Tips on How Wall Street Can Scuttle Paulson's Plan
Posted by Heidi Moore

Eric Dezenhall, crisis-management consultant, is an old hand in the Washington Beltway: he served in the White House Office of Communications and the Office of Presidential Personnel during the presidency of Ronald Reagan. After that, Dezenhall joined Porter Novelli and later founded Dezenhall Resources. Deal Journal caught up with him to talk about the packaging of Treasury Secretary Hank Paulson's proposed regulatory overhaul and how banks could oppose it-if they don't like it. An edited version of our conversation over phone and email is below.

Deal Journal: Treasury Secretary Paulson's plan is bound to come under attack. How would you advise investment banks on how to fight it, if they would want to?
Eric Dezenhall: If the banks want to fight it, I think that any resistance would have to come primarily at a lobbying level. I don't know what the benefit would be for a banking CEO to go on television to begin shooting down a proposal like this and appearing as if he doesn't want to be regulated. What usually happens is that people who are seeking to spike a proposal seek to do so through lobbyists and issue surrogates at think tanks. If these banks wanted to advocate something specific, that can be done quite openly and vigorously. If you're looking to oppose something, there's a lot of subtlety involved.

DJ: What tack could the lobbyists take?
Dezenhall: The lobbyists would focus on those who have the power to make decisions. They would have to highlight for those decision makers why there is political risk to them for doing this. I think that the hard thing in this climate is that the outcry to deal with these financial abuses is so intense that it's going to be hard to dissuade policymakers from taking punitive actions against Wall Street.

DJ: Some people speculate that this new plan will keep the regulatory agencies tied up in a Keystone Kops scenario, fumbling to protect their jobs while Wall Street gets some breathing room.
Dezenhall: We're dealing with a lame-duck presidency and a wildly unpredictable political climate. One could argue that the best thing for the banks to do is duck and see what the political trends are. It's not like Paulson is going to be personally empowered to prosecute this strategy.

DJ: The timing seems a little strange. We only have a few months left before the election and a new administration. What could possibly be accomplished?
Dezenhall: The public doesn't expect you to solve a problem, but they expect you to demonstrate you're trying. It's the old thank-you note problem: if someone sends you a thank-you note, it doesn't change your life. But if they don't, you think they're rude. Paulson was trying to do damage control in this term. You don't want to be seen to be unresponsive, even if what you do is not adopted. The crime becomes being known for doing nothing. You don't want your legacy to be that you knew about a problem and you did nothing.

The good news for Paulson from a crisis-management perspective is that he's put a deal on the table: "You want decisive action-here it is." No one can now accuse him of indecision or inaction. The first step in effective damage control is being Moses and showing people the way out of the desert. You may never get to the Promised Land (Moses didn't), but if you don't show people the way, your leadership and legacy will be forever challenged.

DJ: What's the scale of resistance Paulson might face?
Dezenhall: No one ever proposes changes this sweeping and gets universal applause. Paulson has also taken a crisis-management page from Ronald Reagan, who once said that you need to wrap every fight in a principle. Paulson's principle is clear: Wall Street needs to be watched more closely by those who understand the markets, something that wasn't accomplished during [former New York Attorney General Eliot] Spitzer's reign of terror, which was obsessed with scalp-hunting, not market stability. While it's not good enough for the markets to be watched by sycophants, it shouldn't be regulated by enemies either.

DJ: Did Paulson help his case by making a showy mass announcement? Maybe some important regulators felt left out of the decision making and will fight harder because of it.
Dezenhall: It's like the old complaint: 'It's not that you broke up with me, it's how you did it.' Well, no. It is really about the fact that 'you broke up with me.' One of the great myths of damage control is that if you just word a distressing message in a nice way, everyone will be Ok with it. That hasn't been true in my experience. It's not all about the PR. The notion that you can spin your way out of these economic crises is a bit overblown. Good crisis management is not a democracy. It tends to be a benevolent dictatorship. There needs to be a strong figure taking a leadership position.

DJ: Can he get it done?
Dezenhall: The potential pitfall is that the economic climate is largely beyond the control of any individual or policy, at least in the short-term. The American business climate is very guru-centric. In other words, we tend to attribute outcomes to wizards who did something smart or idiots that did something dumb. One of my most seminal memories is of being a young aide in the communications office of Reagan's White House. In September 1982, Reagan's limo was being pelted by rocks and there were calls for impeachment and Reagan firing his staff. Naturally, I was worried about my little job. In October, there was talk about Reagan's aides being genius spin-doctors. Huh? In September, they're idiots, but in October they're geniuses. What changed? The October market rally is what changed, not Reagan's staff. Nevertheless, the U.S. media attributed the new developments to gurus rather than external circumstances. Bottom line: A genius is just the guy who ended up winning. Much of the success of Paulson's program will depend on external circumstances beyond his control. In this media climate, we're so impatient that if the program doesn't produce a quick win it'll be declared a failure.

Paulson needs to exploit his personal authority to sell this. To achieve political wins, you need two things: A principle to fight on and allies. I think he'll be able to get allies because of his personal authority as a business leader. As trite as it sounds, I've found that if given the choice between a great plan and a great leader, the leader wins every