• Markets
• Economy
• Federal Reserve
• Housing
• Energy
• Digital Media

14 Questions for Paulson & Bernanke

Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke are scheduled to testify today before Congress on their massive bailout program.

Here are some questions I would like to hear asked:

1. You two gentlemen have been wrong about the Housing crisis, missed the leverage problem, and understated the derivative issue. Recall the overuse of the word "Contained." Indeed, you two have been wrong about nearly everything financially related since this crisis began years ago.

Question: Why should we trust your judgment on the largest bailout in American history? 

2. How are you pricing the purchase of these damaged assets? Is the taxpayer paying 22 cents on the dollar? 5.5 cents? If there is no market price for this junk paper, how are you going to determine a purchase price?

3. Are you now, or have you ever been a short seller? Do you think short selling ban is a smart move? What does this mean to our concept of free trading markets?

4. In the nationalization of AIG, the US taxpayer received 80% of the company. What is the taxpayer getting for their money in this $700B bailout?

5. You have said that "The Housing correction is the root cause of market stability."  What about leverage -- how significant was that as a root cause?

6. Your initial estimates for the cost of this were $700 billion dollars. Yet you also asked for a blank check, an unlimited ability to spend more "as needed."  What is your worst case scenario for the total costs of this bailout?

7. The original version of this bailout package requested no judicial, administrative, or budgetary review of the spending of this bailout, What was the thought process behind that extraordinary, extra-constitutional request? 

8. In 2004, your former firm, Goldman Sachs, along with 4 other brokers, received a waiver of the net capitalization rules, allowing these firms to dramatically exceed the 12-to-1 leverage rules. How much was this waiver responsible for the current situation?

9. Its just cost the taxpayer $50 billion to bail out money market funds, which are clearly non-insured, risk instruments. Why did we do that?

10. The Securities and Exchange Commission has been AWOL during much of the problems we now face. What do you think is the proper role for the SEC in terms of supervising or regulating securities markets?  Doesn't your plan usurp SEC authority and move it to the Treasury?

11. How significant are derivatives and credit default swaps to the current crisis? Why weren't they regulated the way other insurance products are?

12. The current proposal has the US bailing out foreign banks. Has the USA become the insurer of the worlds financial assets?  

13. What other financial firms and funds are likely to need a bailout in the near future? Are there other banks, brokers, insures that are at risk?

14. If we make this inordinate grant of unlimited cash, how can we rein in the budget in the future? How can we as a Congress say no to expensive budget items such as Nationalized Health Care, or Infrastructure repair programs or fill in the blank on the grounds they are "too expensive?"

Bonus comedy question: Are you now, or have you ever been, a Socialist? Do you know, or associate, with other Socialists?

If you have any other suggestions for questions, use the  comments. I will get them in front of the right people . . .

Tuesday, September 23, 2008 | 07:16 AM | Permalink | Comments (190) | TrackBack (1)
add to de.li.cious | digg this! | add to technorati | email this post

Comments

How is Comrade Bush doing?
Why not buy GM and airlines. We got United State of Hedge Fund (a.k.a. US Treasury).

Posted by: VC | Sep 23, 2008 7:24:41 AM

here, here

Posted by: christofay | Sep 23, 2008 7:26:04 AM

"3. In the nationalization of AIG, the US taxpayer received 80% of the company."

We have our first investment in the Treasury's SWF.

More to follow.

Posted by: christofay | Sep 23, 2008 7:27:28 AM

Here's another question: you said that by having the government buy all these bad loans from banks, thereby allowing lenders to get bad loans off their books, means thay can lend tomorrow. Will they lend tomorrow? what collateral is good today? That house your potential borrower wants to buy (sure)? A nice new luxury car or boat or airplane (all declining in value rapidly)? Pledge of an existing house for home equity (ugh)? How about unsecured borrowing?

Posted by: Doug_S | Sep 23, 2008 7:30:03 AM

If the People couldn't afford these mortgages in the first place, how will they afford them in the second place?

Posted by: pmorrisonfl | Sep 23, 2008 7:33:18 AM

At what point does the free market return to being free?

Posted by: pmorrisonfl | Sep 23, 2008 7:35:06 AM

How will the borrowing to resolve this financial crisis affect the dollar? Our credit rating?

Posted by: pmorrisonfl | Sep 23, 2008 7:36:44 AM

Don't forget the credit rating agencies' complicity in the debacle.

Posted by: lithuania | Sep 23, 2008 7:36:54 AM

"7. In 2004, [5 broker dealers] received a waiver of the net capitalization rules, allowing these firms to dramatically exceed the 12-to-1 leverage rules."

Up to 30 +. This clearly is an important decision in time especially considering the judicial function that Paulson wants to skip. Is backwards inanity the legal defense?

Posted by: christofay | Sep 23, 2008 7:37:14 AM

When will Chairman Mao's "The Little Red Book" be recquired reading in our schools?

Posted by: dave | Sep 23, 2008 7:38:09 AM

Thanks Barry. I hope some of these questions, especially 7, will be asked if not it is just a farce.

Posted by: Katie | Sep 23, 2008 7:40:08 AM

[For Paulson] What exactly has changed since you said "Don't worry, the banking system is sound." on September 17? Is it possible that your actions in Lehman and AIG had an influence on this change?

Posted by: pmorrisonfl | Sep 23, 2008 7:41:29 AM

"Why did you wait so long?" "Were you really blind to the possibility until last week?"

Posted by: rww | Sep 23, 2008 7:42:05 AM

>> any other suggestions for questions

Will the official title of the Secretary of the Treasury change to Comrade or Fuehrer or a combination of both?

Posted by: wolfgang | Sep 23, 2008 7:42:52 AM

Don't hold your breathe. I predict a lovefest.

Posted by: John | Sep 23, 2008 7:43:00 AM

#7 is the key to all of these issues

.

Posted by: jj | Sep 23, 2008 7:45:03 AM

The system isn't socialism; it's oligopoly.

A limited pool of sellers will not sell their supply.

The news regarding how Lehman, one of the five, went under just gets worse and worse. "Lehman Brothers reveal £100m pensions hole"

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4806169.ece

via nakedcapitalism. Good update on a horrible subject.

Posted by: christofay | Sep 23, 2008 7:48:01 AM

And, of course, "Will you please tell the American people exactly what you told us last week about why this is necessary?"

Posted by: rww | Sep 23, 2008 7:51:37 AM

"America Appoints A Magister Populi To Deal With The Financial Crisis", fabiusmaximus.wordpress.com, is not going to be appointed. There is plenty of opinion. Who made him king?

The market state is oligopoly, isn't it? Explain it to me overwise please.

Posted by: christofay | Sep 23, 2008 7:53:17 AM

I will offer several observations:

1)The notion that companies are “too big too fail” has been too easily adopted by too many policy makers. There are too few voices (or they are soft spoken ones) on the other side of the argument. I am little bit worried when everyone (policy makers) is buying the same line.

2)“We must act now” is the cry. The urgency that policy makers want to do something is rather disturbing especially since “they” have not told us what is at risk.

3)The current policy makers – the ones who are now pulling the strings behind the curtain – one did not see the current crisis coming and two told us that it was contained as recently as 6 months ago. Now we must trust them when they tell us that a “crisis” is imminent if we don’t act?

4)For me, all this smells a lot like the Iraq war and weapons of mass destruction. If you remember, it was the imminent threat of WMD’s that led the USA to war. Here it is the imminent threat of an economic crisis that is leading to the largest economic bailout in history. In the Iraq war, it is very clear that the policy did not support data. The data showed that there were no WMD’s. This didn’t matter as the policy was war with Iraq regardless of the facts. The urgency of the current plan and the lack of specifics as to what is at risk make me ask is the data driving policy or the other way around.

5)Which brings me to my last sad point: These guys (Bush, Bernanke, and Paulson) really want the stock market up.

Envision this: it is January, 2009 and the stock market is at a new all time high. President Bush, in a last photo op before leaving office, stands on Wall Street with a sign in the background that proudly proclaims- “Mission Accomplished”. Then in his nasally twang I can hear the President saying, “I told you so. The economy is strong. Stocks are at an all time high.” Then he gives the two thumbs up and off he goes. And oh did I mention that the Dollar is at an all time low!!!

Posted by: Guy Lerner | Sep 23, 2008 7:58:32 AM

All are excellent questions and should be asked but instead i'm guessing questions like below:

- Why did you pick the tie you are wearing?
- The Goldman Sachs logo uses what font and why?

pathetic...

Posted by: Manish Jain | Sep 23, 2008 7:58:50 AM

11. The current proposal has the US bailing out foreign banks. Has the USA become the insurer of the worlds financial assets?

A: No. But we are expecting foreigners to fund this bailout as well and we cannot screw their present holdings, otherwise they will refuse and we will go bankrupt.

Posted by: baychev | Sep 23, 2008 7:59:52 AM

don’t you think McCain or Obama should tell us who will be their Treasury Secretary? Just a query. I mean with almost a trillion dollars on the line.

Posted by: rawdawgbuffalo | Sep 23, 2008 7:59:53 AM

Thanks BR. I emailed your questions to Sens. Martinez & Nelson as well as Rep Mica (all Florida). We should have answers shortly.

Posted by: rolling thunder | Sep 23, 2008 8:01:03 AM

"the Dollar is at an all time low!"

Gulp.

Posted by: christofay | Sep 23, 2008 8:01:20 AM

December 2008

Sun	Mon	Tue	Wed	Thu	Fri	Sat
	1	2	3	4	5	6
7	8	9	10	11	12	13
14	15	16	17	18	19	20
21	22	23	24	25	26	27
28	29	30	31