| Nov. 19th, 2008 @ 06:00 pm Paulson Self-Serves |
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Here.
What he should have said:
We were muddling through, although with heavy losses, until September. What changed?
Prior to then, we asked the banks to buy preferred shares in Fannie and Freddie. These qualify as Tier 1 capital. So, the banks tucked this stuff away, and carried on.
Then, in September, one weekend in, we finally had to bail these government entities out, and make explicit the implicit government guarantee these enablers of (Editor's note: formerly all white, now mostly white) suburban and exurban paradise.
Parenthetically, you know, I'm a Republican, and these guys were created by Democrats and mostly staffed by them. Just so's you know.*
We decided, because we didn't want to hand those same Democrats a soundbite during the campaign, not to save the preferred shareholders, even though we'd pushed them down the throats of all those banks. We did tell these banks that if their purchase of these preferreds caused solvency problems, that they should call their regulator. Really. I thought that was considerate of us, eh?
The next Monday, the preferred share market suffered a fearful fall, on Tuesday Fitch downgraded a bunch of Lehman stuff, because they said they might have problems raising capital, and by the next weekend, we were trying to figure out whether or not to save them.
Yes, the fearful fall in the preferred share market did make capital raising a lot more expensive. But their balance sheet was already screwed, in my opinion. And, importantly, in the opinions of the CEOs of BoFA and Merrill, too. 'Cause, you know, they decided that Lehman should go and Merrill get saved.
Yes, those CEOs had a bit of self-interest involved in saying that, I suppose. Why do you ask?
The week after, the money markets panicked as some Lehman-sponsored funds broke the buck. On top of that, we saved AIG, and some folks said they didn't know what our policy was anymore, given that we had decided to let Lehman go one week and then save AIG the next week.
I don't know why they were confused. AIG was systemically important**, Lehman wasn't.
Yes, the money markets did panic when Lehman went tits up. What's your point?
Yes, they were competitors of ours. Had nothing to do with it. How could you even suggest such a thing? I mean, we saved Merrill, didn't we?
Next, we pressured the Congress into passing the TARP, which was my, ahem, carefully considered response to the crash caused by the Lehman and AIG failures. I spent a considerable amount of time producing three pages of carefully reasoned arguments, which I sent to Congress and told them to pass, immediately if not sooner.
Congress being Congress, they took more time than I considered reasonable, so by the time they passed it, I had to use it to directly buy bank shares rather than do what I wanted, which was to buy the troubled assets and take them off the banks' books. C'est la guerre.
Meantime, the September panic caused car sales to crater, to a level more or less equal with WWII sales, which caused the carmakers to panic and come running to DC for money.
Yes, all these things happened immediately after Lehman, which happened immediately after the Fannie and Freddie bailout. You think I can't see your point?
Yes, Merrill is cratering now, and is below 10. Yes, Morgan Stanley is close. Goldman is below 60, a level that, yes, I admit, was once considered unthinkable, and is mere dollars above its IPO price of 53. Citi is below 10, maybe headed to zero. All those other guys, Bear, Wachovia, Fannie, Freddie, Lehman, Merrill even, since BoFA is buying them, are history. The carmakers, all three of them, are close to being history, too.
Yes, all of this happened on my watch. But who could predict** this kind of turmoil?**
*Of course, Newt Gingrich, when asked once, shortly after he set out his Contract With America in 1994, whether he would consider rescinding the mortgage interest deduction, engaged in what I remember as a masterpiece of evasion, mealy-mouthedness, and general illogic. Just so's you know.
**New links!! Really! Yes, I know I put most of the links out earlier, when I saved them all up in a single post. Kind of the outline for this one. So now, you know how great minds put this stuff together. Whether you wanted to know or not. Oh well. |
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