Paulson Now Admits Mendacity

As readers may have noticed, we have gotten exercised about how brazenly the Treasury has been in lavishing cash on favored interests. Felix Salmon took up the theme, admittedly with less choler:

There does indeed seem to have been a visible change in Treasury policy since the election. Until that point, it cared a little about optics. Now, it’s giving monster bailouts to the likes of AIG and American Express; it’s dragging its feet on homeowner relief; and in general Hank Paulson’s Wall Street buddies seem to be getting much better access than anybody in Detroit. And no one’s even trying very hard to defend these actions in public: they know they’ll be out of a job in January anyway, so they’re just doing what they want to do and what they feel is right, without caring much whether anybody else agrees with them

Ed Harrison provided an alert on another bit of Treasury dishonesty, although the admission was coded, so you’d have to be paying attention to catch it. From the text of Paulson’s remarks today (boldface ours):

During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.

Either way you cut this, it’s a lie. Either Paulson let his intentions be misrepresented via his silence, or he is now falsely claiming to have changed direction earlier than he did. Nouriel Roubini has claimed that Treasury was resisting the idea of of inserting language that would allow for capital injections into banks but that some members of Congress thought it was necessary, and put statements into the Congressional record via floor debates to allow for that interpretation. Roubini further contends that Paulson changed his mind only as a result of the adverse market reaction after the bill was signed.

But if Roubini is wrong and Paulson’s statement is accurate, it is still completely in keeping with the conduct of an Administration that told the public that there were weapons of mass destruction in Iraq. The bill was drafted to be extraordinarily vague and sweeping, and yet did not clearly give Paulson the authority he now says he realized back then that he needed while it was still being renegotiated.

As I said in a post titled, “Paulson’s Cosmetic, Cynical Financial Regulation ‘Reform‘”:

Why is it that the media feels compelled to take pronouncements from government officials more or less at face value? By now, they ought to know that if someone from the Bush Administration is moving his lips, odds are it’s a lie.

Nothing has changed, neither the dishonest of the Bush crowd nor the reluctance of the media to call them on it.

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32 comments

  1. Max

    Cut the guy some slack, he is working overtime, and on sundays. I do feel sorry for him, considering the fact that he does _not have to_ do anything, legally that is.

    And comparing the essentially powerless against whats’ coming Paulson with the bloody neocon junta, that could do literally _what they wanted_ at the height of their misrule of deception, is too far, Yves. Not even the same sport.

  2. Richard Kline

    It was patent that Hankie Paul’s ‘Three Sheets in the Wind’ Proposal was a shallow lie. No explanation of the mechanics; no time frame; no framework for legislation. He solicited unconstrained authority and massive amounts of money; those were the cold hard facts.

    Myself, I suspect that the original idea _was_ to buy up rotting ASBs jiffy quick for massive overpayment. Now, though Paulson has found that simply giving the money to top of the food chain financials is much more efficient. Furthermore, now that the principal of ‘They Shall Not Fail’ is established de facto a la AIG, the Nine Blessed Funds can simply keep coming back to the Treasury with empty briefcases and leaving with full ones until they are made whole. _And_ they get to keep the assets, and benefit when they find a true level. Paulson’s whole goal for the next 70 days will be to rush as much money out the door as his favored few can secure. This would be called fraud except that Congress gave him the authority to do as he liked. Note also that the Bushies have wound up their bogus visuals on poking at foreclosure work-outs now that the election is over, and will not give Democratic-voting labor constituencies in heavy industry the time of day.

    It’s loot and scoot; the capstone on the Repubulican way of economic stimulus. —But then, this was baked in from the time Congress passed that odious Bankers’ Fund bill.

  3. Anonymous

    If you have time, please comment on
    the following article on credit card debt forgiveness. I would think that would be the best way to spur more consumer. I’m particularly interested in hearing your opinion on the comptroller’s statement on the matter.

    http://tinyurl.com/6f3k52

  4. Anonymous

    Assuming what he said was true and he’s not an idiot, if you want to get totally down the rabbit hole on this ….

    Assume what we wanted to do all along was give money to the banks, no strings. Perhaps the best way to do it is to first suggest overpaying for assets and then get “pressured” into giving money to banks instead. Either way he wins. If they go with (A), shovel in the money that way. If they go with (B), shovel in the money that way. If he had gone with direct capital injections to start and he got pushbank (and he was guaranteed to get pushback of some kind), he would have had no plan B. And the plan A before the plan A was to ask for total unfettered authority with the original 3 page request.

    So, the direct injections with no strings would have seemed like a ridiculous giveaway if he started with that position, so he started with something even more ridiculous (overpaying for assets) which was still ridiculous, so he started with something even MORE ridiculous like a blank check. Eventually, capital injections seemed like bowing to public pressure and the no strings part was a “reasonable compromise”.

    Perhaps that’s giving them too much credit.

  5. Anonymous

    @Yves,

    Reminds me of Colbert’s roast comment on the press, White House dictates policy, Press writes it down and feeds it to readers, all done.

    As I have posted before the Hurstonian/Yellow/R. Murdock Press that now resides in American and much of the world no longer functions to inform readers but to sell advertising space or soften up the population. I’m still spiting chips at the FCC grant of 32 new channels to news corp, sweet deal due to Fox News coverage of the GOP’s policy’s.

    The only wide reaching anti-GOP media is in a comedy form aka SNL or on the Comedy channel.

    Time for lie detector tests in front of the camera/Press conference or psychiatric/personality tests for people in positions of high responsibility. I wonder what scores we would see in regards to narcissism. I have applied the 20 point scale to myself and may fellow executives managers and was aghast at my findings.

    I regress.

    While we converse here on the issues, the fact still remains the average Joe just wants to dream of a better house, car, lifestyle to elavate above the crowd/self valadation.

    As long as the education system fails kids with romantic history about the fore fathers and events in history. Things will stay the same. Critical thinking about anything past how much “I” can make to buy stuff is
    extinct.

    I have sent out more than 700 emails/posts internationally (here in Australia, China and America)with information from this and other sites in the space of 4 weeks, only to be confronted with the most appalling apathy.

    Point in case. My mother who is a CPA/Advanced tax consultant, one time broker, that teaches, studies and works has no clue and is so run off her feet at 82 has no inclination to examine the problem or voice her opinion to those in power.

    Thank you as always for your efforts to inform all of us. I for one have not thrown in the towel.

    Skippy

  6. Steve

    The UK’s bank recapitalization plan eclipsed Paulson’s asset purchase plan almost immediately. Followed by quick recapitalizations/nationalizations by the Dutch, Belgians and Germans. Which simply added to the general sense that any `reverse auctions’ would be sham exercise in overpricing. But Paulson has managed to turn recapitalization into a gift of money, different sham, same idea. So we’re left now with this: government bank capital that was supposed to be lent will instead absorb losses, and FASB/SEC will act to limit that damaage by further redefinition of mark-to-market. The banks are stuck with their bad paper, and with increasingly worthless wraps, nothing that can’t be fixed from Paulson’s point of view with Excel and an interpretative letter from SEC.

    As for Paulson’s current fixation on consumer lending, I assume that is in part pressure from Congress and in part a response to the collapse of the credit card receivables bond markets. Consumer credit is drying up at a ferocious pace.

  7. Anonymous

    Emperor Paulson has spoken.

    Do you think they are even really in DC anymore? I bet they developed some sort of hologram device and are safely at a remote location.

  8. Anonymous

    Well maybe he lied, but it would not be his worst lie.

    Bear with me on this. It seems like he may really be watching out for the larger economy at this time. Now I don’t trust him, not after how the initial money was spent. But he may be trying to make amends.

    Consider his comment today that further funds require private matching funds to some extent. Now suppose GS or MS turns around and pays its TARP money out in bonuses. Do you think they will be able to get much matching funding? I suspect not.

    So he may be looking for a way to pressure banks into more efficient, better use of the money.

    I also agree with his statement today that whatever solution is found for the auto industry, we must continue to have one. It is a vital strategic US asset. If pensions and health care for employees is reduced in Chapter 11, that is possible. But the companies must continue to operate.

    I don’t mind what he said today.

  9. Anonymous

    Quote of the Week
    ‘I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.’
    Thomas Jefferson 1802

  10. Anonymous

    Yves,

    Thanks for your writing. You said, “Nothing has changed, neither the dishonest of the Bush crowd nor the reluctance of the media to call them on it.”

    It is my belief that the media is paid well to look reluctant but never subvert the fascist narrative.

  11. Matt Dubuque

    Krishna Guha, who has extremely well placed sources in the Fed, quoted Bernanke as telling Paulson at the VERY beginning that purchasing toxic assets was exactly the WRONG way to go and that such action could cause a lot of damage.

    According to Guha, who has far better sources than the NYT or WSJ on these subjects, Bernanke favored recapitalizing the banks, with strong controls, from the beginning but was overruled by Paulson and the cretin in chief.

    Matt Dubuque

  12. doc holiday

    Yves,

    I concur with my fellow pirates here, in that your efforts to bring truth, clarity and honesty into this mess are essential. I’m drinking some fine ale tonight and offering a toast to your super-human blogging, which goes well above and beyond anything in the old school world of journalism. Your superior in every regard and no corporate media can touch you!

    I hereby present you with The American Freedom Award, a shot of vodka, a handful of Watergate mints, a hit off the LHC bong and a toast to your good health! Good job ol boy!

  13. Anonymous

    Bloomberg reporting Boehner demands fed to identify loan recipients and comply with Bloomberg’s request. Gaining steam…

  14. Anonymous

    What’s this flood of improving Republican politicians? First Paulson, then Boehner … could it be they want to do the right thing??

    Anything is possible, I won’t dump on them for good deeds. (Trust but verify still applies of course.)

  15. River

    Paulson stands atop the treasury building, reaching for the helicopter (a Hewey) as it hovers a few feet off the roof, grasping for the landing skid and being hauled aboard by Kash ‘n Karry…money swirling in rotor wash, flying from stuffed pockets and suitcases.

    Next stop…Some banana republic with easily purchased politicians and no extradition.

    These clowns are nothing but common criminals and thugs in expensive suits. Anyone that thinks otherwise is naieve. They have been pillaging the country since they took office and now that their time is almost over the rate of pillage has increased.

    How much do these bastards have to steal and lie before Americans stop giving them the benefit of the doubt? When is enough, enough?

    These thieves should be behind bars, not giving press conferences!

  16. Anonymous

    “some members of Congress thought it was necessary, and put statements into the Congressional record via floor debates to allow for that interpretation.”

    There is no question that these statements were put into the record via floor debate – the video was run on at least on one of the networks.

    My theory is that Bernanke tipped off these members to the importance of doing this.

  17. Anonymous

    Nice blog, but I think people who know whats going on and have the truth need to go out to those who are not informed and spend their time with Football, American Idol, myspace, and facebook too much. Those are the masses. They need to know whats going on
    found this good blog online.
    http://www.crashofempire.blogspot.com its actually how I found this blog

  18. Don

    The Bad Sleep Well or Rashomon?

    Here's Bloomberg on Paulson's testimony. You're right, you're right, to me it's a bit like Rashomon:

    "Nov. 12 (Bloomberg) — U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

    “Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. “This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''

    His remarks are an acknowledgement that the pitch he made to Congress for the bailout hasn't delivered what was promised. Paulson sold the Troubled Asset Relief Program as a way to rid bank balance sheets of illiquid mortgage assets, and he may encounter resistance from Congress for the remaining $350 billion after using most of the first half to buy bank stakes."

    No kidding?

    "Lawmakers will “put his feet to the fire,'' said Kevin Petrasic, a former official at the Office of Thrift Supervision, now an attorney with the Paul, Hastings, Janofsky & Walker law firm in Washington. “I'm not sure how you get around dealing with what is clearly the congressional intent.''

    Charles Grassley of Iowa, ranking Republican on the Senate Finance Committee, said the shift makes “you wonder if they really know what they're doing.'' Grassley, in a letter to Paulson and Federal Reserve Board Chairman Ben Bernanke, raised the possibility Congress could block appropriation of the remaining $350 million under the rescue package.

    “Congress can act any time to revoke the Treasury's authority,'' Grassley said. “They will be watched and they will be questioned.''

    Well, here's my take:

    1) He doesn't really know what he's doing

    2) He doesn't need asbestos shoes ( Between Waxman, Frank, and Grassley, I don't know who scares me less )

    "Paulson said he has no regrets for the revised plan. “I will never apologize for changing a strategy or an approach if the facts change,'' he said."

    God, don't quote Keynes.

    "Officials are considering using a portion of the bailout money to “encourage private investors to come back to this troubled market,'' he said.

    The Treasury chief said the department is also considering having companies that accept new taxpayer funding get matching private capital. Buying “illiquid'' mortgage-related assets — the reason the program was established a month ago — is no longer being considered, he said.

    “We will continue to examine whether targeted forms of asset purchase can play a useful role,'' he said."

    So far, no one yet knows what this public/private plan is, except, that it's public/private, which, correct me if I'm wrong, it already was.

    “A collapse of the American automobile industry would be the worst possible thing that could happen at a time when we are already weakened,'' Frank, a Massachusetts Democrat, said in an interview on Bloomberg Television. He also said he disagreed with Paulson's decision to forgo buying bad assets."

    I like Frank, but that's hyperbole. This business is slowly dying. This is simply a way to allow workers in roughed up states to transition more easily over time. I understand the human dilemma.

    "He also said he disagreed with Paulson's decision to forgo buying bad assets.

    “That was an important part of the way we sold the program, and I think he's making a mistake,'' Frank said."

    Talk about moral hazard. These are empty threats.

    "Paulson said he has no timeline for notifying Congress of his intent to use the remaining TARP funds, and reiterated that he's “comfortable'' that $700 billion is “what we need'' to stabilize the financial system."

    I know that this follows from my Austinian philosophy, but this system talk leads to fruitless analysis.

    "Some lawmakers are also calling for greater oversight over use of the funds. Senator Charles Schumer of New York today reiterated his calls for Paulson to require banks taking public capital to increase lending rather than use the money to finance takeovers.

    “The TARP really gave no incentive for the banks to lend the money, carrot or stick, and that's a big problem,'' he said on a conference call with reporters."

    And you know, dummy bloggers like me said that.
    Maybe instead of Rashomon, we should view The Bad Sleep Well again.

    Don the libertarian Democrat

  19. Sion

    I love the word… mendacity…I’ve heard it before but its not one I use or would know the meaning of if asked.

    I guess people could argue that it would be inappropriate for Paulson to stand up and say I’m sorry I was an idiot I got it all wrong. But he should at least not let people think he’s trying to make them think he was right earlier than when he really changed his mind.

    Anyway these days published public scrutiny is getting more and more exact, what a great thing, so it’s actually foolish to be less than exact when you are the secretary of the treasury.

    Secretary …secret hmmm

  20. Anonymous

    Fully endorse skippy’s comments.
    Yves is Linda Carter reincarnate. Deflecting Paulson bullets with her blog bands.

    More seriously Yves you are doing a great job. Despite most peoples disinterest and apathy, i continue to push your blog under every important nose i can.

    Yves needs to get under Obamas nose. Anyone got an in?

  21. River

    ‘Oh, we spent $350 billion on those experiments and they didn’t work?’

    ‘Well, let’s not throw any more money down those rat holes…Let’s blow the next $350 billon on different experiments!’

    I have been watching these clowns closely for years and above is exactly what they are doing. They have no more idea what will or will not work than the man in the moon.

    Soon we will be seeing books on the depression of 2007-? and detailing all the mistakes made by fiscal and monetary decisionmakers. (Boy, I really hate calling these clowns decisionmakers). Paulson, one of the people that pushed for the deregulation that allowed this train wreck, has yet to say a word about his role while at GS.

    I thought part of the reason for Paulson being placed at treasury was that he was familiar with the details of complex securitization and that would give him special insight into the correct path to restore the markets. Instead, he is throwing a lot of crap against the wall, hoping that some of it sticks.

    Yves has it right. Anytime you see anyone in this administration moving it’s lips, it is lying…’it’ is the correct pronoun for these clowns.

  22. River

    ‘Oh, we spent $350 billion on those experiments and they didn’t work?’

    ‘Well, let’s not throw any more money down those rat holes…Let’s blow the next $350 billon on different experiments!’

    I have been watching these clowns closely for years and above is exactly what they are doing. They have no more idea what will or will not work than the man in the moon.

    Soon we will be seeing books on the depression of 2007-? and detailing all the mistakes made by fiscal and monetary decisionmakers. (Boy, I really hate calling these clowns decisionmakers). Paulson, one of the people that pushed for the deregulation that allowed this train wreck, has yet to say a word about his role while at GS.

    I thought part of the reason for Paulson being placed at treasury was that he was familiar with the details of complex securitization and that would give him special insight into the correct path to restore the markets. Instead, he is throwing a lot of crap against the wall, hoping that some of it sticks.

    Yves has it right. Anytime you see anyone in this administration moving it’s lips, it is lying…’it’ is the correct pronoun for these clowns.

  23. Edwardo

    Loot and scoot. Brilliant! That’s the best three word summation of the Republican modus operandi I’ve ever heard. Since the days of the Gipper, refashioning government to serve the most vile of our corporations has been the name of the game. When this has not been possible, which had been exceedingly rare, the other course of action has been to cripple government such that it can not regulate or interfere with the workings of the kleptocracy.

    If we had had a decent fourth estate the aforesaid’s deeds would have been adequately exposed to even the dimmest members of (what H.L. Mencken once dubbed) the booboisie. Alas, we didn’t. And so today, we must rely on a handful of excellent blogs, like this one, to expose the uttterly fetid workings of public officials.

    In the meantime, the Republican party has indeed destroyed government and wrecked America. The Democrats were the party that let them and more than occassionally joined in on the loot and scoot. Between the two of them the two parties really have very little reason for being anymore as they have just about done their worst.

    On that note, if you are fool enough to think that Messieur Paulson, once an aid to the infamous John Erlichman, has ever had any admirable intentions I
    can only shake my head in disbelief.

    As for the comment about Ben Bernanke being ridden roughshod over by King’s Henry and George,
    perhaps, he has always seemed to me to be a bit weak. Greenscam would never have let a measly Treasury Secretary dictate to him. That’s about all I can think of good to say about “The Maestro.” A pox on all their houses, especially their vacation homes!

  24. tompain

    Yesterday I read the application form for asset managers who want to apply to Treasury to manage the assets that Treasury will apparently now not be buying but thought it was going to buy. It was remarkable that just from reading the instructions and the wording of the questions, you can tell that they had no idea what they were trying to achieve with the asset purchase program, nor how it was going to work. The application has this feel to it as though some senior banker grabbed an associate analyst and told him to draft something, and the kid did the best he could.

    If you look back over 8 yrs of the Bush admin, it is pretty goddamn amazing what a lousy job they did of running the executive branch. I’m not even talking about policy here, just execution: missed intel about 9/11; rushed unnecessarily into Iraq; left our citizens marooned in New Orleans; now this. If we are lucky, we are each on this planet for perhaps 80 years. This administration has damaged the quality of 8 of them (with more pain to come, sadly). We are a weaker, more insecure nation as a direct result of this administration’s bungling.

    And Congress? Are they stupid, corrupt, both? Fooled into authorization for war. Fooled into giving Paulson “bazooka” he promised not to use. Fooled into panicky rush to pass TARP with no debate and stifled dissent. And to top it off, McCain was prepared to inflict President Palin on the nation in the middle of all this.

    Hold your breath and hope that Obama can do better. We need him to.

  25. john bougearel

    @ don

    this system talk leads to fruitless analysis.

    Hold onto that thought, “the system” is precisely what is no longer palatable in its present form.

    Deconstruction is a good place to start new discussions. In the interim we set up a “work around” so that our banking intermediaries are no longer necessary. Simply set up a govt lending agency to do all the required banking activities, until the crisis passes.

  26. Anonymous

    What’s the chance these criminals will be hunted down like the dogs they are and get indicted by the Obama administration?

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