Sigmund Freud, Henry Paulson and Settlement
What is the connection? In The Future of an Illusion, Freud defined faith as a belief the validity of which is not subject to be proven or disproven. When Henry Paulson appeared before Congress to defend his actions in injecting liquidity into the banks rather than buying toxic assets from the banks, a position that he originally used to justify passage of the TARP, he faced stiff criticism of his credibility, not merely because he did not buy any toxic assets, having claimed that if the government did not we were all doomed, but because even the liquidity injection did not result in any significant increase in loans.
Paulson’s problem is he lacks common sense—banks will not lend money they think will never be paid back, no matter how well the bank is capitalized. However, unwilling to acknowledge this shortcoming he defended his action by claiming that things would have been much worse if he had not acted. Paulson has read Freud. He gave a reason which was beyond rebuke because like faith it could neither be proven nor disproven.
So you are in a settlement conference with your very prestigious outside firm. As the session progresses you notice that your attorney’s demeanor is changing. The enthusiasm with which he appeared to hold your position in the case is not the same as earlier in the lawsuit or even just before the conference, and he is now advocating that you pay a sizable amount. Finally, you agree.
As you walk out of the conference, the weight of your decision is pressing upon you. There were sizable legal fees and the settlement amount was much more than you expected. You glance over at your outside attorney who appears rather light hearted. You voice your concerns—you have managers that are going to question the investment in this case. He responds: “We saved a lot because the result would have been much worse if we tried the case.”
