Sunday, October 26, 2008

Paulson Won't Get Bank Loans from his Bucks

Once upon a time there was man named Hank Paulson, CEO of investment bank Goldman Sacks. Starting in 2001, his bank and others helped lend money to mortgage lenders Countrywide, NovaStar financial, and Impac Mortgage to ignite a housing boom of subprime loans. Godlman Sacks and the other investment banks purchased subprime mortgage loans "from these lenders so that they could chop them into mortgage-backed securities of dizzying complexity and dubious credit quality, which were, in turn, sold to suckers ... er, "investors" all over the world ...."(Moteley Fool wesite)".

The bankers gave themselves billions of bonuses each year for all their good works. Hank Paulson makes a fortune of $700 billion. He also successfully lobbies the SEC so these new investments of bad mortgages aren't regulated. President Bush asks him to be Secretary of the Treasurey. When the subprime mortgages starts tanking in 2007 he does nothing. When more mortgages default throughout spring of 2008 he does nothing. Then September, 2008, Paulson announces that the U.S. economy will collapse unless the Congress passes his $710 bailout to buy the bad mortgages so banks will begin lending again. The U.S. citizens voice their opposition 100 to 1, but on Wall State and big business exerts pressure so Congress on its second try passes the bailout. Immediately stock markets crash around the world.

In the October 25, 2008 New York Times Joe Nocera wrote a column titled "So When Will Banks Give Loans?" After Nocera reminds us that Paulson had sold his $700 bailout to Congress as the fastest way to get banks giving loans again, the writer says "the dirty little secret of the banking industry is that it has no intention of using the [bailout] money to make new loans."

Nocera heard a J.P. Morgan Chase banking insider say the $25 billion the bank got from the government "will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling." In other words, the bank is thinking of using its money to acquire other banks. The J.P. Morgan Chase executive said his bank will not be making more loans. They are hoarding the money.

Nocera adds that Treasury really didn't want its bailout money to go for bank loans but "Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching consolidation." Also, the Treasury Department "recently put in place a new tax break, worth billions to the banking industry, that has only one purpose; to encourage bank mergers." The banking industry should really appreciate Secretary Paulson for giving them such huge tax breaks. Also, Paulson is using the bailout money to turn the U.S. banking system into a "oligopoly" of huge banks--that will hurt rather than help this country. The huge banks will benefit from the bailout but the rest of the country will be big losers. Besides, J.P. Morgan Chase is really sound and didn't need the $25 billion at all.

Nocera then compares Paulson's bailout with the British government's. Paulson's bailout gifts the money to banks while only recommending they give loans while the British government mandated lending as a requirement for getting the capital. Because of Paulson's toxic bailout investors for good reasons won't trust the financial system and won't invest. The stock market will continue to fall. People will continue to lose jobs and homes by the hundreds of thousands.

First, Paulson's bank Goldman Sacks is one of the key plays in creating the housing bubble--they profit mightily. Paulson's bailout was a con job to help a few big banks including his own Goldman Sacks but is harming the whole U.S. economy. Paulson's own billions in Goldman Sacks stock and has huge conflicts of interest. He'll go down in history injecting taxpayer money into big banks, one of whose stock he owns. He's a greedy little man and a low class grifter, but our tragedy is he's the Secretary of the Treasury.

1 comment:

Verlaine said...

You definitely summed up the financial situation, and you wrote this over a month ago. Hopefully, there will be a miracle that will save the people of the U.S. from going completely down the drain. The first miracle was the election of President-Elect Obama. Let's all try to stay as positive as possible...