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.
Incredible.
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