Scholar Francis Fukuyama and former Treasury Secretary Henry Paulson talk about China, Wall Street, and the global financial crisis.
Francis Fukuyama is the author of “The End of History and the Last Man.” Henry Paulson is the former US secretary of the Treasury, whose recent memoir, “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System” has just been published. This conversation between them will appear in the forthcoming issue of “The American Interest,” and was made available to the Global Viewpoint Network.
Francis Fukuyama: You got to know the Chinese leadership when you were at Goldman Sachs, well before you came to be Treasury Secretary. Yet even during the period in which you made scores of trips to China, many observers expressed concern about the implications of large structural imbalances in the global economy: so much savings being accumulated in China, so much debt being racked up in the United States, and so much foreign money flowing back into the US banking and financial system in ways that may have encouraged excessive risk-taking and contributed to the real-estate bubble.
Looking back, what weight of responsibility do you assign to those imbalances for the way the financial crisis unfolded in the second half of 2008?
Henry Paulson: A big part of the imbalances, in my view, stems from our proclivity here in the United States not to save – as a nation and as individuals, and to borrow too much. There are a number of policies that contribute to this proclivity: our tax code, for example, which taxes savings and capital and encourages consumption; and the weight of a number of our housing policies, which stimulated the housing market via Fannie Mae, Freddie Mac, FHA programs, the tax code and in other ways that contributed to asset inflation.
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