Paulson, In Congress, With The Prepared Testimony
By Cernig Friday Oct 03, 2008 1:00pmJonathan Schwarz at A Tiny Revolution tells a story I didn't know, one that would have made some difference to my opinions had I done so.
Back in 2000, when Hank Paulson was CEO of Goldman Sachs, he testified in front of the Security and Exchange Commission. Among other things, he lobbied the SEC to enact a "change to self-regulation" for Wall Street. He also urged them to change the "net capital rule" which governed the amount of leverage investment banks could use. The net capital rule was indeed changed in 2004, and is now blamed for the investment banks' collapse.
...Who murdered the American economy? It was the CEO, in the 13th Floor Conference Room, with the Prepared Testimony.
Paulson, in other words, was the point man for the finance industry's push to deregulate leverage rules, so that the big banks could increase their debt-to-net-capital ratios from 12 to 1 up to, in some cases, 40 to 1.
I had until now assumed that Paulson was nothing more than the usual run-of-the-mill right wing economist. "I'm alright, Jack". It appears he was far more dishonest to the American public than even that. He pushed then for the very thing that he knows now brought down the economy, and seems to have no intention of admitting this.
I've also been getting some schooling from my Newshoggers colleague Fester, who is a real brain on economic issues in a way I'm certainly not. He writes that the bailout:
...addresses a symptom, horrendously crappy balance sheets instead of the insolvency issues that permeate the global economy. The last of the cheap land and cheap oil booms created too many promises based on unreasonable premises and backed by wild policies and supported by skewed, perverse short term incentives. Those promises are failing because there is not enough money or reasonable accessible future income streams to maintain those promises.
This crisis is at its base an insolvency crisis, then a counter-party risk crisis, then a credit crisis and finally a balance sheet problem. We are addressing the top layer with crappy incentives. And that plan was put together in panic and haste without viable alternatives such as the Swedish model being advanced. So I don't think it will work.
And goes on to quote Ian Welsh at FDL, who also hates the "rescue" plan because, among other things, there's nothing to stop the big banks making new toxic waste to sell the Fed at prices they'll never get elsewhere. I think there's going to be a lot of that going on, but there's also going to be a smaller amount of bankers deciding they can make more money for themselves from using their own money to inject liquidity into the system than by letting the government do it at a cost in shares. That, on a far smaller scale than Fester or Ian or I would have liked, is the bit that will actually help unfreeze credit.
Looks like the Senate Judiciary Committee has some 'splainin' to do. 
Former Republican Congressman and 
via 
UPDATE: I had to add one more...JA
In our ongoing "Republican Rubber Stamp" series---don't forget to get 
