It's easy to dismiss the Tea Party. For one thing, they seem fond of a 18th century lifestyle that preceded the age of big corporations, big government, and life expectancies that extended much beyond one's thirties. But while they seemingly lack intellectual appeal, they do resonate emotionally with a chunk of voters. Enough voters, in fact, to cost Obama the 2012 election.
In the decade of the 00s, bankers made billions and then cost us trillions. As CEO of Goldman Sachs, Hank Paulson made $37 million in 2005 alone. He left banking with a net worth of $700 million when he became the US Treasury Secretary. Not only did he engineer a bailout of trillions for the banking industry (including billions for Goldman Sachs) but included in the bailout legislation clauses protecting bankers from any liability for the financial meltdown of 2008.
The financial meltdown cost millions to lose jobs and homes and wiped out retirement accounts for millions more. No one has gone to jail for this bank robbery. Countrywide CEO Mozilo did have to pay $67.5 million in fines and settlement fees, which sounds like a lot until you realize that he made $470 million in just the six years leading up to the bursting of the bubble. Not only did Mozilo escape jail time or financial hardship, but even the ratings agencies that assured bond holders that packaged subprime bonds deserved AA and AAA ratings were allowed to continue to do business without any penalties for their egregious failures to warn investors.
What Obama should have done is appoint someone as savvy as Elliot Spitzer to investigate the players in the drama leading up to the costliest financial collapse in history and found people to penalize and even imprison. Not only would this have bolstered his support among his base, it would have won over so many of the independent voters whose outrage at Wall Street led them to join forces with the Tea Party. By failing to address the injustice of systemic abuse of American taxpayers, Obama fed the emotional energy that the Tea Party has tapped.
And to prosecute would not just salve the anger of Americans. Prosecution would have helped to curtail bad behavior by bankers, letting them know that while the American government could not afford to let the financial system collapse, it certainly could afford to prosecute and jail a number of bank executives. As much as trillion dollar bailouts, prosecution would have helped to strengthen the banking system by making bad behavior costly.
Obama's apparent disdain for the emotional cost of the 2008 crisis may cost him re-election. And may even give him a place in history as the co-founder of the Tea Party.
R World (Ron Davison muses aloud)
Showing posts with label paulson. Show all posts
Showing posts with label paulson. Show all posts
13 June 2011
07 February 2010
A Little Reminder on the Limits of Prediction
Hank Paulson and Alan Greenspan were on Face the Nation today. The former Treasury Secretary and Fed Chairman may well represent as much as we know about economics.
After offering their opinion about what projected deficits will mean for the economy over the next decade, they both very sagely predicted that the Colts would win today's Super Bowl. This was, of course, a brilliant little reminder of the limits of prediction.
Of course, everyone knows that an economy over a ten year period, and the influence of the deficit over economic activity for good, bad, or indifference, is a much simpler thing to predict than a mere game. Because a game, of course, involves the actions of independent agents, the unexpected, herculean efforts, unpredictable strategies, and chance. By contrast, an economy of 300 million people in a world of 6.5 billion, in a time when there has never been more opportunity for innovation in technology or social institutions, has none of that.
After offering their opinion about what projected deficits will mean for the economy over the next decade, they both very sagely predicted that the Colts would win today's Super Bowl. This was, of course, a brilliant little reminder of the limits of prediction.
Of course, everyone knows that an economy over a ten year period, and the influence of the deficit over economic activity for good, bad, or indifference, is a much simpler thing to predict than a mere game. Because a game, of course, involves the actions of independent agents, the unexpected, herculean efforts, unpredictable strategies, and chance. By contrast, an economy of 300 million people in a world of 6.5 billion, in a time when there has never been more opportunity for innovation in technology or social institutions, has none of that.
12 November 2008
Bush Bails Out on Bailout
In a stunning turnabout, the Bush administration Wednesday abandoned the original centerpiece of its $700 billion effort to rescue the financial system and said it will not use the money to purchase troubled bank assets.
“Our assessment at this time is that this (the purchase of toxic assets) is not the most effective way to use funds,” Treasury Secretary Henry Paulson told a news conference.
[Full story can be found on click through - read on here if you want to dive into plausible fiction.]
The Bush administration has realized that it can purchase whole countries instead - "places where we can run experiments to test various economic models and bailout options before we commit to any one plan," Paulson explained.
"As it turns out," Treasury Secretary Paulson said, "$700 billion is a LOT of money. Once we realized how much we could do with it, buying bad assets didn't seem that appealing." (Reporters commented later that Paulson seemed to drag out the term bad assets is ways that he might have hoped would make an old white man in a suit sound like a bad ass.)
George Bush, who is looking for retirement property, was said to have protested any move that would prop up home prices before he moved out in January. Aids say that Bush was shocked to realize that although the resale value of the White House was still high, he would not actually get to sell it when he moved out. "If we aren't selling the place," he said to Laura, "tell me again what the deal was with showing the place to that young black couple with the two pretty little girls?" They deny, though, that this is the only reason Bush has decided to embrace a policy that would let home prices fall further.
Paulson explained that there is something magical about having $700 billion to spend at any time. "You should see the way people look at me, hang on my every word, hoping that I might throw a little of it their way. Even when I was the CEO at Goldman Sachs, it was never this good," he said. "I don't want to rush this process of deciding where to spend the money."
The Bush administration said that it has no plans to revive credit markets or the economy and might not have one until sometime after the holidays - "perhaps late January," Dick Cheney said with a chuckle.
02 October 2008
Captain Credit Crunch to the Rescue
This nation faces a credit crunch. Car sales are down from last year. Home sales are down. We're teetering on the brink of - or more probably have already fallen into - a recession because liquidity has dried up, the money has run out.
Last night, the Senate voted 3 to 1 to change this state of affairs by passing a bill that would not only purchase about $700 billion in bad mortgages, but added another $150 billion in personal and corporate tax cuts. Senate leaders hope that these tax cuts will persuade the House to pass the bill.
Apparently, the $500 billion the federal government was already going to borrow from credit markets was not enough. We're borrowing even more to help an economy that faces a credit shortage.
Sadly, the average person does not understand and support this plan.
Last night, the Senate voted 3 to 1 to change this state of affairs by passing a bill that would not only purchase about $700 billion in bad mortgages, but added another $150 billion in personal and corporate tax cuts. Senate leaders hope that these tax cuts will persuade the House to pass the bill.
Apparently, the $500 billion the federal government was already going to borrow from credit markets was not enough. We're borrowing even more to help an economy that faces a credit shortage.
Sadly, the average person does not understand and support this plan.
26 September 2008
Video: Keynesian Economics & the Great Bailout of 2008
Again, I try the video experiment.
As I videoed this, the negotiations for some kind of intervention seemed to be stalled or even breaking down. I completely support the notion of debating and challenging the Paulson plan. I cringe at the thought of the free market advocates just derailing any kind of plan, as if there is not some financial system that we need to protect. The neoconservatives convinced that this problem can be left to markets are the same ones who saw nothing wrong with the invasion and occupation of Iraq.
As I videoed this, the negotiations for some kind of intervention seemed to be stalled or even breaking down. I completely support the notion of debating and challenging the Paulson plan. I cringe at the thought of the free market advocates just derailing any kind of plan, as if there is not some financial system that we need to protect. The neoconservatives convinced that this problem can be left to markets are the same ones who saw nothing wrong with the invasion and occupation of Iraq.
21 September 2008
My $5 Billion Idea
It took the U.S. government 200 years to finally spend $700 billion a year. It took Treasury Secretary Henry Paulson a few days to propose spending this much to buy bad mortgages and George Bush a few hours to say yes. I have an idea for propping up mortgage markets – and by extension financial markets - that might be less expensive.
George Bush wants to spend another $700 billion of your money. And he needs you to agree to this now - this week. [This with the rest of the week's new spending is equal to about $1.3 trillion. If you are not outraged you are not paying attention.]
How much is $700 billion? To put this in perspective, it was not until 1982 that Reagan approved a federal budget of more than $700 billion (and not until 1985 that he collected revenues greater than $700 billion).
This is more than we spend on all categories* of discretionary spending except for defense.
It seems to me that when a salesman tells you that he needs you to commit to $700 billion (or more) by the end of the weekend, you might be getting rushed into a deal that can't stand much scrutiny.
The economy could slow as a result of financial markets, but it won't be immediate. Call me an idiot, but I don't know why we have to act this week in order to stem economic slow down. In fact, I think that another $700 billion in deficit spending might do as much to hinder economic growth over the next few years as stimulate it.
I'd like to make a more modest proposal. I have an idea that could save you (the American taxpayer) hundreds of billions. Maybe. (And all I ask is 1% of the savings – hence the “$5 billion idea” post title.)
The Bush / Paulson idea is to buy about $700 billion in mortgages, propping up a market that could take down broad swaths of American financial markets. One problem with this plan is that it'll likely drive up the price of mortgage securities - which will make the bailout even pricier. There might be a cheaper way to do it.
When Walt Disney wanted to establish Disney World, he set up a secret company that bought individual farms. Had the farmers all known what Walt was up to, he would have paid a multiple of what he did. Why not do something similar to prop up the mortgage and financial markets?
The Treasury Department could buy mortgage securities, but no one would need to know how much they were going to buy. Prices would stabilize, perhaps even rise a little. And the government could buy a small amount or large, depending on the performance. Everyone would know that the government was going to intervene, but no one would know how much they were going to buy or when. Knowing that the government was intervening should keep markets from tanking; not knowing by how much should keep markets from artificial highs that will just cost taxpayers more and would still need eventual correction. (This would basically be like monetary policy in government bond markets temporarily extended to include mortgage-backed securities.) And this would give the policy makers time to assess this situation and perhaps devise a better plan.
It could be that the government would need to spend $700 billion anyway, but this is not a foregone conclusion. And at a minimum, this would give the next president some room to maneuver. A new bill that increases discretionary spending by 75% in a single week would basically make it impossible for the next president to do anything of consequence – whether it is Obama’s plan for expanded health care or McCain’s plan for more tax cuts. (Which may well be what they want.)
Rushing into this bill seems too reminiscent of rushing into the invasion of Iraq. No one has convinced me that the Paulson / Bush plan is the best option or that it needs to be enacted before it has been scrutinized.
Oh, and I promise that if I do get the $5 billion finder’s fee, I’ll host a most bodacious party for you R World regulars. It may involve renting a small Caribbean island and about 3 months of snorkeling, sailing, and deep and silly conversations.
[*More than all categories combined. That is, the money we spend on the executive, legislative, and judicial branches, small business administration, the corps of engineers (which didn't have enough money to properly protect New Orleans from Katrina), the national science foundation, commerce department, environmental protection agency, social security administration, the departments of interior, labor, treasury, transportation, agriculture, justice, energy, state, homeland security, housing and urban development, veterans affairs, education, and health & human services, and NASA - combined - is less than what Paulson and Bush would like to spend on bad mortgage debt.]
George Bush wants to spend another $700 billion of your money. And he needs you to agree to this now - this week. [This with the rest of the week's new spending is equal to about $1.3 trillion. If you are not outraged you are not paying attention.]
How much is $700 billion? To put this in perspective, it was not until 1982 that Reagan approved a federal budget of more than $700 billion (and not until 1985 that he collected revenues greater than $700 billion).
This is more than we spend on all categories* of discretionary spending except for defense.
It seems to me that when a salesman tells you that he needs you to commit to $700 billion (or more) by the end of the weekend, you might be getting rushed into a deal that can't stand much scrutiny.
The economy could slow as a result of financial markets, but it won't be immediate. Call me an idiot, but I don't know why we have to act this week in order to stem economic slow down. In fact, I think that another $700 billion in deficit spending might do as much to hinder economic growth over the next few years as stimulate it.
I'd like to make a more modest proposal. I have an idea that could save you (the American taxpayer) hundreds of billions. Maybe. (And all I ask is 1% of the savings – hence the “$5 billion idea” post title.)
The Bush / Paulson idea is to buy about $700 billion in mortgages, propping up a market that could take down broad swaths of American financial markets. One problem with this plan is that it'll likely drive up the price of mortgage securities - which will make the bailout even pricier. There might be a cheaper way to do it.
When Walt Disney wanted to establish Disney World, he set up a secret company that bought individual farms. Had the farmers all known what Walt was up to, he would have paid a multiple of what he did. Why not do something similar to prop up the mortgage and financial markets?
The Treasury Department could buy mortgage securities, but no one would need to know how much they were going to buy. Prices would stabilize, perhaps even rise a little. And the government could buy a small amount or large, depending on the performance. Everyone would know that the government was going to intervene, but no one would know how much they were going to buy or when. Knowing that the government was intervening should keep markets from tanking; not knowing by how much should keep markets from artificial highs that will just cost taxpayers more and would still need eventual correction. (This would basically be like monetary policy in government bond markets temporarily extended to include mortgage-backed securities.) And this would give the policy makers time to assess this situation and perhaps devise a better plan.
It could be that the government would need to spend $700 billion anyway, but this is not a foregone conclusion. And at a minimum, this would give the next president some room to maneuver. A new bill that increases discretionary spending by 75% in a single week would basically make it impossible for the next president to do anything of consequence – whether it is Obama’s plan for expanded health care or McCain’s plan for more tax cuts. (Which may well be what they want.)
Rushing into this bill seems too reminiscent of rushing into the invasion of Iraq. No one has convinced me that the Paulson / Bush plan is the best option or that it needs to be enacted before it has been scrutinized.
Oh, and I promise that if I do get the $5 billion finder’s fee, I’ll host a most bodacious party for you R World regulars. It may involve renting a small Caribbean island and about 3 months of snorkeling, sailing, and deep and silly conversations.
[*More than all categories combined. That is, the money we spend on the executive, legislative, and judicial branches, small business administration, the corps of engineers (which didn't have enough money to properly protect New Orleans from Katrina), the national science foundation, commerce department, environmental protection agency, social security administration, the departments of interior, labor, treasury, transportation, agriculture, justice, energy, state, homeland security, housing and urban development, veterans affairs, education, and health & human services, and NASA - combined - is less than what Paulson and Bush would like to spend on bad mortgage debt.]
10 March 2007
Who Do CEO's Work For?
This week I awoke to an interview with Treasury Secretary Henry Paulson. He made the most extraordinary comment: he said that he didn't support stockholders voting on CEO pay.
His is not such a unique opinion. In fact, I'm baffled by how common is his opinion. "You own the company but you have no say about the income of the top-paid employee," is what Henry is actually saying. It seems so obviously wrong that I hardly know how to comment.
And it is time to get beyond the joke ballots that these publicly-owned companies send out. There is no information about who we are voting for and rarely options. A typical vote is "Do you support the appointment of Nihal Mudvane to the board?" as if we had a clue who Nihal is or had an option to choose someone else.
Saddam Hussein won 98% of the vote in his last election. The Communist Party typically won about 99% of the vote during their rule over the USSR. Joke elections are evidence of joke governance.
If a company is going to enjoy the benefits of being publicly owned, if it is going to allow us common folks to own stock, the senior executives need to accept that they work for us, the owners. The elections of consequence should parallel the elections of free and open governments - be elections about policy options and about choosing between real people rather than rubber stamping a decision made months before.
His is not such a unique opinion. In fact, I'm baffled by how common is his opinion. "You own the company but you have no say about the income of the top-paid employee," is what Henry is actually saying. It seems so obviously wrong that I hardly know how to comment.
And it is time to get beyond the joke ballots that these publicly-owned companies send out. There is no information about who we are voting for and rarely options. A typical vote is "Do you support the appointment of Nihal Mudvane to the board?" as if we had a clue who Nihal is or had an option to choose someone else.
Saddam Hussein won 98% of the vote in his last election. The Communist Party typically won about 99% of the vote during their rule over the USSR. Joke elections are evidence of joke governance.
If a company is going to enjoy the benefits of being publicly owned, if it is going to allow us common folks to own stock, the senior executives need to accept that they work for us, the owners. The elections of consequence should parallel the elections of free and open governments - be elections about policy options and about choosing between real people rather than rubber stamping a decision made months before.
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