Hank Paulson, the criminally inept Treasury Secretary who shoveled trillions of taxpayer dollars to insolvent banks, facilitated the grand theft of some near $20 billion dollars from AIG by Goldman Sachs (where he was previously CEO), is attempting to change the narrative of the credit crisis and collapse.
In today’s Washington Post piece, Paulson ignores facts, rewrites history, and fabricates causes of the economic collapse:
“A significant root cause of the crisis was the combined weight of government policies promoting homeownership; these are apparent in the housing GSEs, the Federal Housing Administration (FHA), the Federal Home Loan Banks, the federal tax deduction for mortgage interest and various state programs. Homeownership was overstimulated to the point that it was unsustainable and dangerous to the broader economy.”
Let us point out a small problem with Paulson’s rewrite: Throughout the 20th century, interest rates were kept in a realistic range, at least relative to economic growth, by bond traders and the Fed.
At the same time, bank lending standards were based upon historically well founded measures: The borrowers ability to service the debt. Factors that impacted this involved such quaint notions as income, employment history, credit score, other debt obligations, and assets. Further, home loans were based on specific Loan to Value — LTV — meaning that a substantial down payment was actually required. And last, legitimate appraisals were performed at the behest of banks that actually kept these loans on their books for 10 or 20 years — not 30 days.
None of this finds its way into Paulson’s assessment of the causal factors.
How about Alan Greenspan? That is a major systemic risk at the root of the crisis. Greenpan’s tenure as Fed chair was one of irresponsibility and recklessness. His Federal Reserve’s generational low rates set the housing spiral into motion originally. Somehow, Paulson did not see fit to so much as mention Greenspan or the Federal Reserve at all.
Despite repeated warnings by some Fed members, Greenspan directed the Fed to commit nonfeasance — to fail to fulfill its obligation as regulator of lenders. They allowed a proliferation of irresponsible, non-bank subprime mortgage underwriters, who abdicated any and all lending standards. If you really want to find the root causes of the crisis, you begin there. Just don’t look for any mention of subprime lending in Paulson’s commentary. Just as astonishingly, Paulson fails to so much as mention the Federal Reserve’s ultra low rates.
Other things somehow missing from the Paulson commentary? How about the word “derivatives?” Perhaps that might have been a factor? Misaligned Wall Street compensation? Excess Leverage of investment houses? The Repeal of Glass Steagall? The Federal Pre-emption of state lending rules?
Don’t bother looking for any of these either . . . they were not deigned worthy by the former Gioldman Sachs CEO, and are thus omitted from his discussion as well.
Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs. How did THAT happen? Indeed, the boom and bust in the US was smaller than that of many other nations. And the FHA/GSE role in that? Perhaps the former Treasury Secretary can explain the root causes of that.
Paulson oversaw the greatest transfer of wealth in the history of mankind — from taxpayers to insolvent banks and their bondholders. His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy.
If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing, Instead, it is merely pathetic.
Paulson’s book on the crisis is “On the Brink.” It should be titled “Too Much to Drink.”
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Source: Housing policy must be set on sustainable basis Hank Paulson Washington Post, July 30, 2010 http://www.washingtonpost.com/wp-dyn/content/article/2010/07/29/AR2010072905007.html
Paulson’s ass, meet Barry’s foot. Barry, is it right or left? Size? Thank you.
How this guy is not in prison boggles my mind.
There you go again, bashing another Republican.
What is it you have against venal, corrupt, moronic GOP assholes? Why are you do (heh heh) biased?
“His commentary is a thinly veiled attempt… ” and that is all it really takes nowadays while people like you have to fight tooth and nail to even get your point recognized. Just do a search on “twitter” for Hank Paulson and look how the information has already disseminated through out twitter society! It’s freaking amazing how dumbed down society has gotten.
Perhaps he can also explain how other sectors in the US had similar deterioration of lending standards – CRE, private equity, consumer credit, etc.
Go Barry, kill those zombies!
Paulson was silent while Bush was high-fiving everyone in sight and taking credit for the home ownership society he took credit for. Everybody was responsible for nothing those 8 years.
It wasn’t just an absence of effective regulation during those 8 years, the inmates were running the institution.”self regulation” of industry by “generous” industry insiders brings out the looters.
Paulson getting legal absolution before ladling out unfathomable amounts of cash in minimally documented Sunday night deals with his Wall street cronies was the ultimate moral hazard.
The Democrats aren’t without blame, they lacked the courage of their convictions (if they had any) and rolled over for Paulson. Worse, Paulson passed his baton to his acolyte Turbo Timmy who continued the special care & feeding of Wall Street. A new broom sweeps clean but by choosing Geithner O’Bama picked the most worn broom in the closet.
Barry – the Verizon pop-up ads are misbehaving, causing me to never want to do business with the company. Is this the desired result?
I know that you get paid to display their dreck and you do have a right to a reasonable profit for the value that you create with your site, BUT you have to know that I used to like visiting Minyanville until the site got so noisy and instrusive that I gave up on it.
Please make sure that you do not go down that path.
“Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust "” countries not covered by the FHA or GSEs.”
Perhaps a historian can explain how the world had a global conflict in the 1940s- countries where the German military never set foot. How can you put Germany and its extremist dictator down as a major cause of WW2 when the war was just as intense in France, Russia and the South Pacific! Could Hitler even locate Hawaii on a map!!!
BR, Sorry to off topic but I saw this and thought of your “Monkey Boy” post from March ‘09.
http://www.ted.com/talks/laurie_santos.html
You now have scientific proof of your theory.
No Kidding wins this week’s prize for the dumbest comment of the week.
Please see the man about picking your too-freaking-ridiculous- to-be-unmoderted GWB memorial award and salad bar on the way out…
I will try to be a Devill’s Advocate “Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust "” countries not covered by the FHA or GSEs” May be other countries have their own GSEs?. Housing market in allmost every country is overstimuleted by goverment. If you do not have GSEs you may have state guaranties, interest rates subsidies, tax dedaction etc… “Indeed, the boom and bust in the US was smaller than that of many other nations” Barry- you are correct if price change is consider- but what if we take into conisderation the aggragate amount of housing boom and bust? What bubble is bigger? A few hundred thousand houses market in which prices have risen 300% or a hundred million houses market in which prices have risen 100?
“Hank Paulson, the criminally inept Treasury Secretary who shoveled trillions of taxpayer dollars to insolvent banks,” – inept? I don’t think so! He was not inept, he knew EXACTLY what he was doing. Moreover, the “ruling elites” that placed him as the Treasury Secretary in June 2006, very well knew what was about to happen, as both RE prices and the corporate profits started to roll-over in Q2 2006. So they sent Hank Paulson, then the most respected banker on The Street (and perhaps in the entire world), to make sure their interests would be served. That, and to try to postpone the “great recession” until the next administration took over. Well, Hank didn’t quite succeed on the latter, but with Bernanke’s and Geithner’s help he certainly fulfilled the former. I don’t think the Wall St could ever have expected such windfall of free money and “cash for trash” from the US Treasury and the Fed.
It is stunning to me that there is not more anger over this issue. I have long suspected that divisive issues like same sex marriage and illegal immigration are used to deflect attention from the widespread looting of taxpayers and pension funds.
I generally believe that the tea partiers are extremists and I do not like most of their viewpoints, but I can appreciate their anger. I’m angry too. I wish they would exercise a little more independent thought and point it at more deserving targets.
In biochemistry, it takes enzymes to catalyze the metabolic processes that turn food into energy. If the housing market is viewed as a living organism, the Federal Reserve provided the food (money). Government policies, including all those things cited by Paulson, promoting homeowership were one of the catalysts. Private lenders seeking to maximize the energy in the food were another.
The organism still has plenty of food, but only the GSE’s, and a few other government programs for catalysts. The beast is starving. Good. Kill the beast.
BR…you might want to consider “moving on” from this topic…It is getting old, and giving Paulson and others more publicity than they probrobably deserve. Our mutual friend, Bill Fleckenstein, stays relevant not just because he is incredibly skilled and an excellent trader/risk manager, but he also has been able to always live in the present. Lately, maybe due to your tough travel schedule in July, you seem to be *holding on to the past* with posts like this.
Only constructive suggestion if you want to continue to attract new readers like I was once. People I encourage to check your blog have commented to em that it seems like you stay on limited topics. I have disagreed, although when I see this topic posted on a day when the recession is officially measured by the MSM’s reporting of the fraudulent govt stats to be as bad as many of us know, I’d rather read your insights on the affect of the probable coming of ten year ust yields @2.50% or the dramatic curve flattening of the past 4 months possible ramifications… All good, otherwise. Keep up your hard work and efforts.
Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust "” countries not covered by the FHA or GSEs. How did THAT happen?
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Foreign countries did have SIMILAR programs in place. Many “rich” countries had ways of encouraging home ownership that looked like the ones you are mentionning ! I know, because I live in one :-)
Apart from that, I agree with your terrific analysis.
Hey, I can’t stand Paulson as much as the next guy, ok probably more than the next guy, but everyone was in on this as far as the political class was concerned. Bush was just continuing Clinton’s policy just like Giethner/Obama is following Paulson.
FNMA and FHLMC were stacked with politicians in the managemet structure and boards and through the Bush years they were mostly Clinton camp followers. Go look at the boards now…of course as wards of the state it is a lot less fun.
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