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Hank Paulson on Budget & Economy

 


TARP urgent to avoid another Great Depression

On September 18, Bush trained Paulson on financial matters and gave his blessing to what would turn into the Troubled Asset Relief Program. Now it was a matter of winning over the legislators. That evening as a group of key policy makers gathered in Speaker of the House Nancy Pelosi's office, Paulson and Bernanke figured that their best shot at passing TARP was to terrify this group, to make them all feel what these two men had been feeling for a week.

Not a man known for histrionics, Bernanke opened the meeting on a dramatic note. "I am a student of the Great Depression," he began. "Let me state this clearly. If we do not act in the next few days, this will be worse than the Great Depression." He let the statement sink in, just long enough for Senator Chris Dodd to gasp audibly, before he continued: "Investors have lost confidence in our capital markets. It is a matter of days before we will witness a series of catastrophic failures."

Source: Confidence Men, by Ron Suskind, p.114 , Sep 20, 2011

2008: Bank bailout funds must be used for lending

Paulson, Bernanke, and Geithner decided they would use capital injections, giving each of the largest banks multimillion-dollar welfare checks that they would commit to use expressly for lending.

Why was it important for banks that didn't need a capital injection to agree to take one? For cover. Paulson said he'd tell them they must take it so that their less fortunate brethren wouldn't be marked as in desperate need of a government infusion. Such a decline of confidence in those institutions could trigger a "run."

Geithner then rattled off the amount each bank would be given. Bank of America; $25 billion; Citigroup: 25; Goldman Sachs: 10, JPMorgan: 25, Morgan Stanley: 10; State Street: 10; Wells Fargo: 25.

The quid pro quo, Paulson stressed, was that the banks use this money to lend.

Source: Confidence Men, by Ron Suskind, p.123-124 , Sep 20, 2011

2008 downturn in housing market caused crisis & recession

In mid-2008 Secretary of the Treasury Henry Paulson simplified by saying that the downturn in the housing market has caused all the trouble. He and others concluded that the government should stimulate new housing and do whatever possible to keep the prices of houses from falling. They contended that since house values were dropping, the mortgages and the many derivatives associated with securitization had become liquid, and bailing out this market would reverse the deflationary process.

But--and this is crucial--focusing on the housing market alone was just the last in a parade of claims about the root problem. There are other sectors that have suffered, in finance, car manufacturing, services, retails, and stocks. These are all merely symptoms of a deeper problem: the Fed and its role in sustaining an unsustainable paper-money system.

I was intrigued to see that even the Treasury secretary senses that, at some level, the crisis is connected to central banking.

Source: End the Fed, by Rep. Ron Paul, p.124 , Sep 29, 2010

OpEd: Unelected official given unchecked power over $700B

On Sep. 20, 2008, Treasury Secretary Hank Paulson released his department's "Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets." Official Washington had joined the fray in full bipartisan panic over the collapse of residential housing prices, and with it, the potential meltdown of investment banks. But the real meltdown was actually happening in the government itself, where Congress threw out any notion of constitutional restraint of government power.

Congress embraced Paulson's idea of giving an unelected official with close ties to Wall Street complete, unchecked power and $700 billion to take charge of the situation.

And with blank check in hand, Paulson almost immediately began to spend out taxpayer dollars differently than he originally said he would. He shifted from purchasing assets to purchasing equity ownership stakes in troubled institutions, including $17 billion to prop up failed Detroit automakers--after Congress voted against doing so.

Source: Give Us Liberty, by Rep. Dick Armey, p. 46-47&51 , Aug 17, 2010

OpEd: TARP: Total Abdication of Responsibility to the Public

In the end, the Troubled Asset Relief Program (TARP) included nothing about executive compensation. In Washington the Democratic congressional leadership finally started getting serious about the TARP plan. TARP stood for Troubled Asset Relief Program, though one Wall Street executive said it should have stood for "Total Abdication of Responsibility to the Public."

The plan called for the government to buy hundreds of billions of dollars in toxic assets. This was impractical because no one knew what anything was worth; within weeks Secretary Paulson would revise the plan into a more classic bailout, but in the meantime legislators with any sense of responsibility knew they had to do something to confront the crisis.

The Democrats were prepared to set aside their misgivings and bail out the banks. It was the Republicans who balked. Free-market conservatives, particularly on the House side, began an active rebellion.

Source: The Promise: Obama Year One, by Jonathan Alter, p. 7-9 , May 18, 2010

Bailout was non-reversible and non-reviewable

In 2008, Paulson's $700 billion bailout proposal cooled the meltdown. The specter of a conservative Republican administration investing massively in the private economy shocked the system enough to stop the panic selling. But now Paulson had to get his TARP bill through Congress. Paulson, dubbed "King Henry", had offered a 3-page plan that contained the eye-popping Section 8, which stipulated that the secretary's actions would be "non-reversible, and may not be reviewed by any court of law or any agency."

If the "systemic risk" that Paulson worried about was plenty real, the response was disturbingly indiscriminate. A big question that would persist for years was whether there was a way to structure some of the early deals so that the government got better terms. Even by late 2009, when every major bank except Citigroup had paid back its TARP money, the impression of a colossal injustice remained--that fabulously wealthy bankers would be made whole, but ordinary Americans would not.

Source: The Promise: Obama Year One, by Jonathan Alter, p. 27 , May 18, 2010

Banks getting TARP funds should give stock to government

Source: Take Back America, by Dick Morris, p.103-105 , Apr 13, 2010

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