Toward the end of the summer of 2007, the foundation of the nation’s real estate market started to shake. On Aug. 6, the American Home Mortgage Investment Corp., the nation’s 10th-largest mortgage firm, filed for bankruptcy.
Three days later, Paulson was headed to work at the Treasury Department when he received word that the U.S. mortgage crisis and tightening credit markets were spreading to Europe, he would later write in his autobiography, “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System.”
Paulson and Bernanke put their staffs on full alert. The Fed crafted a loan package for the nation’s banking industry. Treasury lawyers scrambled to figure out a way to stabilize the increasingly volatile markets, Paulson recalled.
On Aug. 9, the Dow fell nearly 400 points, its second-biggest one-day drop in five years. The next day, the Fed issued a statement pledging to “provide reserves as necessary . . . to promote trading in the federal funds market.”
At 4:30 p.m. on Aug. 13, 2007, as the markets closed, Paulson called Sen. Kent Conrad (D-N.D.), chairman of the Budget Committee, according to the Treasury secretary’s appointment calendar.
The next day, Conrad adjusted his family’s portfolio for the first time in four months. Conrad reported that a total of between $150,000 and $300,000 was shifted out of three mutual funds in his wife’s 401(k) retirement account. He moved $100,000 to $250,000 of that money into a lower-risk money-market fund within the retirement account.
That year, Conrad had two other calls and one meeting with Paulson. He reported 29 other transactions during the year, including three that exceeded $50,000.
Conrad said his conversation with Paulson had nothing to do with his trades the next day.
“There is absolutely no connection between the two,” Conrad said. “Our records show that Paulson called me about the debt limit extension and that had nothing to do with the reason for my making the trades.
“The decision that my wife and I made with our financial advisers to diversify into lower-risk investments had everything to do with what was happening that was on the front pages over every paper, including yours. His call to me had absolutely nothing to do with those issues.”
Trading amid stimulus plans
By the beginning of 2008, the Bush administration had decided to take a more aggressive approach to confront the growing economic crisis. On Jan. 2, the president told Paulson to consult with members of Congress, investors and the nation’s business leaders to come up with a strategy.