Paulson and Bernanke: Worst Failures in the History of World Finance?

Are Secretary of Treasury Paulson and Fed Chief Bernanke the worst failures in the history of finance?  The case can be made for that.

 

First, look how bad Paulson has been.  First, he was CEO of Golman Sachs--the largest and strongest of teh investment bankers.  Paulson built Goldman Sachs as part of the problem.  That is, if Wall Street was greedy, Goldman Sachs was greedy.  If Wall Street took too much risk, Goldaman Sachs took too much risk.  The firm was in danger of failing,. and forced to change its entire structure to that of a bank.  This meant raising capital, including from Warren Buffet, at the expense of the stock price.  In other words, and this seems to be unrecognized, Paulson failed at Godlman Sachs.  He helped create a major part of the financial problem that he then was forced to deal with (badly) as Treasury Secretary.  That is one of the greatest conflict of interest, and arguably one of the worst stupidities (putting Paulson in charge of solving the disaster he helped create) in history.  Why would anyone assume Paulson knew what to do, when he did not know what to do at Goldman Sachs or even have any concept of the problems building when he came to the Treasury more than 2 years ago?

 

Yes, Paulson became Secretary of the Treasury more than two years ago--more than enough time to address the problems brewing, but Paulson appeared to have no concept of those brewing problems.  The housing "bubble" was absolutely obvious by then  Paulson sounded no warning.  He came from Goldman Sachs, and should have known more than any other person about the risky things Wall Street was doing with mortgage securities and leverage.  He didn't.  He didn't even sound any big warnings on Fannie Mae and Freddie Mac.  Whatever you think of President Bush, he brought in what he thought was a Wall Street expert, and financial expert, upon whom the President could rely.  But Paulson was clueless--as clueless as any man has ever been.

 

Pauslson (and Bernanke, in as Fed Chief by now) did effectively nothing to save the free market system. By 2007 (early, really, in 2007), the situation was deteriorating in housing--obvious to almost anyone  Paulson and Bernanke did little.  They did little to the very point of crisis. Even when Bear Stearns went under, they did little, and advised little.  Short selling?  No advised changes in rules.  Speculation and computer trading?  No advised changes in rules.  Warnings to Wall Streets and banks that they needed to delverage?  None (certainly none before Bear Staearns).  The Fed regulated banks like IndyMac, Washington Mutual, and Wachovia.  All have failed this year, despite being among the most heavily regulated companies in the coutnry.  Despite warnings of the housing "bubble", the Fed took no aggressive action to examine bank practices to nsure they were sound. Nero (Paulson and Bernanke) fiddled, as Rome (the U.S. financial system) burned.  Needless to say, Democrats in Congress were doing nothing either, other than to defend Fannie Mae and Freddie Mac, and accept campaign contributions from both those entities and Wall Street. Barack "World" Obama was the second biggest recipient of campaign contributions from Fannie Mae and Freddie Mac employees (these were Democratic institutions), and from Lehman Brother.  This is a digression from Paulson and Bernanke, but not really.  Most of Wall Street, including really Paulson, was, and is, Democratic.  Sure, Democrats were talking about bailing out homeowners, once it was already too late, but they never talked about the housing "bubble", Fannie Mae, Freddie Mac, and the danger our financial system was facing.  Neither did Paulson and Bernanke. 

 

What did Paulson and Bernanke do when faced with the fact that they had utterly failed to properly anticipate, evaluate, and address the developing financial "crisis" over the past 2 years (adequate time for most people who are not Cooper Inidians--see Mark Twain and last week's entry)?  They panicked.

 

Yes, Franklin Delano Roosevelt may have had Paulson and Bernanke in mind when he said:  "We have nothing to fear but fear itself."  Did Bernanke and Paulson look to the fundamental strengths of the economy, and try to figure out how to use them-while reassuring people that the overall economy was not that bad, if we could get past the temporary credit problems?  Did they say it war ridiculous and counterproductive to talk of another Great Depression?  Nope.  Did they attempt to see if emergency liquidity measures and systemic changes they had failed to make over the past two years would stem panic?  Nope.  They panicked.  They tried to scare everyone, seemingly because they had panicked themselves.  Paulson, of course, as part of Wall Street had already showed he was part of the Wall Street mentality that caused this kind of short term panic.

 

What was the result of Bernanke and Paulson trying to panic everyone, in an attempt to get the taxpayers to hand over 700 billion dollars to Paulson to spend how he wants--an attempt that seems to have been largely successful, although a disaster?  (Most of the taxpayer "protections" in the bailout bill can be waived, or pretty much ignored, by Paulson).  The result of scare tactics and panic, plus talk of financial collapse and a Great Depression, was predictable.  It was what the media appeared to want, with its own constant scare talk, but the result was predictable disaster.  The credit markets remained frozen.  The economy was paralyzed, and essentailly on hold, waiting for the Federal Government to rise to the rescue.  Remember, that was some 11 days ago.  In other words, Paulson and Berananke accomplished what al-Qaida accomplished on 9/11, but without violence.  Paulson and Bernanke paralyzed the economy, and effectively stopped business and finance cold. And the disastrous bailout, if passed, will still not go into effect until no sooner than the end of next week.  Even then, the bill is so complicated (with all of those "face saving" measures trying to conceal the Communistic "bailout") that it will be tricky to put it into effect.  It is all a case of "too llittle, too late", after Pauslon and Bernanke failed, and then compounded their failure with panic.

 

So what is the Fed doing today?  It is injecting billions (hundreds of billions?) of taxpayer (ultimately) dollars into the financial system to provide "liquidity".  It is providing Citicorp with the backing to buy Wachovia assets (taking warrants--all without the bailout), and putting the taxpayer on the line in backing.  The Fed has had to bail out Washington Mutual, and will have to bail out others.  In other words, the taxpayer may well by on the hook for 700 billion dollars before the bailout (for which Paulson and Bernanke panicked the financial system and the whole economy) even goes into effect.  In fact, the financial markets tanked early today. 

 

Bernanke and Paulson, instead of creating panic in trying to setting a precedent for total Federal control of the economy and destruction of the free market system, would have been better advised to have spent the past 11 days trying to work out government assisted free market solutions.  They would have been better advised to reassure people, while doing that, instead of panicking them.  Instead, the Fed is having to commit hundreds of billions of taxpayer dollars anyway, and the "bailout" is looking totally irrelevant, and a likely failure.

 

But even if the bailout fails, or is exposed as virtually useless (or even counterproductive), what precedent has been set?  Right  The precedent set is that the Federal Government should now use taxpayer money to bail out/control the economy, and everyone in it.  In the end, it is probably that precedent, adopting the discredited, Communistic, idea of central plainning solutions to all problems, which will destroy us.

 

Do you wonder why I say that Paulson and Bernanke may be the worst failures in the entire history of world finance--implementing a leftist Democrat philosophy to which wimpy Republicans have signed on (abandoning conservatives, as is their recent policy)? 

 

Nope.  You should vote against any politician who votes for this bailout plan--not only in this election, but for the rest you your, and their, lives. 

 

Sad reality:  Your vote may give you, and will definitely give me, some satisfaction every time you make it over the rest of your life.  However, it will not change the magnitude, and permanent effect, of the mistakes that have been made--mistakes that may fairly be said to represent the downfall of our free market system for the foreseeable future. 

 

Paulson and Bernanke are responsible, more than any other persons, for this disaster,  Their names should go down in infamy for all time.