No Time to Waste . . .
Via Kate Wellings commentary at Weedon comes this delightful skewering of Hank Paulson's understanding of the housing, market and credit crisis much earlier in its development: "In short, any jot of credibility that
the Secretary may have had surely cannot withstand this
inarguable evidence of aberrant thinking; the inconsistency alone is
staggering. These quips run the full gamut from puerile denial to
deliberate understatement to bald-faced demagoguery, right on down to
yesterday's call for patience. Suffocated by his unabashed,
unprincipled and incessant manure-spreading, I honestly wonder how the
heck it is that we are not on the WH lawn . right this instant .
pitchforks in hand. > April 20, 2007: 'I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained.' http://www.reuters.com/article/gc06/idUSWBT00686520070420
>
July 12, 2007: 'This is far and away the strongest global economy I've seen in my business lifetime.' http://money.cnn.com/2007/07/18/news/economy/powerplay_economy.fortune/index.htm
> August 1, 2007:
'The market has focused on this. There's a wake-up call, and there's an
adjustment to this repricing of risk, but I see the underlying economy
as being very healthy.' http://www.reuters.com/article/topNews/idUSBJC00005820070801 > February 28, 2008: 'I'm
seeing a series of ideas suggested involving major government
intervention in the housing market and these things are usually
presented or sold as a way of helping homeowners stay in their homes.
Then when you look at them more carefully what they really amount to is
a bailout for financial institutions or Wall Street.' http://blogs.wsj.com/deals/2008/02/28/
> March 16, 2008:
'We've got strong financial institutions . . . Our markets are the envy
of the world. They're resilient, they're...innovative, they're
flexible. I think we move very quickly to address situations in this
country, and, as I said, our financial institutions are strong.' http://www.realclearpolitics.com/articles/2008/03/secretary_paulson_on_fox_news.html > May 7, 2008: 'The worst is likely to be behind us. .There's no doubt that things feel better today, by alot, than they did in March.' http://www.forbes.com/markets/feeds/afx/2008/05/07/afx4978703.html > May 16, 2008: 'The
fiscal stimulus will provide support to the economy as we weather the
housing correction, capital markets turmoil and higher energy and food
prices. .Although we are still working through housing and capital
markets issues, and expect to be doing so for some time, we also expect
to see a faster pace of economic growth before the end of the year. .In
my judgment, we are closer to the end of the market turmoil than the
beginning. Looking forward, I expect that financial markets will be
driven less by the recent turmoil and more by broader economic
conditions and, specifically, by the recovery of the housing sector.' http://www.cbsnews.com/stories/2008/05/16/business/main4103698.shtml
>
July 15, 2008: 'If
you've got a squirt gun in your pocket, you may have to take it out. -
If you've got a bazooka, and people know you've got it...you're not
likely to take it out.'
> July 20, 2008: 'I
think it's going to be months that we're working our way through this
period, clearly months. .Of course the list [of difficulties] is going
to grow longer given the stresses we have in the marketplace, given the
housing correction - but again, it's a safe banking system, a sound
banking system. Our regulators are on top of it. This is a very
manageable situation.' http://cbs5.com/national/henry.paulson.economy.2.775329.html
> August 10, 2008: 'We have no plans to insert money into either of those two institutions [FNM and FRE].' http://www.bloomberg.com/apps/news?pid=20601087&sid=aULVZ2mAF9es& > September 7, 2008:
'In July, Congress granted the Treasury, the Federal Reserve and FHFA
new authorities with respect to the GSEs, Fannie Mae and Freddie Mac.
Since that time, we have closely monitored financial market and
business conditions and have analyzed in great detail the current
financial condition of the GSEs - including the ability of the GSEs to
weather a variety of market conditions going forward. As a result of
this work, we have determined that it is necessary to take action. .
Based on what we have learned about these institutions over the last
four weeks - including what we learned about their capital requirements
- and given the condition of financial markets today, I concluded that
it would not have been in the best interest of the taxpayers for
Treasury to simply make an equity investment in these enterprises in
their current form.' . http://www.ustreas.gov/press/releases/hp1129.htm > September 15, 2008: 'Moral
hazard is something I don't take lightly. . I never once considered
that it was appropriate to put taxpayer money on the line in resolving
Lehman Brothers.' http://www.iht.com/articles/ap/2008/09/15/business/NA-US-Paulson-Markets.php
>
September 19, 2008: 'We're
talking hundreds of billions of dollars - this needs to be big enough
to make a real difference and get at the heart of the problem. This is
the way we stabilize the system. . If these efforts result in a net
cost to the taxpayer, it's a better bet than the alternative. . I am
convinced that this bold approach will cost American families far less
than the alternative - a continuing series of financial institution
failures and frozen credit markets unable to fund economic expansion.' . http://money.cnn.com/2008/09/19/news/economy/paulson_plan_cost/index.htm > September 23, 2008: 'We
need to work as quickly as possible; we need to get something done. We
believe that our plan, and the plan that we developed with
congressional leaders and worked so hard, is a plan that works. And we
need a plan that works.' . http://www.bloomberg.com/apps/news?pid=20601087&sid=arQOMRk_d_s0& > October 8, 2008: 'We
have no time to waste in implementing the new law. . One thing we must
recognize - even with the new Treasury authorities, some financial
institutions will fail. . But patience is also needed because the
turmoil will not end quickly and significant challenges remain ahead. .
Neither passage of this new law nor the implementation of these
initiatives will bring an immediate end to current difficulties.' ." http://www.treas.gov/press/releases/hp1189.htm
>
>
Source:
Welling @ Weedon
Oct. 9, 2008
http://welling.weedenco.com/index.cfm?act=Newsletter.cfm&category=acuteobservations&newsletterid=3314&menugroup=Home
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Comments
We all know he's an idiot but what could he really have said? It's terrible get out?
Posted by: John Borchers | Oct 13, 2008 2:31:47 PM
It wasn't me....it was the kool aid talking....
Posted by: H. Paulson | Oct 13, 2008 2:35:10 PM
Hank and Sarah Palin might make a cute couple.
Posted by: catman | Oct 13, 2008 2:36:23 PM
It's easy to cast stones at this stage, but let's face it. If Paulson told us a year ago that he wanted to partially subsidize the banks with direct injections in exchange for preferred shares, he would have been skewered. The only time you can sell something like this is when you are standing on the edge of the cliff. Besides, part of leadership is not to say things that upset the natives. You don't throw gasoline on a fire. You keep a cool demeanor and let everyone know that 'Daddy's here and everything will be okay'. In fact that's why the markets are up today: Daddy's home and we kids can play. This problem is not of his making. However, those looking for a kneejerk scapegoat, he'll do.
Posted by: drewster | Oct 13, 2008 2:41:24 PM
Stop picking on my son, you bunch of bullies!
Posted by: Hank Paulson's Mother | Oct 13, 2008 2:42:00 PM
thank you, Kate Wellings! the pen is mightier than the sword! although, i imagine there are those that believe the guillotine would be swifter and sharper...
Posted by: karen | Oct 13, 2008 2:45:18 PM
I think I figured out why Hammerin' Hank picked Neel Kashkari to manage the $700B bailout. Can't you picture the guy on TV saying to us
"$9 billion to Morgan Stanley... Deal or No Deal?"
HCF
Posted by: HCF | Oct 13, 2008 2:54:50 PM
drewster,
Scapegoat? Paulson will do for now.
So this is about selling something? You're one of those hard boiled pragmatists who practice Kissinger's realpolitic version of wheeling and dealing in business. Yeah, I know, they can't handle the truth. You enlightened snd deep pocketed fellows have to think for all the rest of us and tell us bed time stories.
Hey pal, we're awake. Sell it to someone else.
Posted by: AGG | Oct 13, 2008 2:57:47 PM
Honestly I could care less what Hank Paulson has said over the last 12 mos. I don't use that information to make trading decisions.
Posted by: Jay | Oct 13, 2008 3:03:07 PM
So, who's going to dump longs before the close? I think we might have one more good day tomorrow, then some retracement. If we're up tomorrow, I'll step away.
Posted by: Knapp | Oct 13, 2008 3:04:04 PM
BR: So what happened to your financial blog? Looks like it's turned into the Daily Koz or DU.
Posted by: rockitz | Oct 13, 2008 3:04:04 PM
Barry, Do you think now is a good time to start a bank?
Posted by: francine hardaway | Oct 13, 2008 3:04:47 PM
I agree that Paulson would have been mostly compelled by circumstance to say these things (even if he didn't believe them, which is debatable). What he said is not necessarily the problem. Rather, it is the nonfeasance of not being prepared. He should have had multiple plans for multiple scenarios. It was clear that it *could* come to this. He should have had a playbook to deal with it. That is the real problem.
Posted by: Anonymous | Oct 13, 2008 3:16:50 PM
I think the comment above would make an even better blog post- to go back three years and see the number of times that Paulson and Bernanke assured us that if a crisis hit, they had a "secret plan" that would be immediately available and effective.
When the crisis finally hit they showed up with a sloppy three page essay that would have gotten a failing grade in Introduction to Economics at any decent college.
Posted by: john haskell | Oct 13, 2008 3:26:01 PM
Is this it Barry? The 90% up day you spoke of that would make you an aggressive buyer? Do tell!
Posted by: Vic | Oct 13, 2008 3:26:03 PM
Enough!!!! Are we witnessing the mother of all short squeezes today????
Posted by: BlackSwan2008 | Oct 13, 2008 3:32:50 PM
So is everybody who is criticizing Paulson here as smart as a rocket scientist? And is Buffett is a moron? Just wondering.
Posted by: Anon1 | Oct 13, 2008 3:32:55 PM
The “Reality Problem”
What did the “free market” theory underlying the giveaway leave out of account? For starters, “the monetary system” turns out to be a euphemism for the fortunes of financial gamblers using junk mathematics (the Merton-Scholes derivatives formula) based on junk economics (blessed with Nobel Prizes) to buy, speculate and even to insure junk mortgages, junk bonds and junk commercial paper and derivatives based on their relative prices. So what is left out first of all was full knowledge of the value of what is being bought and sold. Mark-to-market models leave the price up to the investment bankers. If trust existed and there really was honor among these thieves, a government bailout would not be necessary, because “the market” could clear.
“Free market” ideology assumes that each party will act in his or her self-interest. If this is so, why should foreign governments accumulate more dollar claims on the U.S. Treasury, which already owes their central banks $4 trillion? When there hardly were enough Treasury securities to go around even as the United States ran unprecedented federal budget deficits, U.S. officials urged these banks and sovereign wealth funds to buy packaged mortgages yielding a higher rate of return. And at least by buying these bonds, foreign governments would not be accused of funding America’s war in Iraq that most of their voters opposed. But investors made a fatal mistake in believing U.S. representations of the value of their junk-mortgage packages. This trust has now been lost, all the more so since the bailout’s permission to keep on “marking to market.”
Congress thought that its $700 billion would distract attention at least until the November 4 election. But to no avail. Markets fell 157 points on Giveaway Friday, and kept on going down another 800 points on Monday, October 6 (to about 9500) before bouncing 500 points off the floor, only to fall even more through Friday. So the giveaway failed in its stated purpose to rescue stock market investors (“peoples’ capitalism”) or their pension funds. But that was not its real purpose. The time simply had come to clear out and take whatever one could.
Making banks and insurers in the zero-sum derivative game whole, so that winners can collect their bets while losers can sell their bad investments to the Treasury, is supposed to re-inflate the credit pyramid. The idea is to solve the debt problem with yet more debt to prop up housing prices once again to unaffordable levels! This is not a long-term solution, but it would give insiders enough time to arrange a do-over and get out of the game more quickly, to sell out their junk mortgages and junk bonds to the proverbial “greater fool” – in this case, the “greater fool of last resort,” the U.S. Treasury, as long as it can be run by Mr. Paulson or, under Mr. Obama, perhaps the former Goldman-Sachs official Robert Rubin.
All the above and more from Hudson is on Counterpunch.
Here come the hedge funds to sell, sell, sell.
Posted by: AGG | Oct 13, 2008 3:37:07 PM
Had to take profits. Back to cash. This is ridiculous. What a day!
Posted by: Knapp | Oct 13, 2008 4:01:44 PM
Obama will govern with more of a "common sense" than from ideology. This, along with regulation of the "ideologues" should help the US. I'm concerned about the US debt levels....this is going to be difficult for ANY new incumbent, especially anyone that says we are lowering taxes....hello?
Posted by: winslow | Oct 13, 2008 4:12:46 PM
It's amazing how many people who comment here, have little or no understanding of the severity of the problem that HMP has caused, not only during his tenure at GS, but even at the treasury and even of late by steering the wheel in the wrong direction, ignoring what BB was recommending. I'm just glad that the market almost recovered the losses of the last two sessions. Whew! I wish we could put someone else in the seat who can actually drive.
Posted by: Commander | Oct 13, 2008 4:16:56 PM
In this same vein, you really must check out Macro Man's Sherlock Holmes post from this morning... one of the best blog posts of 2008 IMHO:
http://macro-man.blogspot.com/2008/10/mystery-of-stolen-plans_13.html
Posted by: Sherman McCoy | Oct 13, 2008 4:28:49 PM
Posted by: Dr. Kenneth Noisewater | Oct 13, 2008 4:41:25 PM
I'd expect a Treasury Secretary to blow sunshine in his public statements and discount them accordingly.
What I don't expect is that when a financial meltdown is in progress, he has no substantial contingency plans except a three-page memo, "Gimme $700 billion to buy crap, and shut up".
Posted by: Mike G | Oct 13, 2008 4:46:28 PM
This sounds like the blathering %$#% we hear out of 90% of the CEO's in this country on a regular basis. Clearly, this country can't choose these types of people with this "skill set" for a job like this that requires them to sometimes anticipate, see and get in front of problems instead of treat these issues as if they are some quarterly earnings issue in which they are speaking to typical Wall Street sheep, where the soft pedal over this while winking.
Posted by: Joe R | Oct 13, 2008 6:22:49 PM
