Paulson Needs to Come Clean
So testifying before congress today, Hank Paulson repeatedly lied, saying he welcomes oversight of his proposed bailout, and merely didn’t include a bailout mechanism because he thought it would be inappropriate for him to propose the means by which he will be overseen.
This is transparently false. His proposal wasn’t silent on the issue of oversight, leaving a blank for congress to fill in. Rather, it included a provision that specifically precluded oversight from happening:
Section 8. Review: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Bloggers do a lot of “gotcha” stuff of this sort, but it’s deadly serious. Paulson is asking congress to trust him that (a) a bailout is necessary, (b) he ought to be in charge of implementing it, and (c) that $700 billion is the correct figure. For him to open his explanation by lying to congress is absurd. He needs to come clean about this, admit he made a mistake, apologize, and start making a serious effort to explain why he thinks a bailout is necessary. To just take his work for it would be crazy.
42 Responses to “Paulson Needs to Come Clean”
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September 23rd, 2008 at 5:42 pm
1) He told Congress he didn’t want to be “presumptous”.
He’s only asking the Taxpayers to cough up $1.5 Trillion to bail out his rich buddies.
September 23rd, 2008 at 5:52 pm
Don nails it.
Not Presumptous = Asking for $700B
Presumptous = Asking for Oversight
John
September 23rd, 2008 at 6:03 pm
I like the idea of removing this entire new agency from oversight by the courts. That way even if they just steal all the money there’s nothing anyone can do about it. Whee!
Seriously, is it even constitutionally possible to remove a government agency that will oversee a budge comparable to the defense budget from court oversight? Is there any precedent for that? Even military justice (UCMJ) is prosecuted under the ultimate aegis of the Supreme Court isn’t it?
September 23rd, 2008 at 6:05 pm
FROM: http://www.politico.com/news/stories/0908/13779.html
Obama may scale back promises
Sen. Barack Obama (D-Ill.) said in an interview aired Tuesday that the cost of the mortgage bailout plan may rein in his ambitious plans for health care, energy, education and infrastructure.
Obama’s comments reflect the possible new constraints on the next president’s ability to expand or start programs or cut taxes. The government financial interventions of the past two weeks could cost more than $1 trillion….
“Does that mean that I can do everything that I’ve called for in this campaign right away?” Obama said. “Probably not. I think we’re going to have to phase it in. And a lot of it’s going to depend on what our tax revenues look like.”
September 23rd, 2008 at 6:13 pm
“Does that mean that I can do everything that I’ve called for in this campaign right away?” My Fantasy Obama said. “Damn straight. But it’s gonna require what those sons of bitches will call class war. And it’s going to depend on making sure hardworking American families are protected from the consequences of the games greedy elites have been playing with our economy.”
September 23rd, 2008 at 6:21 pm
If we all had just bent over and acquiesed to the “investment” of our Social Security money in Wall Street five years ago like Bush wanted, we wouldn’t have the spectacle of Paulson holding a gun to our collective heads today and demanding $700 Billion.
We should treat Paulson and the Wall Street titans the same way Al Swearengen would treat unauthorized road agents…with contempt.
September 23rd, 2008 at 6:24 pm
Matt,
On NPR this morning it was stated that there are 1.3 million homes in the process of being forclosed or already forclosed and held by banks out of a total of 51 million mortgages. The 1.3 number was said to be much higher than normal.
The math is very peculiar here. If there are 1,000,000 forclosures above the average amount (don’t know but its round), then a $700,000,000,000 bailout comes to $700,000 per forclosed mortgage. WTF?!?
September 23rd, 2008 at 6:29 pm
the draft has also been in the works for several months (there’s a story to that effect on Roll Call today)
September 23rd, 2008 at 6:33 pm
I’m all in favor of forcing Paulson to explain what he wants and why he thinks it’s necessary, and your 3 big questions are a good place to start. But to hold him to the letter of a 3 page outline that was plainly not meant to be enacted into law is ridiculous.
September 23rd, 2008 at 6:34 pm
Over at RealMoney.com today a couple of their columnists have likened this to Hitler’s Enabling Act of 1933.
September 23rd, 2008 at 6:49 pm
The Bushies didn’t really care about the Treasury. Cheney picked O’Neil, the former Alcoa CEO. A nice old fashioned sort of guy who was expected to mostly do minor talking points he was given and that’s about it. But O’Neil kept leaving the corral so he was eventually booted.
Then they got Snow. An old line straddler of government/industry and a solid Reagan man. He was excellent on the talking points stuff. So good he became a pathetic joke. Then too the seeds of the current crisis were all in place by later 05 so they needed to find heavy weight a Wall Street big swinging dick to take over. The financial world needed that at any rate. The word went out. The big serious money would take over the Treasury, period. Jr. couldn’t stand up to them. The search started but none of them wanted to become another Snow. A pathetic neutered joke, instead of being a big swinging dick.
Paulson was the man, had to be, so he drove a bargain. No talking points stuff, no political stuff. He would run the Treasury and the Mayberries would stay the hell out of his way. For the most party he didn’t have to carry any water for the Mayberries and was left to his own devices.
Now being a profoundly great trader he knew that you cannot conrol events. The secret to success is to be ready for them. He’s ready. His moment has arrived.
September 23rd, 2008 at 6:51 pm
What it says is that there won’t be review from the courts or an “administrative agency”–not that there will be no oversight at all (it doesn’t mention Congressional oversight). I’d guess that what he was trying to do here was make sure that no trades that the new entity does could be subject to being retroactively overturned by the courts or administrative judges.
My guess is that Paulson’s instinct in writing this was to not negotiate against himself by trying to guess what kind of oversight Congress would want and then proposing it, but instead to just let them propose what they wanted. That’s how negotiations are supposed to work, and now there’s oversight in the bill.
September 23rd, 2008 at 7:05 pm
I don’t see how you can remove all agency and court oversight. Ultimately, loans are going to exchange hands. If those loans are found to be fraudulent then the Justice Department, an “agency” of the federal government last I checked, can and must investigate and prosecute in the courts. The suggestion that Congressional oversight renders Justice Department and court actions unnecessary is just ridiculous in my opinion.
Paulson’s strategy is to ask for a blank check from the American taxpayers and then to do whatever the hell he wants. That is not, however, necessarily the best thing for the American taxpayers to provide.
September 23rd, 2008 at 7:10 pm
This is a rope-a-dope strategy. It is a win-win-win for Republicans.
1) Get Democrats to vote for a trillion dollar Wall Street bailout
2) Get Republicans to vote against it
3) Tar Democrats as in the bag for their Wall Street buddies and pick up seats in the house and maybe win the presidential election
4) Implement the “bailout” and enrich rich friends of Replicans
5) Ensure that there is no money for social programs in the budget for the next 10 years
I say no deal. This whole thing is bullshit. There is no crisis that merits a trillion dollar Wall Street bailout.
September 23rd, 2008 at 7:13 pm
This mortgage problem is similar to my car problem. My family of three owns four cars. Until this week three of them worked.
The non-working car is a sports car in need of a fuel pump. It is old, and as time passes its value will only go up. The problem with the fuel pump, which only costs $270 is that I don’t want to spend any money on it. But I would like to sell it. I don’t think I can get a good value for it until it is fixed because I would have to convince any buyer that it only needs a fuel pump. But that is my belief. The buyer has no good reason to believe me.
This week another car broke. A bearing for the fan belts broke. To fix it will probably require pulling the engine. The parts cost is probably low, but labor costs makes it too expensive to fix. Again, I can’t prove to anyone that this is the only problem, so I can’t expect to get much for it.
But here’s the deal: I need to buy a car to replace the one that broke.
Now, it would be nice if someone would believe me as to the value of these cars so I could maximize my assets.
I don’t want to fix the cars myself because I’m not into that, why should I have to waste my time dealing with my broken cars?
This bailout is similar. The banks really can’t prove how much their paper is worth. They want to get maximum value so they can go out and buy more paper.
I think the problem is that someone owns these mortgages and they really don’t want to own them. Maybe we need to start by not allowing these banks buy stuff that they don’t want?
Now one idea is for me to guarantee that anyone who buys my car can get it to work without spending more than some preset amount. If they can’t get it to work, I can either: pay for the additional amount to get it fixed, or take the car back plus repair costs plus some penalty for them handling the issue.
I don’t feel comfortable with trying to convince someone to take a chance on buying my car, but Paulson apparently doesn’t mind buying up $700,000,000,000 worth of paper from people who don’t mind screwing us over.
Paulson is asking for a blank check to go out and buy a bunch of used cars based upon the advice of used car salesmen. Does this sound good?
September 23rd, 2008 at 7:15 pm
The fact that Paulson considered that provision important enough that it had to be included in the outline even though it was only three pages is a reason to take it more seriously, not less.
September 23rd, 2008 at 7:17 pm
Isn’t it unconstitutional to create an agency that isn’t subjected to any checks? How is it possible to make something unaccountable to even the court system? AFAIK there are no unchecked powers granted to anyone in the Constitution, certainly no one can create an entity that can’t be checked right? Is it written anywhere in the Constitution that Congress can do that?
September 23rd, 2008 at 7:37 pm
Maybe this is pre-emptive bankruptcy?
You know, when you think about sub-prime, what you have is a deal that seems too good to be true for the borrower. Why wouldn’t someone buy a house if they got a zero down, low interest deal?
Now the Treasury is trying to coerce banks into selling their bad paper by offering them an unbelievable deal…unfortunately with our money.
September 23rd, 2008 at 7:50 pm
Any law that Congress makes, it can also unmake. But there would be less incentive for co-operation from Treasury later about a new law to limit its powers.
September 23rd, 2008 at 7:57 pm
The no oversight or court review thing is simply boilerplate out of the White House now. Paulson might have put it in there but I suspect it was the Bushises, out of habit.
It was a strategic error.
Paulson had no trouble lying about it however because he’s a very very accomplished liar. Of course this was a lie. So what. That’s how these things go. He lied, the congresscritters knew he was lying. Paulson knew they knew he was lying. Par for the course. In July at the tail end of the last panic Paulson went on the Sunday gabfests and said the banking system was sound. This was a real howler. If you have to go on TV to say the bankning system is sound that is proof in itself that it isn’t. He had to lie to maintain ‘confidence’.
If mobs set up guillotines on Wall Street and hauled hank up there his last words would be that the emperors clothes are still beautiful. There is no way anyone of these people can speak the truth.
September 23rd, 2008 at 8:08 pm
If there are 1,000,000 forclosures above the average amount (don’t know but its round), then a $700,000,000,000 bailout comes to $700,000 per forclosed mortgage. WTF?!?
If you’re talking about leveraged credit default swaps, where people are betting, say, $1m derived from every $100k of mortgage debt, it sorta kinda adds up.
There’s a role for Congress to find out if this was all part of the plan: make short-term profits on highly leveraged bets on toxic paper, then get mid-term losses paid off by the federal government.
Picking up on what tomj said, this is fractal: it’s a no-money down miracle mortgage to keep a roof over Wall Street’s head, where they write the terms and don’t make the payments.
September 23rd, 2008 at 8:41 pm
Paulson’s not lying. Courts don’t do “oversight”; they do review. Congress does oversight.
And no, proposed section 8 isn’t unconstitutional–it’s just invoking section 701(a)(2) of the APA, which prohibits judicial review of “agency action committed to agency discretion by law.” Btw, the APA was passed in 1947, well before the Bush Administration.
September 23rd, 2008 at 8:51 pm
Review: afterwards
Oversight: beforehand
Please try to get your basic facts and understanding straight before accusing people of lying. Otherwise you look stupid.
September 23rd, 2008 at 9:14 pm
To the extent that Treasury’s purchases and sales of these assets can be second-guessed on administrative law grounds or for any other reason after the fact, that uncertainty will be reflected in the prices and in the effectiveness of the plan. If you want an effective plan with the most bang for the buck, then that means that when someone buys or sell from the Treasury, they have to have confidence that the purchase or sale is authorized and won’t be overturned because some competitor or interest group wants to tie the decision up. That’s what the provision in the Paulson draft was meant to accomplish. It didn’t limit or avoid oversight, which is something that Congress provides. Congress doesn’t need statutory authority to review the actions of the Treasury.
September 23rd, 2008 at 9:36 pm
Paulson’s an idiot, because what he proposed is unconstitutional. Congress can’t surrender oversight to this extent, any more than a person can sell himself into slavery. If this went through, it would be stalled in court while the country (allegedly) tanked.
September 23rd, 2008 at 9:53 pm
Paulson’s an idiot, because what he proposed is unconstitutional. Congress can’t surrender oversight to this extent, any more than a person can sell himself into slavery. If this went through, it would be stalled in court while the country (allegedly) tanked.
And you and Matt are bigger idiots, because the provision doesn’t stop Congress from doing oversight. Is Congress a court of law? Is it an administrative agency? I didn’t think so.
September 23rd, 2008 at 9:55 pm
Bend over America, your ignorant, greedy, power-seeking, short-sighted leaders are about to fujuck you right in the azz.
Way to go GOP. Run our country into the ground, and then nominate McCain/Palin (two bumbling morons) to fix the problem.
Someone please tell me this is all just a bad dream.
What happened to the country that I used to be proud of?
September 23rd, 2008 at 9:58 pm
Asher, you’re boring as all people of bad faith tend to be.
September 23rd, 2008 at 10:46 pm
Warren Buffett puts $5B into Goldman.
He receives perpetuity preferred shares w/10% dividend, plus $5B more in warrants priced at 8% below the close.
Can anyone here explain why if a bank like Goldman is stable enough for the world’s pickiest investor to put money in, why we need to give $700 billion of taxpayer money for free, no strings, no dividends, no equity, no warrants?
Warren Buffett saves the day
If Warren would up his investment to $7B, we’d only need to find 99 more people like him and we’d be done.
Or we could use more than half of 2007’s personal income tax from every taxpayer in america and give it to the banks for free. Outrageous. This crisis is a sham.
September 23rd, 2008 at 10:49 pm
Asher, you’re boring as all people of bad faith tend to be.
It’s a bum plan, but Congress could have exercised oversight under that provision.
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