No One Believes Henry Paulson
The financial picture is changing by the hour. Remember way back to this morning when Treasury Secretary Henry Paulson said that if Congress didn't immediately give him a $700 billion blank check the financial system would collapse? He became upset because the Democrats didn't believe him and decided to include conditions like restrictions on CEO pay.
It turns out that the Democrats aren't the only ones who don't believe Paulson. According to the NYT, the financial industry doesn't believe him either. That is why they are seeking to expand the bailout to include a wide range of assets in addition to mortgage backed securities.
In addition to calling into question Paulson's threat, this points out another important problem with the bailout.
If the bailout were properly structured, firms would not be lining up to get in. It should be a last resort that involves selling most of the firm to the government, as happened with AIG. If banks are lining up to get in, then the people who designed the bailout should be chased out of town.
I can bring the tar if someone will bring the feathers. It should be clear by now that Mr. Paulson was looking after his business interests, not the interests of the American government, and most certainly not the interests of the American people. He wrote or led the writing of that 3 page horror story in service to his business interests.
So, one condition that just has to be attached to the bailout, if it ever comes to pass, is a provision requiring Paulson to step down before it can become effective. Then, we can get the tar and feathers ready.
September 22, 2008 12:21 AM | Reply | Permalink
Lots of year round geese here. I'll gather feathers!
September 22, 2008 8:23 AM | Reply | Permalink
tar and feathers?
it's a lot easier and cheaper just to bring a noose, and you get the same results.
Personally, I say go for the King Phillip approach: behead those responsible and display them on pikes surrounding wall street for 5 years or so.
September 22, 2008 2:45 PM | Reply | Permalink
Watching Paulson this morning, it was hard not to wonder about the timing of this "bailout," happening on the eve of the election, just in time to get everybody the Republicans care about paid, and leave the Democrats to find out whether it worked or not.
It's like having the guys in Ocean's Thirteen" running your country--is this the final smoke bomb they throw before they clean the last of the money out of the safe and head for the exits?
All I can say is Bush and Cheney ain't no Pitt and Clooney.
September 22, 2008 12:48 AM | Reply | Permalink
What about the money market fund issue? Why are the assets of these institutions in question in the minds of some investors? What authority does Paulson have to offer to insure them?
Finally, is there any way to at least distinguish between the state of the real economy and these financial problems? It seems difficult to make a case that the institutions that are being saved were really involved in actual economic activity unless we consider ponzi schemes a "good."
The underlying question is, "How much does this problem really put the economy at further risk or is this just a sophisticated form of blackmail?"
The corollary is, "How much risk is there in Congress taking some time to understand what is going on and to explain it to the public?" To me, at least, it seems that if things are that bad, anything they do will just delay--and possibly worsen--the inevitable.
I cannot believe that this is a surprise to these policy makers. They may not have been able to give you a precise date but if they could not see this coming, they are the last folks to fix it.
September 22, 2008 1:11 AM | Reply | Permalink
I've been saying this for 3 days. No way, no how, no bailout.
Aww heck, I'll just repost the damn thing.
--------
I'm calling my congresswomen and telling them I do not support this bail out. I'm a registered Democrat, but I think this is the rare issue that truly crosses the party line. There are many reasons I oppose the bailout, and I'll hit them one-by-one.
1) It rewards the bad actors who got us into the mess in the first place.
First, the people who bought houses that they knew they could not afford. Second, the lenders who made these bad loans without caring about the likelihood that they could not be repaid. Third, the insurers who bribed the government to not call credit default swaps (CDS's or mortgage insurance insurance) insurance, thus relieving them of the obligation to keep cash on hand in case they had to pay the off the insurance policy.
2) The government will undoubtedly overpay for this debt.
The problem is two-fold right now: these loans are worth somewhere between $0.30 and $0.80 on the dollar, and no one wants to buy them at any price. So now the government will come in and rescue these irresponsible lenders. Guarantee you that the feds pay 50% more than anyone else would be willing to pay for this debt.
3) It doesn't solve the root problem.
Are they going to require oversight of CDS's? Will we start regulation & oversight of the shadow banking system? If not, this problem will just repeat itself in 5 or 10 or 20 years.
4) We're rushing into a solution
Good solutions aren't developed over a weekend or two weeks. Whatever band-aid bail out they come up with will be loaded with unintended consequences and will lead to hundreds of billions in extra spending beyond what anyone anticipates. You can take that to the bank.
5) Scare tactics are being used by the administration to coerce congress into giving the president massive new powers
I'm sorry, but didn't we just leave that party?
6) Once the government owes the debt, borrowers will be much less likely to pay if off.
Think about it-- all these problem borrowers are from the people who overpaid for their houses and borrowed more than they could ever afford. And the government has been going on for over a year about how we can't kick people out of "their" homes and onto the street. Now, all of a sudden these people are going to be stiffing the government & we'll own the houses. Any bets on whether we ever evict ANYBODY? This is a giant signal to the borrowers that they can STOP paying their mortgages immediately, because the government is coming to rescue them. The solution will probably be to write off the debt 100% and give the houses to the current occupants.
Cross-posted.
September 22, 2008 2:23 AM | Reply | Permalink
7. The banks who are supposedly hanging by a thread, and have to be bailed out, are very happy with this legislation, already lining up to take their share. If they are happy, the legislation can't be good.
September 22, 2008 10:47 AM | Reply | Permalink
It turns out that the Democrats aren't the only ones who don't believe Paulson.
I wouldn't be too sure about that. Dodd, Pelosi, Obama et al. said all day Sunday that a bill must be passed this week. Given their track record, they will concede to Bush & Paulson most of their proposal, swab a little lipstick on the pig with a few billion for rusty bridges, create a fake oversight mechanism, admit the whole thing is a piece of crap and then promise to "fix it" when the "crisis is over."
September 22, 2008 2:23 AM | Reply | Permalink
Actually, Barack said that he supported Treasury and Fed in their efforts to craft a solution to the problems, but would only sign-off if it hit four key areas, none of which seem to be present in the current deal being offered.
Watch Obama to not support this unless it is done in a very specific way. He's not stupid.
He certainly didn't give the save blanket assertion that it is a CRISIS OF EPIC PROPORTIONS that Schumer and Dodd tried to serve up. The blow-job those two senators gave to the financial elites was both embarrassing and disgusting.
Way to look out for your constituents, senators!
September 22, 2008 8:24 AM | Reply | Permalink
I think the threat is real and the democrats will come up with a solution that's more in line with the taxpayer's interest and expectations rather than Wall Streets.
Furthermore, the Congress is in a unique situation. The plan they offer is the only plan they're going to consider. If you don't like the terms, then go find someone who will give $700 billion on your terms. Wall Street needs to be taken to the woodshed and taught a lesson on responsibility.
What's really a concern is, what if $700 billion is just the tip of a gigantic iceberg? The bottom may fall out of the market, but the taxpayer will still be held liable for the $700 billion.
September 22, 2008 1:39 PM | Reply | Permalink
I've been saying this for 3 days. No way, no how, no bailout.
Aww heck, I'll just repost the damn thing.
--------
I'm calling my congresswomen and telling them I do not support this bail out. I'm a registered Democrat, but I think this is the rare issue that truly crosses the party line. There are many reasons I oppose the bailout, and I'll hit them one-by-one.
1) It rewards the bad actors who got us into the mess in the first place.
First, the people who bought houses that they knew they could not afford. Second, the lenders who made these bad loans without caring about the likelihood that they could not be repaid. Third, the insurers who bribed the government to not call credit default swaps (CDS's or mortgage insurance insurance) insurance, thus relieving them of the obligation to keep cash on hand in case they had to pay the off the insurance policy.
2) The government will undoubtedly overpay for this debt.
The problem is two-fold right now: these loans are worth somewhere between $0.30 and $0.80 on the dollar, and no one wants to buy them at any price. So now the government will come in and rescue these irresponsible lenders. Guarantee you that the feds pay 50% more than anyone else would be willing to pay for this debt.
3) It doesn't solve the root problem.
Are they going to require oversight of CDS's? Will we start regulation & oversight of the shadow banking system? If not, this problem will just repeat itself in 5 or 10 or 20 years.
4) We're rushing into a solution
Good solutions aren't developed over a weekend or two weeks. Whatever band-aid bail out they come up with will be loaded with unintended consequences and will lead to hundreds of billions in extra spending beyond what anyone anticipates. You can take that to the bank.
5) Scare tactics are being used by the administration to coerce congress into giving the president massive new powers
I'm sorry, but didn't we just leave that party?
6) Once the government owes the debt, borrowers will be much less likely to pay if off.
Think about it-- all these problem borrowers are from the people who overpaid for their houses and borrowed more than they could ever afford. And the government has been going on for over a year about how we can't kick people out of "their" homes and onto the street. Now, all of a sudden these people are going to be stiffing the government & we'll own the houses. Any bets on whether we ever evict ANYBODY? This is a giant signal to the borrowers that they can STOP paying their mortgages immediately, because the government is coming to rescue them. The solution will probably be to write off the debt 100% and give the houses to the current occupants.
Cross-posted.
September 22, 2008 2:24 AM | Reply | Permalink
Worthwhile to repost.
September 22, 2008 8:27 AM | Reply | Permalink
My prediction: President Palin will not only advance the separation of Alaska and it's becoming an independant nation. Under her leadership, all the other ststes will also vote to do likewise. The word "United" will be deleted from all federal documents(The last act taken by an eliminated congress)...and the ensuing chaos will result in an Amish taker. Wagon-travel and other inconveniences will be more than compensated by the relief, being freed from the evil grasp of television. And the warm glow of lamp-light.
Take THAT, George Orwell!
September 22, 2008 4:46 AM | Reply | Permalink
You left out the fact that we will all be speaking in tongues so none of us will have any idea what others are saying. Then, even the states will have to disband, and we will become the Disunited People of America (DPA).
September 22, 2008 10:50 AM | Reply | Permalink
Where are the unattributed whispers saying that all the Democratic Congressional leadership (and many members) have been in regular contact with Barack (even if he actually called them) for his guidance and leadership?
Have I missed the buzz that Barack has called key Congressional Republicans for their advice and support?
Are there shocked rumors that Barack is representing the majority of the Congress in his ongoing discussions with Paulson and members of the Bush Administration?
Tell me that cable news is running nonstop the yelps from alarmed neocons furious that an unelected Obama is (oh so very unwisely) taking a major role in the formation of policy.
Where Oh Where is the man who is campaigning to be the leader of this country? Out on the hustings making right-on political points against McCain and the Bush Administration? Too concerned about the supposed fragility of the Paulson Plan to exert political pressure? Taking positions for future “I-told-you-so” TV spots?
The majority of voters need to be represented. Congressional Democrats need a leader—the chosen leader of their party (to knock heads in private if necessary).
Campaign talk is cheap.
The latest word from Krugman: http://krugman.blogs.nytimes.com/2008/09/21/excess-of-responsibility/
September 22, 2008 4:56 AM | Reply | Permalink
I couldn't agree more.
McCain's going to be flogging the Dems for giving away taxpayers' money to their buddies on Wall Street.
Here's the picture. And the caption: "Obama buys his buddy Bob Rubin, Chairman of the Executive Committee at Citigroup, another island in the Bahamas.
Note: Volcker can be cropped out, but then again, the peeps wouldn't recognize him, anyway.
September 22, 2008 7:39 AM | Reply | Permalink
Is this a snark?
September 22, 2008 1:44 PM | Reply | Permalink
Re: So, one condition that just has to be attached to the bailout, if it ever comes to pass, is a provision requiring Paulson to step down before it can become effective. Then, we can get the tar and feathers ready.
Paulson will be stepping down in January come what may, so this is a fairly moot suggestion. And for those who fear giving the administration this sort of authority, it isn't the Bush administration we should be considering: it's an Obama or a McCain administration. Even is passed tomorrow it's going to take a while to ramp this thing up and Bush will be long gone by the time it's going full throttle.
September 22, 2008 6:46 AM | Reply | Permalink
Are you so sure the checks won't be going out Monday, September 29, 2008 -- "send us the toxic waste when you have the time"?
After all, "we're facing a financial meltdown" -- we have to save TWAWKI!
September 22, 2008 7:00 AM | Reply | Permalink
Are you so sure the checks won't be going out Monday, September 29, 2008 -- "send us the toxic waste when you have the time"?
After all, "we're facing a financial meltdown" -- we have to save TWAWKI!
September 22, 2008 7:05 AM | Reply | Permalink
Well, yes and no, Jon.
Yes, Paulson will step down as Secretary of the Treasury when a new administration takes the reins in January.
But we've seen that the landscape is changing pretty quickly now. And I think this operation could be going full throttle within a few weeks.
Think of it as a floating crap game. Gangsters are pretty good at setting things up quickly (and tearing them down and moving them quickly when the heat is on).
Paulson will throw this money around quickly and get all his buddies entrenched in spending (and "earning") a piece of this $700 billion before he heads for the exits. Count on it.
-- ARG
September 22, 2008 7:31 AM | Reply | Permalink
Interesting observation. I can't help but notice that Barclay's and UBS (conflict o' interest with Phil Gramm, of all people) are waiting at the edge of the trough. "Yes please buy our worthless crap for what we said it was worth before this Unpleasantness began!"
I'm glad though, that the weekend managed to generate at least a tincture of protest from voices that matter. Maybe someone will actually force some oversight onto this boondoggle.
September 22, 2008 7:54 AM | Reply | Permalink
My cognitive dissonance is such that my own sense of reality--and the consensus reality that seems to be shared by Paulson and the politicians--could not be farther apart. I see competing versions of false realities from different camps all clanging together--all of them divorced from true reality. I don't know what it must have felt like during the great Depression--but it may have felt something like this.
"Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the center cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity."-- WB Yeats
September 22, 2008 8:12 AM | Reply | Permalink
No One Believes Henry Paulson
Except Dean Baker:
The events of the last week showed the urgency of dealing with the financial crisis. There is a real risk that the banking system will freeze up, preventing ordinary business transactions, like meeting payrolls. This would quickly lead to an economic disaster with mass layoffs and plunging output. Dean Baker
September 22, 2008 10:16 AM | Reply | Permalink
He doesn't believe that the remedy Paulson suggests is the right one. His own plan is much more detailed and progressive than what is being offered by the Bushies. With what it would take to implement, "urgency" seems to be a flexible term and not necessarily one that implies impending doom.
September 22, 2008 10:47 AM | Reply | Permalink
The whole point of Baker's blog entry was that the "crisis" must not be as bad or imminent as Paulson said it was. Proof?
In negotiating the bailout Paulson won't accept modifications. Sensible negotiators would conclude that Paulson doesn't really think that the world as we knew it is about to collapse into -- as Baker claims -- "mass layoffs and plunging output."
But Baker does think that TWAWKI is about to collapse. And where do you think Baker got that idea -- which he clearly believes -- if not from Paulson's news conferences? I can guarantee you Baker didn't get it out of his regular meetings with Paulson and Bernanke?
September 22, 2008 11:02 AM | Reply | Permalink
I don't doubt that these dumb asses have gamed the system to the point that it needs massive correction, but that doesn't mean it has to be done with no transparency and too much haste.
September 22, 2008 11:29 AM | Reply | Permalink
Ellen, your suggestion that "No one believes Henry Paulson except Dean Baker" is flat wrong and ridiculous, and you know it.
The paragraph you quote was Dean's preamble to a very detailed plan he laid out prior to Treasury's plan being "leaked" this weekend.
In the same thread, once Treasury's plan was out, Dean Baker himself added a post saying it was a sham. (This just 2 hours after he started the thread.)
You made a sarcastic reply to Dean's post.
Since then, Dean has created 3 or 4 new threads, all questioning the urgency and/or motivations behind this bailout plan.
You are behaving like a troll, Ellen.
-- ARG
September 22, 2008 12:06 PM | Reply | Permalink
The bail-out legislation needs to include the following:
"Any corporation that turns over more than $100 million in instruments to the United States or its assigns agrees that any and all corporate officers and members of its board of directors, holding those positions on or after June 1st, 2007, will not hold officer or board positions in any publicly-traded U.S. corporation for a period of ten years from the date of the transaction."
These people are demonstrably incompetent at their chosen field, and have a criminal disregard for their shareholders and their country. They have to be removed from the field.
September 22, 2008 3:19 PM | Reply | Permalink
I see things a tad differently than others who have posted on this site thus far. My sense is that both the timing and the amount of the bailout are, in part, attributable to a growing consensus that Obama will win the election, and the desire of those on the financial (as opposed to the cultural) right, to saddle his administration with such an enormous deficit that it will be impossible for them to implement their economic program. This is a classic example of what David Stockman once referred to as the Trojan Horse of Reaganomics. The primary objective of this bailout is not to save the fat cats. Rather, it is to ensure that they will continue to have a sufficiently large number of mice to feed upon when Senator Obama becomes President of the United States.
September 22, 2008 4:08 PM | Reply | Permalink
Simply a $700 Billion Bridge to Somewhere, like the Cayman Islands, with a long long waiting list of those who are for it, but are expected to be against it after they arrive.
September 22, 2008 4:23 PM | Reply | Permalink
If the Democrats had any balls and really had the public's interest at heart, they would demand that 257 people go to jail before they pass the buy out.
September 22, 2008 6:59 PM | Reply | Permalink
Why does nobody here believe Paulson?
I am in full agreement with the need to dramatically increase oversight and to better specify the details of the bailout, vis a vis the first draft from Treasury last Friday.
At the same time, it seems as though Treasury and the Fed cut a pretty good deal on the AIG bailout and they refused to spend public money to save Lehman Brothers.
So why the assumption that Paulson is plotting to pass out free money to his old buddies? Isn't it just as likely that Friday's bill was meant to be a rough starting point, writting quickly by some people who'd been pulling all-nighters all week to fight fires?
September 22, 2008 9:05 PM | Reply | Permalink
I never thought I'd agree with Senator Richard Shelby (Rep-Alabama)
Strange bedfellows - some conservative Republicans and liberal Democrats are defying their parties and joining the ranks of those against this bailout.
September 23, 2008 12:31 AM | Reply | Permalink