Nobel Peace Prize-winning economist Joseph E. Stiglitz has an excellent summary of the dynamics behind the financial crisis in Vanity Fair. I wanted to cite the following passage (paragraph breaks are my own), because it’s a serious implication of Hank Paulson:
The original proposal by Treasury Secretary Henry Paulson, a three-page document that would have provided $700 billion for the secretary to spend at his sole discretion, without oversight or judicial review, was an act of extraordinary arrogance. He sold the program as necessary to restore confidence.
But it didn’t address the underlying reasons for the loss of confidence. The banks had made too many bad loans. There were big holes in their balance sheets. No one knew what was truth and what was fiction. The bailout package was like a massive transfusion to a patient suffering from internal bleeding—and nothing was being done about the source of the problem, namely all those foreclosures. Valuable time was wasted as Paulson pushed his own plan, “cash for trash,” buying up the bad assets and putting the risk onto American taxpayers.
When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America’s taxpayers but failed to ensure that the banks would use the money to re-start lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.
If Stiglitz is right, the media has been glazing over the severity of Paulson’s missteps. Stiglitz’s opinions do tend to run counter to mainstream verbiage–for example, he was one of the few experts who said this crisis would be as bad as the Great Depression, or worse–but he’s far too sound to dismiss as a left-wing doomsdayer.
When the bailout bill passed, it did so under a valence of desperation. We needed something. But I’m starting to think there’s an indictable offense nestled somewhere in Paulson’s behavior. I don’t say this as a partisan. There could be a serious offense in Obama’s campaign contributions, too.
I say this as someone who thinks she smells a rat.
Thoughts?
> But it didn’t address the underlying reasons for the loss of confidence.
Wrong, the loss of confidence was between financial market counterparties. The loans directly addressed that loss of confidence.
> he did it in a way that not only cheated America’s taxpayers
We don’t even know if these loans are good investments. There are smart guys on both side of the aisle that think the US Govt will come out ahead on the trillions they put at risk. Cheating has nothing to do with it.
> I’m starting to think there’s an indictable offense nestled somewhere in Paulson’s behavior.
There could be, that is true, but it will most likely be found in the question “Why AIG but not Lehman?” Bloomberg has asked for the details of money loaned to AIG that was used to bail out the counterparties. If Goldman received $xx billion dollars, Paulson could have a problem. And of course they did.