The title to this devastating front page Times article is "White House Overhauling Rescue Plan," but it could more accurately be named, "Five Reasons Why Secretary Paulsen Should Be Fired and a Conservator Appointed for the US Treasury."
In an earlier post economist Dean Baker points out that Bush Administration’s Treasury Secretary has been wrong on just about everything. The Times article documents this judgment, detailing Paulson’s most egregious mistakes.
In each case Paulson’s errors can be traced either to an ideological rigidity — a blind faith in the market miraculously fixing itself long after facts on the ground and the Government’s own interventions had shattered that myth — and a corrupt predeliction to favor only those solutions acceptable to Paulson’s financial CEO pals, leaving them unaccountable for their gross mismanagement.
Thus we find that Paulson wasted nearly a month — when the crisis was gathering steam and becoming more difficult to fix — clinging to an overly expensive, unworkable plan to purchase toxic assets, while resisting for ideological reasons a more workable solution of direct capitalization he now reluctantly embraces.
But even now he resists imposing conditions on the banking industry — voting shares, assurances on inter-bank lending — that more sensible nations and economists deem essential. The simple logic, urged here and and here by Ian Welsh, that if a bank is not lending it is not functioning as a bank and needs that function taken over still eludes the Bush ideologues.
And we still find Paulson resisting the very conditions Congress extracted from Paulson in the bailout bill: (1) restraints on CEO/executive compensation and (2) taxpayer protections ensured via heavy oversight of key activities by Treasury:
But as the financial markets spiraled further downward during the last 10 days, a growing number of top-tier institutions, including Goldman Sachs and Morgan Stanley, became worried about their survival.
“The crisis in confidence goes way beyond the actual losses that will be incurred from debt securities,” Mickey Levy, chief economist for Bank of America, said in an interview on Friday. “It’s truly incumbent on policy makers to address that crisis.”
Treasury officials began canvassing banks and investment firms about the possibility of having the government buy stakes in them. The new bailout law gave the Treasury the authority to buy up almost any kind of asset it wanted, including stock or preferred shares in banks.
Industry executives quickly told Mr. Paulson that they liked the idea, though they warned that the Treasury should not try to squeeze out existing shareholders. They also begged Mr. Paulson not to impose tough restrictions on executive pay and golden-parachute deals for executives who are fired.
Mr. Paulson heeded those pleas. In his remarks on Friday, he carefully noted that the government would acquire only “nonvoting” shares in companies. And officials said the law lets the Treasury write most of its own restrictions on executive pay, and those restrictions can be lenient if they are applied to a set of fairly healthy companies.
The only reasons Henry Paulsen still has a job is that no one except George Bush has any confidence in George Bush’s judgment in naming a successor and there is no precedent for creating a conservatorship for the US Treasury.
Congress needs to demand that taxpayer protection, oversight and executive accountability be reestablished immediately, because critical decisions vital to our economy are still being made by corrupt and incompetent men. But whom do we trust?