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Did Socrates say "Know Thyself", or was he misunderstood, as all are. Show Thyself is all we can do. The knowing is unknowable.  

I am filled with joy.  It can't be helped.  

Became a Farmer, Builder, Musician, Tank Commander, Librarian, Lawyer and Minister. I have failed at many things. And now retired.  Filled, just filled, with Joy. 

Tuesday, February 02, 2010

Financial Crisis - Treasury Secretary Henry M. Paulson, Jr. and the Cause

Former Secretary of Treasury Henry M. Paulson, Jr. has written a book entitled ON THE BRINK; Inside the Race to Stop the Collapse of the Global Financial System. His account is revealing. He clearly had no concept of any oversight function, although he had a background and employment exposure to investment banking opportunities and risks.

Of particular note is that he dealt with the crisis -- as it came to a head in the 48 hours (48 hours!) preceding the bankruptcy of Lehman Brothers in September 13, 2008 -- by seeking to find another lender to cover the obligations which were due. In other words, he was trying to solve a situation created by bad loans (securities tied to defaulting mortgages) by finding a bank willing to chase good money after bad. Knowing the nature of the toxic assets, he looked for a sucker.

When Barclays (President Bob Diamond) was unwilling to make the deal because the British Financial Services Authority (Finance Minister Alistair Darling) did not support it, "we were beside ourselves". To the group of CEO's he had assembled in his lobby, he blurted, "The British screwed us!" I'll bet he used other words. He was "stunned" that Mr. Darling was unwilling to permit him to unload the problem "on the British tax payer".

In the book, Mr. Paulson falls upon his faith (Christian Science). He asks his wife "to pray for me". She immediately quotes Timothy II, 1:7 : "For God hath not given us the spirit of fear, but of power, and of love, and of a sound mind".

The problem is that he admits he kept bottles of pills -- sleeping pills -- which is medication prohibited by his invoked religion and contrary to the Scientist belief that he cannot sleep. In addition, exactly WHAT is he fearing? For his failure to find a sucker to be the last one holding the bag of increasingly toxic assets? Does he understand that the only "risks", the only thing at stake, is the collapse of Lehman, and of course, with that, the spiraling problems that would hit the insurer, AIG.

However, the real danger was that the failure of large financial institutions would cause all of his chums to lose their shirts. All of his associations were with investment bankers. (He had been Chairman of Goldman Sachs).

In Spring 2007, Secretary Paulson told an audience at the Shanghai Futures Exchange that "An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention."[19] He actively lobbied to remove all regulatory oversight from the financial industry while at the same time subjecting consumer rights organizations (lawyers, loan modification consultants, etc) to increased and burdensome regulation).

In August 2007, Secretary Paulson explained that U.S. subprime mortgage fallout remained largely contained due to the strongest global economy in decades.[20] The economy was already tanking and was way down from the levels reached during Clinton.

On July 20, 2008, after the failure of Indymac Bank, Paulson reassured the public by saying, “it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”[21] He had to know that the people pretending to be "our regulators" were in fact the predators who had already scammed homeowner-borrowers by placing them into inappropriate loans and OptionARMS.

On August 10, 2008, Secretary Paulson told NBC’s Meet the Press that he had no plans to inject any capital into Fannie Mae or Freddie Mac.[22] On September 7, 2008, both Fannie Mae and Freddie Mac went into conservatorship.[23]
Quoted from Wikipedia.