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Paulson: Liar or Misfit?

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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.

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About Kenn Jacobine

  • Andy

    Possibly his actions can be best understood as a “Share the Wealth” program, from the US Treasury to his friends on Wall Street that are presently working for bankrupt companies and facing (sniff) a dramatic reduction in their retirement packages.

    Paulsen’s plan isn’t to siphon off the full $2 Trillion for his Friends-and-Family circle, but for arguments sake using a very modest 2 basis points for management fees, Mr. P could be the Benefactor of $40 billions going to the politically well-connected bankers and agencies.

    “Looting the Treasury” may be too harsh in describing TARP, since there have been some scenarios that potentially reimburse the taxpayers, but so far Paulsen et al haven’t demonstrated they can tell when they would be throwing good money after bad, can write hard contracts with guaranteed collateral, or that they see merit in Economic Darwinism. It seems that from a public good perspective, it would be far more lucrative for the taxpayers if the $700 billion amount was distributed evenly in checks, and the government simply let the bankrupt companies go bankrupt.

    Still, for Paulsen’s friend administering the TARP programs, Not a bad payday, Yeh?!?!

  • Lisa Solod Warren

    Which is exactly why I wrote this here on blogcritics not too long ago. Paulson et. al. have made a true muck up of things.

  • bliffle

    Paulson should never have been appointed. But it’s hopeless to tell people why. nevertheless, I’ll try.

    Paulson is just a mechanic. A trial-and-error mechanic. He doesn’t understand how things work. He isn’t even interested in how they work. He has no intellectual credentials.

    He’s like the mechanic who SAYS he can fix your car, then takes the car apart hoping to find an obviously broken or worn out part. But he’s dumbfounded to discover nothing is obviously broken or worn. Now he’s stuck. Since he doesn’t understand how the car works and how all the systems inter-relate, he can’t even put it back together properly. Now he’s stuck: he tries hooking wires up, but it doesn’t work because he didn’t take notes on how the wires WERE connected before he started.

    So he starts making excuses and telling lies. He blames the car maker: “those jap cars are no damn good!”. Or the car owner: “you shouldn’t buy one of those cheap detroit cars!”.

    What is truly amazing, though, is how we continue to give these unqualified people important jobs. You can’t really blame it all on Bush, he’s just a weak incompetent idiot, but why does the general population continue to invest power in these dolts to do damage to us all? They even KNOW the guy is no good, and still they support him, as if it were a matter of pride. As if vigorously asserting competence could somehow overwhelm the fact of incompetence.

  • Clavos

    Paulson should never have been appointed. But it’s hopeless to tell people why. nevertheless, I’ll try.

    We’re waiting.

  • http://handyfilm.blogspot.com handyguy

    I defended Paulson in October, and I feel like taking it back now.

    However…

    The current financial situation is unprecedented. And the 260 billion [!!] spent thus far has at least got banks lending to each other again, which they were not doing when the crisis first broke out.

    It’s easy to complain and call people names. Not so easy to come up with an alternative solution that will work. I don’t necessarily think Hank is being dishonest or incompetent….I think the problem is so gigantic and complex that it is just about impossible to solve.

    We can all hope and pray that Obama puts together a team that will provide some of those solutions. If we can last until Jan. 20, that is.

  • http://www.fontcraft.com/rod/ Dave Nalle

    Paulson is certainly not unqualified. Bliffle’s claims about him are not supported by any proof or evidence. Yes, he’s experimenting and trying to apply the resource he’s been given where it will do the most good. At this point we just don’t have any results one way or the other that we can point to and say “Paulson did this” as a positive or a negative.

    The article and many of the comments are jumping the gun on Paulson. I hate to see all that money in play, but straightening out these problems is hardly accomplished by writing a big check to the magic economy fairy so she’ll wave her wand and make it all better.

    Dave

  • Baronius

    You know who Paulson reminds me of? Robert S. McNamara.

    Both were Harvard Business School geniuses, successful in the business world. They came in under distracted presidents: Johnson was focused on domestic policy, Bush on foreign policy. Paulson and McNamara wielded unprecedented power. They both gave out numbers and information that was (to put it mildly) misleading. They kept changing their minds, opting for always bigger and totally different plans, sure that they were right every time. They micromanaged minor problems into international disasters. They both failed completely, and became the legacy of their presidents, to their presidents’ surprise.

    I’m betting Paulson’s already started writing his book in which he blames himself and everyone around him, yet somehow even in that apology, he’ll still think he was completely right.

  • bliffle

    “Paulson is certainly not unqualified.”

    The only skill he has proven proficiency in is corporate opportunism. He’s expert at improving his own position.

    “Yes, he’s experimenting and trying to apply the resource he’s been given where it will do the most good.”

    The $700billion is not an unwelcome gift fprced upon Paulson, it is what he asked for, nay, demanded.

    “At this point we just don’t have any results one way or the other that we can point to and say “Paulson did this” as a positive or a negative.

    Sure we do. By his own statement he failed to incentivize banks to extend credit, they just paid out big bonuses and bought other banks. this should tell him to abandon ‘incentives’ and use force against banks and take over their equity, and TELL them what to do.

  • http://www.fontcraft.com/rod/ Dave Nalle

    The only skill he has proven proficiency in is corporate opportunism. He’s expert at improving his own position.

    This of a guy who’s main distinction from other leading businessmen and conservatives is his extraordinary devotion to large-scale philanthropy.


    The $700billion is not an unwelcome gift fprced upon Paulson, it is what he asked for, nay, demanded.

    What you seem to miss here is that it wasn’t given to Paulson to keep and what is his motivation for spending it on anything other than improving the economy, since as a businessman a strong economy is to his benefit and the benefit of his associates.

    Sure we do. By his own statement he failed to incentivize banks to extend credit, they just paid out big bonuses and bought other banks. this should tell him to abandon ‘incentives’ and use force against banks and take over their equity, and TELL them what to do.

    Buying other banks and rendering them solvent again DOES ultimately extend more credit. If he can resolve the situation with buyouts instead of bailouts, that means spending less money for more effect.

    Dave

  • http://nomedals.blogspot.com Jason

    What do we really expect? Congress gave Paulson authority the authority to do as he decides is important. Congress has failed us again just like they did during the run up to war. As usual the are PASSING THE BUCK.

  • bliffle

    paulson has bludgeoned congress into submission by threatening them that they will be held responsible if his plans fail and if the economy goes into depression.

    That’s why he has bludgeoned congress into keeping SECRET both the $2trillion he’s already committed to banks for the past two years, plus he has conveniently gotten congress to keep SECRET the latest takeover tax laws which allow an acquiring company to get a bigger tax benefit than the cost of the takeover! Thus the Wells takeover of WaMu cost them $14billion but netted them a tax benefit of $20billion.

    Now, how does it make sense to first say a bank is “too big to fail”, then GIVE them money, as paulson has done, to make acquisitions that make them even BIGGER?

    So next time they’ll be even MORE “too big to fail”?

    Even the simple childish mind of a Nalle-like person oughta be able to figure that one out.

    What we are seeing is NOT the nationalization of banks, but the privatization of the US Treasury. All the monies of the US treasury are being turned over to banks, who have already proven their venality and incompetence.

    Compare the rotten Paulson deal with the Gordon Brown deal.

    This is a big gift to Bush’s ‘base': the havemores, who will have even more and you and I will have less.

    Wake up, folks, you’re looking at the biggest hostile government takeover in history!

    What are you going to do about it?

  • Baronius

    Guys like Paulson and McNamara are always heavily into charitable organizations. If you think you know everything, of course you want to micromanage everyone’s lives. Hank isn’t paying back Republican fat-cats; he’s playing Solomon and judging each individual case in his vast wisdom. Poor jerk doesn’t even realize he’s riding the tiger.

  • bliffle

    The paulson approach is ‘trickle-down’, give the money to guys at the top and watch it trickle down. This method has been proven wrong by historical fact so many times it’s a wonder anyone believes it anymore.

    By contrast, trickle-up schemes usually work. Use the money to provide bridge financing for homeowners. Use the money to reduce loan amounts. Do all this for the actual homeowners.

    Let the existing financial institutions solve their own problems, or die as necessary.

    The financial empires contribute no intrinsic wealth to the economy, but homeowners and homebuilders do. If necessary, they will create new financial institutions to replace old ones.

  • Baronius

    Hey, don’t blame us supply-siders (the guys you’d call “trickle-down”) for Paulson. I’ve got no idea what he and Bernanke have been doing. They’re reading from some playbook that isn’t left or right, or any economic theory I’ve ever heard of. That’s half the problem: they’re not screwing things up in a predictable way. Every move they make is designed to do maximum damage by itself, but collectively they’re even worse.

  • http://drdreadful.blogspot.com Dr Dreadful

    I’ve never been a fan of ‘trickle-down’. It unavoidably evokes the image of piss on a wall.

  • Clavos

    Doc,

    Did you know JFK was a supply-sider? That he cut taxes, including the top brackets, substantially. Do you remember how prosperous the sixties were, until LBJ came into office and started raising taxes to pay for his “guns AND butter policies? He’s the one who instituted the Alternative Minimum Tax (AMT), BTW.

    Then, Nixon got elected and really started monkeying with the economy, driving it into the ground with his price controls and taking US off the gold standard? As soon as the price freeze ended, inevitably, inflation skyrocketed. Nixon, too was a big spender.

    Ford and Carter were both economic ignoramuses, and things went from bad to worse. Ford didn’t have a clue as to how to “Whip Inflation Now,” and Carter let the deficit run up from $40 billion in 1979 to $74 billion in 1980.

    Meanwhile inflation was resulting in tax “bracket creep.” In effect, everyone’s taxes were going up, thanks to inflation, while the government also began to raise the Social Security rates AND ceilings. During the period 1965 to 1978 the share of the average taxpayer’s Adjusted Gross Income that went to taxes rose from 19.4% to 29.5%.

    We had four economically inept administrations in a row; two Republican and two Democratic. All raised taxes, one way or another.

    The economy stayed in the tank until Reagan came into office and once again began to cut taxes.

    And so, on…

  • bliffle

    JFK, like Clinton later, was a pretty good traditional econ conservative. Nixon blew hot and cold: going off gold was less dangerous than others thought, and worked out good (Nixon really was an original-minded genius, when he applied himself to national interest instead of his paranoia). Ford was a caretaker, Carter had NO domestic friends to support his policies, and Reagan financed his tax cuts with immense debt. LBJ was really a rather radical econ leftist and would have pulled it off if it wasn’t for his blind spot about Vietnam.

    Trickle down has a certain appeal, if one assumes a paternalistic upper echelon, but that seems obviated these days since the top guys demonstrate obsessive greediness (e,g,. the dreadful misappropriations of the Mississippi and Louisiana Federal funds for distressed Katrina homeowners). trickle down doesn’t work because nothing trickles thru the power structure.

  • http://www.goblinfishpress.com personal checks

    Well, at the first line of your post, you say that Hank Paulson is a dirty rotten liar. So why do you ask us the question Paul is a liar or a misfit?