Shameless Cronyism

Henry Paulson made tens of millions of dollars off of the mortgage securitization business when he was at Goldman Sachs.  As Treasury Secretary he stood by or actively assisted as Goldman competitors Bear Stearns, Merrill Lynch and Lehman Bros. were permitted to fail or were sold under duress to other institutions.  As in the AIG bailout and those of Freddie Mac and Fannie Mae, all of these failures were managed in a way that ravaged shareholders and corporate management, but preserved the interests of counterparties. 

After Lehman went down, and Goldman's stock started to plummet indicating it was next in line, Paulson in coordination with the Fed and the SEC  immediately banned short selling of financial stocks.  Paulson then tries to ram through a $700B giveaway package of taxpayer dollars that would benefit mostly Goldman and Morgan Stanley.  He does this just as Congress is wrapping up its session and is ready to go home, and urges that it be passed quickly with no amendments or extended debate, or else the world's financial system will unravel.  Media shills report that the system was "a few trades away from complete collapse" until word of the Paulson plan began to spread.

Unlike all of the previous managed collapses and bailouts, this one would remove the distressed assets from Goldman's balance sheet, which would immediately make it much more profitable and cause its stock price to rocket upwards.  

Paulson's proposal provided that only he gets to decide who gets the free money and under what conditions, and that no court could review his decisions.  He alone would decide which firms would survive and which would not, and under what terms.  He adamantly states that "protecting the taxpayer" is his paramount concern.  However, at today's Senate hearing he and Ben Bernanke blanched at the thought of requiring Paulson's ex-partners at Goldman to give up any equity to the taxpayer in exchange for this free money. 

Paulson's plan drew a few mild objections at the Senate Banking Committee hearing today, but it was pretty clear that most of the Senators were unwilling to risk affronting the money masters.  Every time the subject of giving the taxpayers equity came up, the topic was diverted to the more loosely defined "limiting executive compensation," which is something that could comfortably be worked around with a wink and a nod both in terms of substance and timing.  Here are a few questions that I wished were asked but were not:

1. Mr. Paulson, if this is such a great investment for the taxpayer, why hasn't Wall Street been able to find private capital to make the investment?

2. If the government is the lender of last resort, doesn't that mean that it should demand more stringent terms than a private investor would?

3. Would an arms-length investor like Warren Buffett or any of the sovereign wealth funds buy distressed securities for more than their market value without getting equity in return?  Can you point to a single instance of this ever happening?

4. If the purpose of the bailout is just to protect the system without the moral hazard of protecting those who made bad investments, why should people like the Goldman Sachs partners retain any ownership at all? Why should they come out of this better than the Bear Stearns partners did?  Wht not just nationalize Goldman Sachs if it is both insolvent and a systemic risk, stabilize it and eventually sell it back to the public in an IPO for a profit?

5. How will it improve the bank's capitalization if you don't pay more than market value for these assets?  Isn't the only way this plan is going to help the credit crisis if the government overpays for the distressed assets?

6.  Wall Street paid record bonuses last December when it was well aware of the looming crisis.  What can be done to recover these funds for the taxpayer? 

The Paulson plan is shameless cronyism at its worst.  It would give tens of millions of dollars in increased profitability and share appreciation to the same people who are at the root of this mess- the partners of Goldman Sachs.  It would be the mother of all moral hazards.  It would be an unambiguous demonstration of the new reality in American finance that being politically connected out-trumps prudent financial stewardship.

Comments

[Wicked Warren]

My tenure on the planet is approaching 87 years. I became politically conscious in the midst of the Great Depression. It is difficult to pull the wool over my eyes. After many hours of fruitless research, I still am unable to identify Paulson's ethnicity. That he was "raised Christian Scientist" is irrelevant. He was born in Palm Beach, Florida, and his father was in the jewelry industry. Those two facts smack heavily of the kosher persuasion. I will wager my shriveled and tattered portfolio that Hank Paulson is a closeted Jew. What say you? How might anyone but a Jew rise to the level of CEO/Chair. at Goldman Sachs? Jew Chuck Schumer in Senate and Jew-pervert Barney Frank in House surely pressured Jew- slave George Bush to appoint Paulson to Treasury. Dumb Americans are the result of decades of Jew-controlled public education. Jew Abe Foxman at ADL has been successful at brainwashing the few people whose IQ's are numerically greater than their ages. I believe a second American revolution will be required to break the Jews' chokehold on Congress and the White House. Ron Paul is key to disseminating the unvarnished truth to the masses. God bless him, and God bless David Duke who fearlessly calls a spade a spade; i.e., a Jew a Jew!

[Roy Mathers]

The man of systems ... seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the diffeent pieces upon a chesboard. He does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great great chessboard of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it. If those two prnciples coincide and act in the same direction, the game of human society will go on easily and harmoniously and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder.
Adam Smith

The collectivist nature of Mr. Paulson's proposal clearly shows how socialist good intentions pave the "road to serfdom" in cement.

[Dan S.]

I am posting the following to all Sen and Cong. And many more.
Hello
Unfortunately you did not have a selection for corrupt government for this email
My name is Daniel P. Shaw and I will be emailing all senators and congressman that if they support this bailout that they will no longer have my (our) support or vote. We personally do not require the services of our senators, congressman or corrupted government officials. We the people need a new clean slate and I personally will be asking for a second tea party to run ALL corrupt representatives out of office and DC. Some of the actions of the individuals that are suppose be the sounding board for the people they represent makes the MOB look like beginners in the world or crime. I personally don't care how it got this way all I know is that for me, my family, friends and colleagues you are no longer needed or represent us. We represent ourselves and as we have done in the past we will pull our bootstraps up and make this country proud and strong again without your representation. You may not even be on the take but your part of the problem because you have done nothing about the collapse of our government represented processes and the illegal activities. There really is no dignity, honor or self preservation of most of our representatives which such a sad insight of self.

YOU MUST THINK WE ARE DUMB

You have Former CEO Paulson and the current CEO of Goldman Sachs sitting down in the same room discussing AIG with a 20 billion interest in the company. Can say beyond illegal? So I can only ask who is Paulson is in bed with because only a dim witted individual with a black hole for a brain and heart would even suggest something so deviant and think the American people would not realize what is happening. If you truly are a representative of the people you will not vote for this bill until Paulson is gone, fired or “lost” If he is going to act like a sly mobster then he should be treated like one. Since the people are the ones who were taken advantage of why not give the 700B to the people with a requirement to pay off mortgages. I mean hell you guys waist so much of our money as it is and Imagine the spending power of the base economy if you actually did something for the people first.

One last comment: I truly believe if you lackeys even come close to think you can use any of this money other than to repair what you disintegrated you will find that We The People will take back our country and using the ways of the first Tea Party if need be. By the way the only one who seems to have a clear view of this mess is Ron Paul why not listen to him? Someone who doesn’t take money that doesn’t belong to them.
I have left some insightful reading for you.
http://www.nytimes.com/2008/09/23/opinion/23herbert.html?_r=1&hp&oref=slogin
http://searchingforthetruth.typepad.com/searching_for_the_truth/2008/09/shameless-cronyism.html
Thank you for your time,
The New Americas
Daniel P. Shaw
TPT