In reviewing some of the conditions preceding the 2008 financial crisis and the steps he took to try to avert it, former U.S. Secretary of the Treasury Henry Paulson said that it could not have been prevented, due in part to the state of federal regulation and policies, and an overstimulated housing market.

"As hard as we worked, it literally took the system on the verge of melting down -- Fannie Mae and Freddie Mac, with $5.4 trillion in securities outstanding and getting ready to implode -- to get Congress to act in July 2008," Paulson said during the 29th annual Hatfield Address, a conversation with President David Skorton, Nov. 11 in Bailey Hall. "In our system, it seems to take a crisis to get legislative action on something big and difficult and controversial and structural."

Paulson, who was chairman and CEO of Goldman Sachs from 1999 to 2006, started his term as Treasury secretary in July 2006, and "within a year he found himself leading the struggle to manage the country's credit crisis and alleviate a deepening recession, in an economy plagued by housing foreclosures, bank failures, falling financial markets and mounting job losses," Skorton said in his introduction.

Paulson said that accepting the Cabinet position "wasn't an easy decision." His family was against it, but he decided to take the opportunity to serve the country.

"The other thing that had hit me was, I'd gone to talk to student groups and would tell them to embrace change, don't be afraid to try something new," Paulson said. "And it occurred to me that very few people went to Washington and came away with a reputation that was enhanced."

Skorton asked Paulson if his perspective on world markets changed as he moved from Goldman Sachs to the Treasury.

"In the very first week, I said [to President Bush] I thought we were overdue for a credit crisis," Paulson said. "I saw the excesses, but I didn't see the magnitude of it."

When he took a comprehensive look at the financial regulatory system, [the federal lending agencies] Fannie Mae and Freddie Mac, he said he "was blown away at how outmoded, outdated, dysfunctional it was."

Skorton asked him why so few people saw "the warning signs and systemic flaws leading up to the crisis."

"When you look at the root causes, we had housing policies that overstimulated home ownership. You can have too much of a good thing," Paulson said. "There is no one, simple answer. The one thing we all missed is not that there could be a problem in subprime mortgages, but you could have the kind of nationwide decline in home prices that we've had."

Paulson said he wasn't being defensive in stating that "if I'd been totally omniscient, there's not a single thing I could have done about it at that time, because by luck or whatever, I started working immediately on getting there -- on reforming the regulatory system, and on getting legislation on Fannie Mae and Freddie Mac. I didn't know the extent of the problem, but I started working immediately with Barney Frank," chair of the House Financial Services Committee.

After taking questions from the audience, Paulson's parting words to the students present were: "What an interesting time to come out in the world."

Earlier in the day, Paulson, author of a recently published book about the financial crisis, "On the Brink," attended a luncheon with faculty members, followed by a discussion with students in Willard Straight Hall.

The Robert S. Hatfield Fund in Economic Education was established in 1980 by the Continental Group Foundation to honor retiring chairman, president and CEO Robert S. Hatfield '37. The Hatfield Fellows Program is a platform for the exchange of ideas between the academic and corporate communities.

Hatfield's daughters, Suzanne Hatfield and Molly Hatfield Dupree, attended the event, as did Paulson's wife Wendy, a member of the administrative board of Cornell's Lab of Ornithology.