Tag Archives: paulson

Who Nationalized Whom?

Hank Paulson’s testimony yesterday was informative, if only because it illustrated that he himself still understands little about the origins and nature of the global crisis over which he presided.  Perhaps his book, out this fall, will redeem his reputation.

A fundamental principle in any emerging market crisis is that not all of the oligarchs can be saved.  There is an adding up constraint – the state cannot access enough resources to bail out all the big players.

The people who control the state can decide who is out of business and who stays in, but this is never an overnight decision written on a single piece of paper.  Instead, there is a process – and a struggle by competing oligarchs – to influence, persuade, or in some way push the “policymakers” towards the view:

  1. My private firm must be saved, for the good of the country.
  2. It must remain private, otherwise this will prevent an economic recovery.
  3. I should be allowed to acquire other assets, opportunities, or simply market share, as a way to speed recovery for the nation.

Who won this argument in the US and on what basis?  And have the winners perhaps done a bit too well – thinking just about their own political futures?

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The Department Of Justice Is On Line Two

I don’t generally overreact to news (from the NYT this morning, on the AIG-Goldman connection that runs through Edward Liddy’s stock ownership), but this has gone far enough. 

Have we completely lost of sense of what is and is not a conflict of interest?  Have we really built a system in which greed fully overshadows responsibility?  Is it not time for a complete rethink of what constitutes acceptable executive behavior?

One of our country’s leading corporate attorneys made a telling point to me on Wednesday night, “the only way to control executive behavior is to criminalize it,” i.e., civil penalties do not change behavior – the prospect of jail time has to be on the table.  His broader point was that antitrust action can make a difference in today’s world, but only if this includes potential criminal charges. Continue reading

Reprivatization After Paulson

The worst possible way to nationalize would be to assume responsibility for the liabilities of banks, at the same time as not putting in place adequate oversight and failing to ensure that the taxpayer gets any upside.  Even worse, we could install managers with a proven track record of incompetence.  Anyone who proposed such a scheme today – as we collectively kick the tires of plausible alternative approaches – would be dismissed as an ridiculous crank.

Yet it is exactly this kind of nationalization that we – or, more specifically, Hank Paulson – already did. Continue reading

Causes: Hank Paulson

Other posts in this occasional series.

I generally prefer systemic explanations for events, but it is obviously worthwhile to complement this with a careful study of key individuals. And in the current crisis, no individual is as interesting or as puzzling as Hank Paulson.

The big question must be: How could a person with so much market experience be repeatedly at the center of such major misunderstandings regarding the markets, and how could his team – stuffed full of people like him – struggle so much to communicate what they were doing and why?

Hank Paulson’s exit interview with the Financial Times contains some potential answers but also generates some new puzzles.

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The Paulson Legacy

With the footsteps of a new Treasury Secretary audible around the corner, Henry Paulson’s days running the country are essentially at an end. The best he can do now is delay whatever changes the Obama administration will make.

Looking back over the last two months, Paulson’s record (and that of the rest of the Bush administration) in combating the greatest financial crisis of our lifetimes is poor, though not catastrophic. The one thing that can be said in his favor is that the financial system did not completely collapse and Ben Bernanke’s supposed warning in the dark hours of September 18 that “we may not have an economy on Monday” did not come to pass. We have said on this site that stabilizing the financial system was job one, and the patient is stable.

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