In truth, I’m not sure I agree with Mr. Rosner’s assessment of Mr. Paulson’s job performance. I think he is one of the most competent Treasury secretaries we’ve ever had, and it is hard to imagine anyone else handling this crisis any better. His predecessors, who lacked his grounding in the world of high finance, would most likely have been like deer in headlights.
And when Mr. Paulson says, as he did on all the talk shows on Sunday, “I hate the fact that we have to do it, but it’s better than the alternative,” I believe him. (It would have looked better, of course, if he had come up with this plan before it looked as if his former firm, Goldman Sachs , was in jeopardy.)
But the question on the table now is whether the government’s latest response to this crisis — the way it has been constructed, and frankly, the way it is being crammed down everyone’s throat at the eleventh hour — is the right approach. Already the market has its doubts; just look at its performance on Monday.
Let put aside the bill’s most offensive aspect — the raw power it gives the Treasury Department, and the lack of oversight it provides — and take a closer look at the practicalities. First off, there is nothing in the bill that will prevent these problems from happening again. The bill doesn’t address adding greater transparency in investments in subprime loans and securities and credit derivatives, which led directly to the debacles at Lehman and A.I.G. The bill does nothing to rein in the credit-default swap market, which has turned out to be the weapon of financial mass destruction that Warren Buffett always said it was.
Nor are the Democrats going to help matters with their own changes. It is all well and good that they hope to use the bill to restrain executive compensation, and add stipulations to help people in danger of losing their homes. But nothing the Democrats have suggested so far tackles the core issues of oversight, transparency or regulation.
Of course, the sickest part is that Wall Street is lining up at the trough for a piece of the action, lobbying to run some of the $700 billion fund — and take huge fees — for their own mess.
However the bailout is structured, no matter what safeguards are put in place, it is likely to be a conflicted mess. How can we possibly trust that the price the government agrees to buy the securities will be fair?
And then there is the jockeying among the banks so they can sell their absolute worst stuff to the government — even loans that have nothing to do with mortgages — and change the rules in the process. The Financial Services Roundtable, which represents big financial services companies, wrote an e-mail message to members on Sunday suggesting, laughably, that “the government bid for the assets should not count as a mark-to-market value for accounting purposes.”
In other words, if the government drives a hard bargain — as it should — the banks don’t have to take write-downs based on the price the feds pay to take junk off their balance sheets.
Watching Wall Street double-dip makes even some in the industry’s top tier cringe.
“Maybe I should move to Russia,” one titan of finance said to me. “It’s obscene, the whole thing. I’m embarrassed for myself.”
Actually, I’ve got a better suggestion: Venezuela.
On Friday last week, Hugo Chávez, the Socialist president of Venezuela, gave a speech in Caracas where, according to Reuters, he said, “The United States has spent $900 billion, four times what the Venezuela produces in a year, to try to boost the troubled finance system and housing market.”
Gloating, he added: “They have criticized me, especially in the United States, for nationalizing a great company, CANTV, that didn’t even cost $1.5 billion.”