Excerpt from The Wrecking Crew re how Republicans destroyed the US economy & how their plan goofed

Reply Mon 22 Sep, 2008 09:21 am
A must read book for anyone who is uneasy about having Treasury Secretary Paulson in charge of fixing the US economy collapse. I've singled out just one small section of the book given today's economic crash. ---BBB

Casting his eye back to the early days of the conservative revolution, Frank describes the rise of a ruling coalition dedicated to dismantling government. But rather than cutting down the big government they claim to hate, conservatives have simply sold it off, turning public policy into a private-sector bidding war. Washington itself has been remade into a gold landscape of super-wealthy suburbs and gleaming lobbyist headquarters---the wages of government-by-entrepreneurship that has been practiced so outrageously by figures such as Jack Abramoff.

It is no coincidence, Frank argues, that the same politicians who guffaw at the idea of effective government have installed a regime in which incompetence is the rule. Nor will the country easily shake off the consequences of deliberate misgovernment through the usual election remedies. Obsessed with achieving a lasting victory, conservaties have taken pains to enshrine the free market as the permanent creed of state.

This excerpt from The Wrecking Cren; How Conservatives Rule, by Thomas Frank page 264:

And then, act 3, George W. Bush proceeded immediately to plunge the budget into deficit again. Indeed, after seeing how the Reagan deficit had forced Clinton's hand, it would have been foolish for a conservative not to spend his way back into the hole as rapidly as possible, That deficits defund liberalism was no longer just a theory; it was a historically tested reality, a plan that got results.

Besides, think of the possibilities that opened to our conservative friends as they realized they were not free to taxcut-and-spend their way deep into the red. Oh, the earmarks they could hand out to people working on privatizing outer space or building experimental jet airplanes. All the different ways they could reward the right lobbyists, the right consultants, the right contractors. And after they'd burned through the bank account and brought on the crisis, think of the points they could win by screaming about too-generous "entitlements," the insolence of publicly funded art, and all the fat and lazy bureaucrats who needed a pay cut.

If, along the way, all this idiotic spending happened to bump up public cycicism toward deficit spending a notch or two---why, that's just gravy. "It's perfectly fine for them to waste money," says former labor secretary Robert Reich, summarizing the conservative viewpoint. "If the public thinks government is wasteful, that's fine. That reduces public faith in government,, which is precisely what the Republicans want." It's not just sabotage; it's win-win sabotage, a charming addition to win-win incompetence and win-win corruption.

Put simply, takeovers constitute the key solution to the most serious problem inherent in the operation of publicly traded corporations, namely, the failure of corporate management to keep the shareholds' interest foremost in the decision-making, wrote two experts in corporate law in 1988. With the advent of the leveraged buyout or hostile takeover, this situation was changed: 'Thus, to reduce the risk of being swept out of office, managers are constrained to keep stock prices as high as possible by running their companies efficiently and in the interests of the shareholders."

Reply Mon 22 Sep, 2008 09:47 am
BTW, Thomas Frank is a columnist for the Wall Street Journal and a contributing editor at Harper's Magazine.

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Reply Mon 22 Sep, 2008 09:58 am
from what i've read/see of Paulson, I'm a fan.
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Reply Mon 22 Sep, 2008 10:09 am
Why did you post links to this post on every active post (I saw at least nine) without any comments? It's an interesting read and all, but spamming all the other posts is not the best way to drum up traffic.
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Reply Mon 22 Sep, 2008 10:34 am
Can you trust a Wall Street veteran with a Wall Street bailout?
By Kevin G. Hall | McClatchy Newspapers

WASHINGTON " Making the rounds on the Sunday morning talk shows, Treasury Secretary Henry Paulson repeatedly said today's financial problems were long in the making. He should know. He was part of the Gold Rush that has brought the global financial system to the brink of collapse.

Paulson presided over one of the most profitable runs on Wall Street as chairman and chief executive officer of investment banking titan Goldman Sachs & Co. from 1999 until President Bush nominated him on May 30, 2006 to take over the Treasury Department.

Back then, Bush saw Paulson's Wall Street experience as a plus. "Hank will follow in the footsteps of Alexander Hamilton and other distinguished Treasury secretaries who used their talents and wisdom to strengthen our financial markets and expand the reach of the American Dream," Bush said at the time.

But with Paulson now seeking virtually unfettered authority to administer the largest bailout of the financial industry in U.S. history, many are wondering whether Paulson also doesn't come with enormous potential conflicts of interest.

That was one reason Democrats on Sunday expressed reluctance to approve the administration's draft legislation that would leave to Paulson virtually all authority over the proposed $700 billion bailout. The legislation would allow him to decide which securities to buy, from whom to buy them, and which outside companies and people to hire to help him do so.

"If we grant the Treasury broad authority to address the immediate crisis, we must insist on independent accountability and oversight," said Democratic presidential candidate Sen. Barrack Obama. "Given the breach of trust we have seen and the magnitude of the taxpayer money involved, there can be no blank check."

In recent days, there've been few outward expressions of distrust of Paulson in particular. In fact, many said his long reign on Wall Street make him uniquely qualified to deal with today's problems.

"Hank is the right guy," New York Mayor Michael Bloomberg, who made his millions providing information to Wall Street traders, told NBC's Meet the Press. "If I had to have one person at the helm today I would pick Hank Paulson."

But the conflicts are also visible. Paulson has surrounded himself with former Goldman executives as he tries to navigate the domino-like collapse of several parts of the global financial market. And others have gone off to lead companies that could be among those that receive a bailout.

In late July, Paulson tapped Ken Wilson, one of Goldman's most senior executives, to join him as an adviser on what to about problems in the U.S. and global banking sector.

Paulson's former assistant secretary, Robert Steel, left in July to become head of Wachovia, the Charlotte-based bank that has hundreds of millions of troubled mortgage loans on its books.

The administration's draft law also would preclude court review of steps Paulson might take, something Joshua Rosner, managing director of economic researcher Graham Fisher & Co. in New York, said could be used to mask previous illegal activity.

"The Treasury's ability to, without oversight, determine (that) a financial institution (is) an agent of the government seems like it could be used to serve several purposes, including limiting the potential liabilities of an institution or its executives," he wrote in a note to investors late Sunday.

The Treasury proposal sent to Congress also offers no process to hire asset managers in an open and competitive process. That's particularly questionable given that Wall Street players are now hiring Wall Street players, Rosner said.

"This seems to invite a risk of collusion between sellers and buyers to the detriment of the taxpayer," he wrote.

At a minimum, there's irony in Paulson being in charge of so large a bailout.

In the last annual report at Goldman that Paulson signed off on in November 2005, a year in which he received $38 million in compensation, investors were clearly told that the federal government wouldn't be there to save them from bad investments.

"Goldman Sachs, as a participant in the securities and commodities and futures and options industries, is subject to extensive regulation in the United States and elsewhere," the report said.

But those regulations are designed to protect the interests of clients in the market, it said. "They are not . . . charged with protecting the interest of Goldman Sachs shareholders or creditors," it said.

That's a different tune from the one Paulson was singing Sunday.

"Last week there were times when the capital markets or credit markets were frozen," Paulson said on NBC's Meet the press. "American companies weren't able to raise financing. That has very serious consequences. So what we need to do right now is stabilize the markets, and this is for the, for the benefit of the taxpayers we're doing this, the American public. Then, once we get behind this and get this stabilized, there's a lot we can talk about in terms of reform."

What Paulson didn't say is that the excesses that led to the frozen credit markets couldn't have happened without Wall Street. Lenders weakened their standards because loans were sold to investment banks, which didn't much care about the loan quality since they then pooled the loans with thousands of other loans and sold them as bonds to investors. If the whole thing collapsed, it would be the investors who lost out.

Those bonds, called mortgage-backed securities, are precisely the bad assets taxpayers will now be buying back from Paulson's colleagues on Wall Street.

During Paulson's tenure, Goldman was not as big a player in issuing mortgage bonds as two other investment banks that have gone under this year, Bear Stearns and Lehman Brothers.

But the 2005 annual report shows that Goldman was still a significant player. Its trading division, which included the mortgage bonds and complex financial instruments called derivatives, reported pre-tax earnings of more than $6.2 billion, up sharply from $3.5 billion in 2003.

The report also shows that Goldman benefited greatly from the wave that is now being deemed a wave of excess.

Goldman's pre-tax earnings rose from $4.4 billion in 2003 to almost $8.3 billion in 2005. Similarly, its investment banking division had pre-tax earnings leap from $207 million to $413 million.

Paulson's personal fortunes also zoomed in those years.

In 2002, Paulson received $12.1 million in compensation, including a $6.3 million bonus " an improvement over the previous three years when Wall Street accounting scandals unsettled investment banks, including a $1.5 billion settlement Goldman and other banks paid for issuing overly bullish research reports that promoted deals the banks themselves were involved in.

Published reports said Paulson received $30 million in compensation and salary in 2003.

After Paulson left Goldman and mortgage bonds began losing money, the investment bank erased those loses and then some by betting against the very products it had sold, Fortune magazine reported last year.
Reply Mon 22 Sep, 2008 11:05 am
Paulson has been described as an avid nature lover. He has been a member of The Nature Conservancy for decades and was the organization's board chairman and co-chair of its Asia-Pacific Council. In that capacity, Paulson worked with former President of the People's Republic of China Jiang Zemin to preserve the Tiger Leaping Gorge in Yunnan province.

Paulson is also on the Board of Directors of the Peregrine Fund; was the founding Chairman of the Advisory Board of the School of Economics and Management of Tsinghua University in Beijing; and, previously served as chairman of the influential trade group, the Financial Services Forum.

Notable among the members of Bush's cabinet, Paulson has said he is a strong believer in the effect of human activity on global warming and advocates immediate action to decrease this effect.

As an environmental leader and philanthropist, Paulson while at Goldman Sachs, oversaw the corporate donation of 680,000 forested acres on the Chilean side of Tierra del Fuego, which led to criticisms from Goldman shareholder groups . He further donated US$100 million of assets from his wealth to conservancy causes. He pledged his entire fortune for the same purpose at death. He has also been considered someone who can influence world and business leaders to think beyond the bottom line.

Paulson has quickly distinguished himself from his two predecessors in the Bush administration by formally identifying the wide gap between the richest and poorest Americans as an issue on his list of the country's four major long-term economic issues to be addressed, highlighting the issue in one of his first public appearances as Secretary of Treasury.

Paulson has conceded that chances were slim for agreeing on a method to reform Social Security financing, but said he would keep trying to find bipartisan support for it.

He also helped to create the Hope Now Alliance to help struggling homeowners during the subprime mortgage financial crisis.
cicerone imposter
Reply Mon 22 Sep, 2008 11:34 am
dys wrote:
He also helped to create the Hope Now Alliance to help struggling homeowners during the subprime mortgage financial crisis.

This is the best solution for the $700 billion. Any other way only rewards those who created this mess, and they'll benefit for their incompetence.
Reply Mon 22 Sep, 2008 11:55 am
@cicerone imposter,
some organizations involved in Hope Now (created with help from Paulson 1 year ago) include;

* ACORN Housing Corporation
* Catholic Charities USA
* Citizens’ Housing and Planning Association, Inc.
* Consumer Credit Counseling Service of Atlanta
* HomeFree- USA
* Homeownership Preservation Foundation
* Housing Partnership Network
* Mission of Peace
* Mississippi Homebuyer Education Center- Initiative
* Mon Valley Initiative
* Money Management International, Inc.
* National Association of Real Estate Brokers- Investment Division, Inc.
* National Community Reinvestment Coalition
* National Council of La Raza
* National Credit Union Foundation
* National Foundation for Credit Counseling, Inc.
* National Urban League
* NeighborWorks America
* Neighborhood Assistance Corporation of America
* Rural Community Assistance Co.
* Structured Employment Economic Development Co.
* West Tennessee Legal Services, Inc.
cicerone imposter
Reply Mon 22 Sep, 2008 11:58 am
The list looks impressive, but we still have the financial failures we must tend to for our economic survival.
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Reply Mon 22 Sep, 2008 01:09 pm
How the Democrats Created the Financial Crisis: Kevin Hassett


Commentary by Kevin Hassett

Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
cicerone imposter
Reply Mon 22 Sep, 2008 01:36 pm
Many things that conservatives ignore are the a) huge deficits created by Bush, b) his approval of all legislation produced by the republican congress, and c) Bush's popularity ratings have continued to drop since his highest in the 80s to the low 20's today. Ignorance is devine.

cicerone imposter
Reply Mon 22 Sep, 2008 01:37 pm
@cicerone imposter,
Oh, and we must not forget what the minority party is doing to the majority congress for the past two years.
cicerone imposter
Reply Mon 22 Sep, 2008 01:40 pm
@cicerone imposter,
And this is what the GOP did when they ran congress: http://uspolitics.about.com/b/2007/09/20/a-tale-of-filibuster-and-congressional-deadlines.htm
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