The Self-Inflicted Crisis, Paulson the Bungler

[G_j]

http://www.counterpunch.org/whitney11142008.html


The Self-Inflicted Crisis

Paulson the Bungler

By MIKE WHITNEY

Henry Paulson's time at Treasury has been one pratfall after another. Even so, on Tuesday he managed to outdo himself. Paulson held a "surprise" press conference where he announced that the $700 billion Troubled Asset Relief Program (TARP) wouldn't be used to buy troubled assets after all. Instead, the money will used to bail out insurance giant AIG, provide extra capital for the banks to hoard, and now (this is the new part) give money to "nonbank financial institutions, like insurers and specialty-finance companies" so they can lend to credit-worthy consumers. Isn't that why we gave money to the banks?

Paulson's announcement was like tossing a hand-grenade in a San-i-can; it blew the stock market to Kingdom come. Just minutes after the opening bell on the New York Stock Exchange (NYSE) stocks plummeted to new lows ending the session in a 400 point death-spiral. Wall Street doesn't like uncertainty and Paulson's sudden about-face sent jittery investors running for cover. The message to investors is clear, the government doesn't have the foggiest idea of what it's doing and is just grasping at straws.

But Paulson's no fool; he knew exactly what the reaction would be on Wall Street. He simply decided that blowing up the equities market was worth the price of reviving "securitization"--the transformation of loans into securities. You see, securitization is Wall Street's Golden Goose. It's the foundation block upon which structured finance and all its complex credit-enhancing derivatives rests. Keep in mind, that all these exotic, financially-engineered products--the CDOs, MBS, and CDS--were all created with one goal in mind; to maximize leverage with minimum capital so that profits can be skimmed off the top. That's how Paulson managed to walk away from Goldman Sachs with hundreds of millions of dollars in his pockets. It's a racket.

There's a myth that credit is contracting because the banks won't lend. But, in truth, total bank credit expanded by $575 billion over the past 10 weeks. The real problem is that the securitzation market remains frozen.

So now Paulson wants to breathe new life into securitization by providing liquidity for nonbank financial institutions who get their money from the wholesale market. Of course, no one really knows how this will work since these operations are completely unregulated by the federal government. No worries; the charade will persist behind the dodgy claim that "it's needed to get credit to the consumer". Baloney. What the consumer needs job security and a pay-raise, not more debt. This is just more Paulson flim-flam.


..more..

[dkf]

1. The only thing the US manufacturers nowadays are financial derivatives.

We need to produce real goods like we used to, instead of just importing everything and consuming like mad.

[frogcycle]

2. this gang of cuthroats needs to just be put in the penalty box until Jan 20

Paulsen is not an idiot, he is a criminal.

I wish Congress could just de-fund the administration, lock their offices, tell them to stay home.

[ananda]

3. Ermm..

.. Congress is part of the problem.

[midnight]

4. This does seem to be the only reasonable answer to this

chaos.

[gratuitous]

5. Nobody understands this; there's no regulation or oversight

And for the criminal, there is great chaos under heaven and the situation is excellent.

[Mr_Jefferson_24]

6. K&R.