second, the intellectual distance between business-news organizations and their sources seems to be shrinking by the day, and this isn’t helping that perception. While it’s understood that the newspaper-source relationship is to some degree transactional, at least some of the time, this seems to take matters to another level.

Third, whether the quote is “screwed” or “grin-fucked,” the passage implies that the British government backed out on some sort of commitment. But that commitment is never established in the passage, nor does anyone ask Alistair Darling, the British finance minister who is quoted, what he thinks happened. If you read carefully, Paulson never actually says British regulators had ever agreed to a deal in principle, either to him or even to Barclays. Emphasis is mine:

Tim [Geithner, natch] spoke with [Barclay’s President Bob] Diamond after the Barclays board meeting, at 7:15 a.m. New York time, and Bob warned him that Barclays was having problems with its regulators. Forty-five minutes later, I joined Tim in his office to talk with Diamond and [Barclay’s CEO John] Varley, who told us that the FSA (Financial Services Authority of the U.K.) had declined to approve the deal. I could hear frustration, bordering on anger, in Diamond’s voice.

We were beside ourselves. This was the first time we were hearing that the FSA might not support the deal. Barclays had assured us that they were keeping the regulators posted on the transaction. Now they were saying that they didn’t understand the FSA’s stance. At 10 a.m., we met with the bank chiefs again, and I told them we had run into some regulatory issues with Barclays but were committed to working through them. The CEOs presented us with a term sheet for the deal. They had agreed to put up more than $30 billion to save their rival. If Barclays had committed to the deal, we would have had industry financing in place.

What seems to have happened is that Barclays believed the FSA was on board, or at least Paulson says Barclays led him to believe that. The question is what was the basis for that belief?

A bit more:

At 11 a.m., I went back upstairs, and soon got on the phone with (British Finance Minister) Alistair Darling, who wanted a report on Lehman. I told him we were stunned to learn that the FSA was refusing to approve the Barclays’ transaction.

He made it clear, without a hint of apology in his voice, that there was no way Barclays would buy Lehman. He offered no specifics, other than to say that we were asking the British government to take on too big a risk, and he was not willing to have us unload our problems on the British taxpayer

The implication is that an apology is in order.

A paragraph later comes the “screwed” line, which is followed by a disclaimer of sorts:

I’m sure the FSA had very good reasons for their stance, and it would have been more proper and responsible for me to have said we had been surprised and disappointed to learn of the UK regulator’s decision, but I was caught up in the emotion of the moment.

This is the point where a response from Darling would be useful.

It strikes me that the Paulson excerpt appearing in this space is a journalism departure of sorts. I hope we know where we’re going.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.