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Paulson Admits: I Have No Idea What I'm Doing



November 12, 2008 – Comments (14)

He's admitting it via actions. Too bad he doesn't have the words.

I don't think he's fooling anyone, however. The news headlines allege that stocks are dropping because of disappointment that the TARP plan is dead, and that all that bailout money won't be going to get these troubled assets off banks' balance sheets.

I think they're dropping because the change in direction proves that Paulson has no idea what he's doing, has no control over the situation whatsoever, and is incapable of planning and execution. Worse yet, he's incapable of seeing what the real problem is and/or telling the truth about it. Only weeks ago we were told that buying off these toxic assets was an absolute must. Read what Paulson said here.

The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy...

These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions. As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted.

To restore confidence in our markets and our financial institutions, so they can fuel continued growth and prosperity, we must address the underlying problem.

The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.

Some of my Fool colleagues fell for this, and after it was repeated often enough, I even began to believe that this might make some sense... perhaps. But it's clear now that if this is indeed the problem, Paulson and his crew have no idea how to craft a solution. Chalk that up to the overwhelming complexity of the securities for sale, I think, coupled with an unwillingness on Paulson's part to pay the going rate for these junkpiles, which would force banks to recognize big losses immediately.

Better, Hanky now thinks, to shovel them cheap money, which, as we've seen, banks are hoarding, or using to pick up acquisitions, in addition, of course, to shelling out billions in dividends. Take a look at the rate spread between what Hank's people are getting for injecting money into banks versus what, say, Buffett extracted from Goldman to get an idea of the kinds of deals that are being made with taxpayer money.

Paulson would never have made crummy deals like these back in his GS days, but then, that was his money on the line, and he's just playing with everyone else's now... He's got hundreds of millions of his own, so what does he care? He didn't make this mess (though he did benefit from it, and got out lucky when he was tapped by Bush...)

Where will we go from here? I think what we'll see now is the usual DC mix of handouts designed to appease the extreme wings of both parties -- money given directly to the failed bankers, plus money given directly to failed borrowers. That way, everyone's happy, except for that big silent majority in the middle, people who actually paid their bills in a timely fashion and didn't borrow more than they could afford. People who didn't extract thousand, millions, or hundreds of millions in bonuses built on fake "earnings" while the Ponzi scheme was on going.



14 Comments – Post Your Own

#1) On November 12, 2008 at 12:21 PM, Gingerbreadman55 (27.28) wrote:

Totally Agree. It looks like a lot of us read this and got upset.

My rant is here

Here comes more free money to all who need it (except the average taxpayer, of course. That would just be absurd)

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#2) On November 12, 2008 at 12:26 PM, TDRH (97.09) wrote:

When will we see a walk of shame?   All this negligence and not one of the executives in handcuffs.  No civil suits, no garnishing of wages, seizures of assets, just golden parachutres and bonuses.   

Hope they spend some of their wealth on security systems, lawyers and guards because when if this baby collapses someone is going to make a name for themselves going after them.  


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#3) On November 12, 2008 at 1:27 PM, cdulan (< 20) wrote:

I agree also.  At least he was honest enough to admit the credit market is totally broken.  That is a step in the right direction.

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#4) On November 12, 2008 at 1:31 PM, MarketBottom (28.51) wrote:

Also, banks must now clean up their own mess.

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#5) On November 12, 2008 at 1:37 PM, TMFBent (99.27) wrote:

I too think this might be a better idea, although putting in all this capital without getting any control is ridiculous. Of course, they don't have enough warm bodies to fill board seats, but I think it may be time for the government to take a chair at the biggest takers and start with the beatings, at least until morale improves. They should start by forcing some divvy cuts.

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#6) On November 12, 2008 at 1:48 PM, MarketBottom (28.51) wrote:

The treasury may be on the verge of catching a few crooks.

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#7) On November 12, 2008 at 1:53 PM, cbwang888 (25.53) wrote:

Mr. Paulson knew what he was doing. Taking $$$ from taxpayers to his buddies in the financial sectors.

Bailouts should go to good and honest players who get hurt by this credit crisis, NOT financial firms or GM/F likes.

US Congress is full of dumb asses ...

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#8) On November 12, 2008 at 2:32 PM, Ozzymendias (< 20) wrote:

China is the future silly americans.  Your bankrupt government can't bail out your entire economy.  Soon your treasury bills will be worthless and the Chinese will look like the good guys who got stuck holding them.  Pretense for war?

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#9) On November 12, 2008 at 3:13 PM, Zanibel17 (92.54) wrote:

Pretense for war?

That's my fear.

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#10) On November 12, 2008 at 4:57 PM, abitare (29.95) wrote:

James Kunstler says it best in East Hampton Burning

So, a large and looming question is: who will be appointed the next attorney general of the US (to replace the human sash-weight currently occupying the office), and how soon will the federal marshals be scouring the wainscoted hallways of Goldman Sachs, JP Morgan Chase, not to mention a thousand Greenwich, Connecticut, hedge fund boiler rooms, with man-sized nets?

A story-line is already emerging to the effect that these birds really didn't quite know what they were doing in grinding out that multi-trillion dollar basket of alphabet securities sausage (a theme on Sunday's "60-Minutes" broadcast). Nobody will buy that line of bullsh-t, though -- and certainly not in the courtroom where, for instance, Mr. Hank Paulson will have to answer why his own firm of Goldman Sachs set up a special unit to short its own issues. It will be edifying to see how they answer.

In the meantime, however, millions of Joe-the-Plumber types will have gotten their pink slips, slipped helplessly into foreclosure, watched the repo men hot-wire their Ford pickups, and eaten down the kitchen cupboard to a single box of Kellogg's All-Bran (which had been sitting there for eleven years infested with weevils). They will be watching the official proceedings in the federal courtrooms with jaundiced eyes as they hunch in their tent cities, in the rain, sipping amateur-brand raisin wine bartered for a few snared rock doves. How long before the hardier ones among them venture out to Easthampton with long knives and matches?


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#11) On November 12, 2008 at 6:37 PM, LordZ wrote:

I may need to go back into the repossession business...

NAAA I think the rich girlfriend option although probably more dangerous is the safer option...



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#12) On November 12, 2008 at 6:39 PM, LordZ wrote:

With pipes and clubs.... extracting a pound of flesh...


Scarey scenario...

I can see it now,... the gov simply prescribing sedatives...

to calm people down

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#13) On November 12, 2008 at 10:38 PM, dexion10 (26.89) wrote:

preach on!

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#14) On November 12, 2008 at 10:49 PM, edbbear (< 20) wrote:

We have got to get rid of Paulson, Bernanke and Blair as soon as possible.  This has gotten just ridiculous. 

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