Can someone analyze Paulson's statement putting us all on the hook for saving the rich from the consequences of their own greed?
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I should have been painting an hour ago. But! Paulsen's statement. I'd analyze it as if Paulson were a college freshmen in a writing class, using this analytical tool:
The Official Style mucks up the issue of who did what. When writers do this accidentally, it's because they aren't thinking clearly or looking at what they've written from the reader's point of view. But when they do it intentionally, it's because they are trying to avoid having to flat-out admit who did what—what we refer to as agency. People faced with explaining mistakes frequently duck the question of agency, especially if they're the one at fault.
Watch Paulson "ducking the question of agency" here:
When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy.
Well, how'd those "illiquid assets" come to be, Hank? Eh?
Why is this important? Because if you duck the question of agency, you can't even begin to talk about accountability. Why would that be, I wonder?
There are probably many other places in that statement where Paulson ducks the question of agency. It'll be like an Easter Egg hunt! (Although, I suppose, for duck eggs....) Readers, have at it! Or suggest your own approaches. Obviously, since statement puts us on the hook for another trillion or five, it's important.
NOTE Via BTD.
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Nevermind
As Swift Lois points out below, me need to read more good.
Although I'm relieved to see a DISCUSSION of this tragedy
Paulson's use of plumbing metaphors does not give me a lot of confidence in his abilities. It's kind of like Harry Reid's response to the financial crisis - we've never seen this before, so......
I'm not an economist but removing the bad loans "clogging up the system" and placing them in a neat, clean receptacle is one way to get the pipes moving but how do we fund the burden of all those crappy loans?
I know HRC also suggested a similar tact by the formation of an entity/receptacle for the bad loans. I'm going to reread her speech and see if she - or anyone, for that matter - can show how they take these crappy loans and turn a profit?!!
I love this job!
As Lambert says, "And we Get?"
I think Democrats should make a deal: Save the Rich in Return for HR676.
(maniacal laughter) Like that's gonna happen!
i wish they would--
it's a perfect opportunity to get something good in return for this terrible plan.
Actually he mentions both
agency and the need for regulation.
Agency:
"As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford."
Need for regulation:
"When we get through this difficult period, which we will, our next task must be to improve the financial regulatory structure so that these past excesses do not recur. This crisis demonstrates in vivid terms that our financial regulatory structure is sub-optimal, duplicative and outdated. I have put forward my ideas for a modernized financial oversight structure that matches our modern economy, and more closely links the regulatory structure to the reasons why we regulate."
These are from Paulson's statement this morning, the same one Lambert quotes.
Why don't you guys think these remarks satisfy the need to mention both agency and the need for regulation?
Thanks for the Correction
I read the statement very quickly and missed this somehow, despite looking specifically for it. Must get more caffeine.
I'm pleased to see this statement by Paulson (that I missed). While I don't trust Republicans, including him, I am happy he's at Treasury instead of Snow. He's probably the best we were going to do among Republicans that Bush would nominate. And now that I think about it, if any Republican would probably like to make sure this never happens again, it's probably him. Nobody likes cleaning up other people's messes. And given that everyone else in Washington appears to have put this on his shoulders, my guess is he isn't a whole lot happier with his colleagues on Wall Street than most Americans are. That's not liberal or conservative, that's simply human. When other people cause you pain, you tend to want to repay the favor.
Here's hoping Paulson finds a way to repay the favor. Although causing them real pain - putting these people in prison - is beyond his control.
BDBlue, what's the source of
your moderate confidence in Paulson, just curiously? On a purely gut level, I respond well to him, and from my limited understanding of what's going on, he seems to be -- now -- doing the right things.
But I know otherwise absolutely nothing useful about him at all.
Can you fill us in on him?
When Paulson Was Nominated
I read a number of articles about him that led me to believe he was not your traditional Bush hack. That, in fact, he had some independence from Bush and was selected more out of a sign that Bush recognized he needed somebody stronger at Treasury. Here was Krugman's take.
In addition, I've been fairly impressed by his handling of this disaster. I don't know if he's doing the right thing, but from everything I've read, it seems clear that people who know more about these things than I do think he's trying and what he's doing isn't crazy (or if it is crazy, there aren't a lot of non-crazy options left).
I think he can be criticized, as almost everyone in Washington can be, for failing to act sooner and not realizing how fast the crisis was escalating. And I tend to agree with Krugman that the plans he put forth before the crisis escalated were insufficient and probably designed to prevent anything better from being done. How much of that was Paulson and how much Bush, I don't know.
He's also benefitting from a huge curve in the grading. Most Bush appointees can't find the men's room, much less even half competently manage a true crisis.
So it's not that I think "Woo Hoo! Paulson!" It's more like "Woo Hoo! Not Snow!" "Woo! Hoo! Not Gonzalez!" "Woo Hoo! Not Rumsfeld!"
"Scraping the top of the Barrell"
Heh. Good line from Krugman.
Thanks for the links. I'd actually forgotten the details of that wretched plan he came up with last year. Yech.
It will be interesting to learn, eventually-- and I'm sure we will-- what was going on in the administration as this whole business developed. I read somewhere, but can't find it now for the life of me, that there's been a big, big argument going on within the Bush admin. for some time about what to do, and it sure seems likely, given the level of vehemence and anger one hears from Paulson now, that he was one who was arguing for stronger action sooner.
Hope he writes his memoirs...
"Scraping the top of the Barrel"
Heh. Good line from Krugman.
Thanks for the links. I'd actually forgotten the details of that wretched plan he came up with last year. Yech.
It will be interesting to learn, eventually-- and I'm sure we will-- what was going on in the administration as this whole business developed. I read somewhere, but can't find it now for the life of me, that there's been a big, big argument going on within the Bush admin. for some time about what to do, and it sure seems likely, given the level of vehemence and anger one hears from Paulson now, that he was one who was arguing for stronger action sooner.
Hope he writes his memoirs...
Day one of the era of Regulation
Is what a financial commenter on NPR said after Paulson's statement.
Thank you, Swift. Saved me the trouble of going and looking it up myself because it sure sounded to me like he was talking about regulation and it sure sounded like it to the folks on NPR, CNN, etc.
He did the same in his press conference a few days ago, only more forcefully and actually angrily (well, for a dignified fat cat).
Realistically, Paulson has to get Congress to quickly back the bailout before they leave town. He would be an utter fool, IMHO, to get deeply into the weeds of either analysis of accountability or new regulation (or re-regulatio) until that's done.
IOW, one step at a time. Get things stabilized first. Re-regulation is step two. You don't get into an argument about building codes with the firefighters when your house is on fire, seems to me.
And by the way, if anybody can propose a way to save the 401(k)s and pensions and retirement investments of us ordinary folk while keeping the financial system afloat without also saving the rich, it would be interesting to discuss. I don't know enough about it to know if that's even possible or not.
We live in a capitalist system. The capitalists will always make out well and the rich will always get richer.
The whole system is a disgusting pig mess and it would be nice to think maybe it could be made to operate more even-handedly in my lifetime. In the meantime, I can't find it in me to complain bitterly about things Paulson et al are doing that keep the system from collapsing altogether and shore up my puny retirement investments.
Is there another way to do it, or are we just bitchin' and moanin' for the sake of bitchin' and moanin'?
Huh?
Who -- what agent -- implemented the "lax lending practices"?
Did the financial engineers discover them under a cabbage leaf? Did the stork bring them?
I agree that Paulson says that more regulation is needed; what is not clear to me is how successful regulation -- defined as protecting the people from bubbles and crashes created by financial engineering (which I still think we should criminalize) -- can be created without a willingness to "name and claim" on the part of the agents who created the problem in the first place (many of whom did very well out of it indeed).
[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.
Ideological Pressure
I also wonder how much of a battle is going on behind the scenes. The more I think about it, the more I'm willing to believe Paulson would like more regulation. He can't be having very much fun right now. But I wonder what kind of fights are going on within the Administration about whether and how much regulation to do. It appears to outsiders that Paulson has basically been given the free reign to do what's needed, but I wonder if that's true or if it goes beyond cleaning up the mess. Even if Paulson may end up backing regs., I'm quite sure there are going to be many ideologues in the Adminsitration and the GOP who won't (also the Blue Dogs because they, like the GOP, suck).
What I wonder...
... is what Obama's Wall Street backers (see update above) think -- and who they are.
[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.
Hedge Funds
The number of hedge fund people behind him is troublesome. I'm not an expert on hedge funds, but it seems to me that these people are basically capitalist vultures. Then there's all the folks from more traditional Wall Street like Lehman who are strong backers. Although the hedge fund people bother more more because from what I can tell they were early Obama backers. I think a lot of the more traditional Wall Street players go wherever they think the power is going to be to try to keep things going their way. So while I'm sure he likes taking their money, I'm not sure he owes them. The hedge fund people strike me as people he owes a lot of his candidacy to.
Hedge funds...
... speaks to myiq's seed money hypothesis (which is all it is, alas) for Obama's initial big hoard of cash.
[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.
I'm all for that
I'd be surprised if Paulson wasn't in favor of at least some of that.
But I'm so far very happy to see him concentrating hard on shoring up the crumbling walls.
BTW, for anybody who hasn't read it yet, the "This American Life" transcript you linked to the other day (http://www.thisamericanlife.org/extras/r...) is fascinating and although it was done in May, it's a terrific explanation of the "mortgage-backed securities" business, how it came into being and evolved into the catastrophe it now is.
I'm not knowledgeable at all about this so maybe somebody can set me straight, but it seems like sort of a blueprint for the whole business of all kinds of "derivatives"-- spreading the risk like an insurance pool, which ends up making no one institution responsible for the results.
I really don't think now is the time
for Paulson to be reading a list of names of the guilty parties. Right now, he needs all the good will he can get from everyone concerned to push through effective measures to stem the bleeding.
And I'm with gyrfalcon: that's what I want him to be doing, for the sake of rescuing whatever can be rescued of my investments.
Once things have been stabilized--assuming that's even possible--it'll be time to go after the pieces of human garbage who are responsible. With any luck that'll be part of setting up the new regulations that Paulson has promised.
I’m wondering if they
I'm wondering if they mean not just to regulate down the line. But what about all the people in charge of the institutions that are relieved of the burden of their own toxic waste? Shouldn't it be part and parcel of taking on those burdens that the people in charge are fired immediately, without benefit packages? If an institution needs government money, heads outta roll.
It wasn't just too many people with bad mortgages
It was that each link in the chain got to pass off the risk to the next guy.
What I'm not clear on -- it seems like each key 'decider' at each step in the passing on of risk didn't actually do anything illegal. (criminal, yes, in a moral sense but not a legal one).
So the only recourse will be through civil suits from stockholders and such, which take years, plus can only reach in and recoup from some of these asshats' personal fortunes under limited circumstances.
Actually, the one other recourse would be if we had a strong executive in office (haw!) or Congress (double haw!) who rounded up every possible related federal governing agency and let them go banzai on offenders' books looking for criminal charges. (even if there were no convictions, they could at least make a number of people's lives miserable for years).
Errrgh.
Where the criminality lies
In the representations made to purchasers/borrowers, I'd bet. A lot of borrowers who got subprime loans were probably not told about better deals or have the full onerous terms of their mortgage explained to them. Also, I'm betting the conflict of interest mortgage brokers and others had wasn't disclosed as it should've been, most made more money pushing their customers into worse loans.
Then you have a lot of debt being chopped up and sold as securities, but I'm betting a lot of risk of non-payment and default got covered up in the process. Do you think purchasers were told they were buying mortgages approved in "12 seconds" or without any backing paperwork? Were they told that Ameriquest had an "art department" that changed documents?
And if you look at the behavior of individual banks, brokers and lenders, I'm willing to bet overcharging on commissions and manipulating the market for these things occurred to. Those almost always go hand in hand with fraud.
The bottom line for me is that people sold nothing for something. Somewhere, someone knew that all this nothing was nothing and that's where the fraud lies. The people who took the nothing and wrapped it up in nice neat securities so that it looked like something. Because I'm willing to bet if you read what they were telling the purchasers it wasn't that they were buying nothing. And that's fraud.
If the Government wanted to, it could find the fraud. At least some of it. The question is will it want to? (That goes for state governments like New York as well as the federal government.)
Some low-level criminality, yes
No doubt. But I don't think that's what Lambert and others are getting at. And false representations made to borrowers wasn't a major part of the resulting mess.
Do read the "This American Life" transcript. It traces the whole business in a very entertaining way through the narratives of individuals who were involved in it, small-time mortgage brokers, etc.
As long as the housing market kept going up, there was little overall risk involved in doling out bad risk home mortages because even the higher level of failures of those mortgages could be recouped easily by reselling the property, and still making a profit for the security.
When home prices got to the point where they were too high for people to buy, they stopped buying, property values fell and the whole scheme came apart.
Sarbanes-Oxley?
That's where Calculated Risk says to look. That would indeed make the "representations" key.
[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.
regulation comes afterwards--
he made that clear.
So--no regulation at all will end up in this "plan" to end the "crisis", i'm betting.
WSJ-- "Industry Lobbyists Go After Candidates"
-- http://online.wsj.com/article/SB12217860...
-- "Top lobbyists for the financial-services industry are feverishly working connections inside both presidential campaigns, hoping to influence a torrent of regulation certain in the aftermath of the market crisis.
As the financial-market crisis has deepened, economic advisers from both campaigns have reached out to the big industry lobbying groups, vetting ideas on what they should do.
It is the "dirty little secret in town," said one financial-services lobbyist -- that after lambasting lobbyists on the stump, the candidates need their counsel on how to respond to a crisis with origins too complicated for most industry outsiders to understand. ..."
"every financial institution is virtually underwritten by this"
http://www.telegraph.co.uk/money/main.jh... -- "... "Now what they are saying is every financial institution is virtually underwritten by this proposal to drop those assets into a life boat."
...
In the most dramatic week in financial markets for decades, it emerged that the US Treasury is planning to create a massive "bad bank" to house the hundreds of billions of dollars of failing mortgages held by most major banks. ..."