Posted on 09/23/2008 6:24:22 PM PDT by Notary Sojac
That's What Friends Are For
The US Treasury Secretary's grand rescue package has an unsavoury hidden sting
Thinking back on the last Asian crisis, it is hard to recall an instance of crony so-called capitalism greater than that perpetrated in the United States by Treasury Secretary Henry Paulson.
Paulson’s conflict of interest is on such a scale that it is remarkable that neither the US Congress or US media has even noticed it. So obsessed have they become with "saving the system" by printing vast quantities of new government debt that they have conveniently forgotten who bears heavy responsibility for it in the first place, and who has now conducted the "rescue" in a manner calculated to give maximum help to the firm which he himself headed until some two years ago.
Goldman Sachs may have been smarter than most of its peers, but under Paulson’s leadership it played a primary role in the creation of the pyramid scheme of debt and opaque derivatives that has just come tumbling down, endangering not just the American taxpayer and investor, but also a global economy based both on trust and the free flow of capital. Paulson was in the thick of the massive over-leveraging of the investment banks, a major beneficiary of obscene levels of remuneration for those who gambled with other people's money.
Asian creditors of the US should not stand silently by and watch their assets being eroded by Wall Street sleaze, but should be saying loudly and publicly that they will not invest another penny in US Treasury stock or financial sector companies until it addresses fundamental issues, including the removal of Paulson for his record of creating the pyramid then using public funds and regulatory powers to selectively save his friends’ skins.
Note that after letting Lehman Brothers go to the wall, after rescuing Fannie Mae and Freddie Mac – a reasonable action as they were always government-linked enterprises – and in effect forcing Merrill Lynch into the arms of Bank of America, the finger of fate was pointing at the two remaining major investment banks, Goldman and Morgan Stanley.
Paulson then contrived a three pronged intervention which was clearly aimed not just at stabilizing the system but specifically protecting these two, and Goldman in particular. First there was the announcement of a US$700 billion or so package of government money to pick up any amount of dodgy assets created by Goldman and others, be they simple sub-prime mortgages or complex derivatives which Paulson himself probably does not understand.
Then he arranged the banning of short selling of financial stocks, causing Goldman’s price to rise 40 per cent in a matter of minutes. Short selling – which involves borrowing stock to sell – is just as legitimate as buying stock with borrowed money. But no, to help save the skin of Goldman and co, Paulson now banned the very thing which he and his firm had long declared to be central to the proper operation of markets.
But not even those two measures were enough to erase the doubts about the survivability of Goldman and Morgan Stanley. So in yet another exhibition of sleaze and cronyism the two were given permission overnight to change their status to regular banks, giving them not only an enhanced aura of respectability but also additional access to borrowing from the Federal Reserve. The fact that their capital to total assets ratio – approximately 23 to one in the case of Goldman – is more than double that thought prudent for a commercial banks was ignored by so called regulators. No wonder the US is in such a mess. Just when there are calls for tighter regulation of the financial sector, the Federal Reserve and Treasury conspire to trash their own rules to help two unworthy institutions. Quite how spivvy Goldman will acquire a stable deposit base and sufficient new capital to reduce to become a stable and properly capitalised institution remains to be seen. Maybe it will now follow the Morgan Stanley route and attract Asian capital – in Morgan's case Mitsubishi UFJ. That would probably have been impossible without the change of status to commercial bank.
But cash rich Asians should still be beware of any new injections given that the financial crisis in the US and UK is far from over. And Americans should ponder exactly how two unelected public officials – Paulson and Fed chairman Ben Bernanke – could use public funds and regulatory powers in a manner which was clearly selective and biased towards their institutional cronies.
Now that's what I've been trying to say!
"Goldman Sachs may have been smarter than most of its peers, but under Paulson’s leadership it played a primary role in the creation of the pyramid scheme of debt and opaque derivatives that has just come tumbling down, endangering not just the American taxpayer and investor, but also a global economy based both on trust and the free flow of capital. Paulson was in the thick of the massive over-leveraging of the investment banks, a major beneficiary of obscene levels of remuneration for those who gambled with other people's money."
Fox in the hen house.
The rest of article is even more damning. Heads should roll.
Wasn’t this the guy who told us (not so long ago) that all was well?
Incompetence, or dissembling? Either way, can’t we do better than this guy?
This fund is structured to greatly benefit Paulson and his buddies when he becomes a CEO of a major Wall Street firm on or about January 21st. By Bernanke's own admission, the plan is to pay much higher than market for the assets in question, allowing banks to book huge gains. Paulson will take over one of these banks, sell off assets to the fund, and get a huge, huge bonus a year later.
Government officials like Paulson claim that we should trust them to exercise their powers wisely. But government officials spawned the mortgage meltdown and financial crisis through their incompetence, such as mandating risky loans to promote “affordable housing.” And Paulson himself failed to see it coming even when the warning signs were obvious. Not long before taxpayers ended up bailing out mortgage giant Fannie Mae, Paulson claimed it was in good health, and for political reasons, he ignored warnings to the contrary from conservatives. His arguments for the bailout are internally inconsistent, and disregard the lessons of history. There is no reason why taxpayers should trust him with $700 billion and no strings attached, especially given his conflicts-of-interest in doling out the money.
For all you history buffs ...
Paulson appears to be
America’s Vidkun Quisling.
“Just when there are calls for tighter regulation of the financial sector, the Federal Reserve and Treasury conspire to trash their own rules to help two unworthy institutions.”
Where to start? The arrogance, the contempt, the corruption, the pure selfish sleaze....
Enjoy the ride folks because we’re going where they’re taking us and we might as well get SOMETHING out of it.
Let Goldman and Morgan Stanley fall...That’s Capitalism!!
We’d be better off bailing out Starbucks or McDonald’s...it’s something a lot of us actually and there are thousands and thousands of minimum wage employees that would stay in their jobs (without seven figure bonuses every year!). Let Goldman and Morgan die. It’s not our problem.
Start new lending regulations...don’t save those Manhattan jerks.
We’d be better off bailing out Starbucks or McDonald’s...it’s something a lot of us actually and there are thousands and thousands of minimum wage employees that would stay in their jobs (without seven figure bonuses every year!). Let Goldman and Morgan die. It’s not our problem.
Start new lending regulations...don’t save those Manhattan jerks.
Let the banksters go to hell.
Wasn’t it Paulson that McCain said a week or so ago should to be fired?
Banksters Uber Alles.
So who the hell are the “rich Asians”?
And who stands to gain the most should Goldman Sachs and Morgan Stanley fail?
The sad thing is, we will cut off our noses to spite our face. YES the bailout has BIG problems. So does the financial system. The ystem nearly collapsed last week.
If the bankster bailout passes, we’ll have to rename the country the USSA.
I'd feel safe if it was in the hands of someone who was seriously bucking the trends back in 2003-04.
Someone who was sounding the alarm bell loud and clear about lending standards that were too lax, reserve requirements that were too low, and AAA ratings pulled out of someone's AAAss.
I don't see anyone like that waiting in the wings, if you do please tell me about it.
If the bailout is in the hands of a party-hearty guy (which Bernanke and Paulson both were prior to their sudden recent conversions) it will be worse for the economy long term than if we do nothing.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.