Today’s New York Times has some interesting information about Henry Paulson, the Treasury secretary who we will trust with 700 billion of our taxpayer dollars to rescue our troubled financial system.
Paulson is perhaps the worst person in the world to place in this role. After all, he was directly involved in getting us here:
[D]ecisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.On [April 28, 2004], the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.
The rest is history:
[With the passage of the plan] the five big independent investment firms were unleashed. In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.
Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly.
Isn’t it amazing how consistent the Bush administration is? Their reverse Midas touch makes every decision exactly the opposite of the right and true one. It makes perfect sense for the Bush administration to hire one of the high priests of laissez-faire, deregulated capitalism as Treasury secretary — especially one whose ideas caused our nation’s largest investment banks to collapse in on themselves, creating a financial black hole that threatens to suck us all down a vortex of doom and despair.
This is a serious question: Can you think of a single idea, decision, plan, policy, or cabinet position coming out of this administration that wasn’t an unmitigated nook·u·lar clusterfuck?