Hank Paulson is a dirty rotten liar. In July, along with Fed chairman Bernanke, he assured Congress that Fannie Mae and Freddie Mac were not in danger of failing. His testimony before Congress was instrumental in getting Congress to approve Treasury Department and Federal Reserve proposals to make sweeping changes to the relationship between the two institutions and the government. Within 7 weeks, Uncle Sam took over the mortgage giants, preventing their inevitable collapse. Then, at the beginning of October, the dynamic duo was swindling Congress again. This time, Paulson and his banker buddy Bernanke told Congress that it had to act quickly and approve a $700 billion package to buy the bad assets (mortgages) of failing Wall Street firms; otherwise America faced calamity – civil unrest, economic collapse, and extinction of our blessed (debt ridden) lifestyle. This past week, Paulson announced that he would use the taxpayer assets, not to buy troubled assets, as he told Congress in October, but to inject capital into struggling banks by acquiring equity stakes in them.
Now, perhaps calling Paulson a liar is harsh. Maybe he just doesn’t know what he is doing. For instance, in a recent interview on National Public Radio, Paulson said, “I believe the banking system has been stabilized.” Oh really. Just this week, Citi Group, one of the biggest financial services companies in the country, indicated that it would cut at least 10,000 jobs. In October, foreclosures grew 25 percent nationally over the same month in 2007. Yet to come is the impending auto loan, student loan, and credit card crisis. Given his track record and the current circumstances, it is amazing that anyone even listens to Paulson anymore.
But, there is more. In his “I changed my mind about how to use the taxpayers $700 billion” speech this week, Paulson indicated that the economy was in better shape than it was two weeks ago. Again, the facts tell a different story. The Labor Department reported this week that the number of newly laid-off workers seeking unemployment benefits increased to a seven-year high. The big three auto makers are on the verge of bankruptcy and the mayors of 3 American cities petitioned the federal government to use a portion of the $700 billion Wall Street bailout plan to assist cities with pension costs and cash flow problems. This news indicates that we are headed in the opposite direction of Paulson’s analysis.
Naturally, through his comments, Paulson is trying to justify his actions in handling the economic crisis to this point. Here is a summary of Treasury actions since March:
• $29 billion for Bear Stearns
• $143.8 billion for AIG (and growing)
• $100 billion for Fannie Mae
• $100 billion for Freddie Mac
• $700 billion for Wall Street, including: Bank of America (Merrill Lynch), Citi Group, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and others
• $25 billion for the Big Three in Detroit
• $8 billion for Indy Mac
• $150 billion for stimulus package (from January)
• $50 billion for money market funds
• $138 billion for Lehman Bros. (post bankruptcy, through JP Morgan)
• $620 billion for general currency swaps from the Fed
Rough total: $2,063,800,000,000—Two trillion and still spending!
When will the madness end? The federal government ran a deficit of $237 billion, just in the month of October. It is well on its way to the unthinkable $1 trillion budget deficit by the end of the fiscal year. All of this money, created out of thin air by the Treasury Department and Federal Reserve with the blessings of Congress, is not stabilizing the markets, as Paulson suggests. It is simply throwing good money at companies that deserve to go bankrupt. The current economic crisis is proof that debt does matter. At some point, it has to be paid back. The U.S. government is bankrupt, but it continues to spend money like a gambling addict in a casino. Months from now, when the economy is in even more of a mess and we are laden with even more debt, think back to the comments of Hank Paulson. At that point, it still might be hard to decide if he was lying or simply just didn’t know what he was doing.