Thursday, February 04, 2010

Hank on Charlie

"We prevented Armageddon."

"I did not see the housing bubble."

"We need a systemic risk regulator, with resolution authority to liquidate firms in an orderly way."

"Buy my book."

-- Henry Paulson interview with Charlie Rose.


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4 comments:

Seth said...

LY kindly spent a fair amount of his valuable time explaining L'affaire AIG to the rest of us, but I still find the account summarized here pretty credible.

Could be, GS is just the 'poster child' -- imagine a "Wanted: Dead or Alive" poster from the old west -- for everybody who used CDS to bet against the real estate bubble. So maybe it isn't "just" about Goldman.

But it does seem clear that the CDS market is an 'attractive nuisance' in a quasi-legal sense. It seems like a play pen for old fashioned bear raids of the sort that would have made Jay Gould blush.

8:46 PM
LondonYoung said...

STS - I invite you to re-read the NYTs article using the following rules: (1) when the author quotes an un-named source that won't go on the record and can never be checked mark that info as "I bet this isn't true" (2) when the official spokesman of a firm with a zillion regulators checking everything they say, regulators will full access to their internal data and who would love to deliver Lloyd Blankfein up to the pitchfork wielding masses, when this spokesman says something on the record mark that info as "I bet this is true" (3) when nebulus statements with words like "up to" and "many of" appear, substitute "never more than and usually much less" and "one or two of".
Make these changes and see how the NYTs article reads.

8:33 PM
Seth said...

LY:

Ok. Your basic argument is that this is all rumor and innuendo rather than provable malfeasance. Maybe so.

But here's a better witness, in his own words. Meet former Secretary of the Treasury and Goldman CEO Hank Paulson as quoted by Alan Abelson in his review of "On the Brink":

---------------
At a dinner with top bankers at the Fed a few months later, as he tells it, the most powerful chief executives on Wall Street were mournful addicts begging to be forced to quit their opiates. “Isn’t there something you can do to order us not take all of these risks?” Citigroup CEO Chuck Prince asked; Blackstone’s chief, Stephen Schwarzman, said he couldn’t resist taking easy money. What does it mean that these kingpins knew what they were doing and were begging to be stopped? Mr. Paulson won’t say.
---------------

This is the crux of the "regulatory failure" issue. When all the hockey goalies are asked if they want to wear helmets, they'll say "you bet I do, but ONLY if the OTHER guys have to as well". So you need a rules-making function capable of making them ALL put the helmets on. They will THANK you for it.

Militant Miltonianism, Market Fundamentalism, call it what you like, the ignorant demand for killing any and all regs and defanging regulators is the root cultural and political issue we need to address.

4:02 PM
LondonYoung said...

STS - Indeed, your witness is giving pretty damaging testimony about Citibank here. In fact, here's more, the famed Fed Stress Test - http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf - so, of the nine banks that were made to take the initial TARP money, it turns out that four had plenty of capital all along: BONY, GS, JPM and State Street; four needed some capital: MER, BAC, Wells and MS; and one was a complete basket case: Citi.

Now, Bernanke remembered from the depression that if you offer aid only to the insolvent, you tip your hand to the public and they run those banks - so he just made everyone take capital, need it or not, "to protect the guilty".

The regulatory reform here is right in front of our faces. Require banks to have adequate capital, as measured by this stress test, and you won't need "taxpayer capital".

GS and JPM wore their hockey masks all season long. However, the agents of jealousy are targeting the successful, so making the rest of the league wear masks doesn't suit their agenda of hate for those who are now benefitting from still having their front teeth in place. There is a failure of leadership in Washington - and this isn't a hard thing to see.

5:21 PM

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