Paulson heads bailout: What is wrong with this financial picture?

Posted Sat, 10/04/2008 - 10:06 by luaptifer
[Update: with minor edits towards clarity - luaptifer] This is incredible. The Day the S.E.C. Changed the Game steps backward to the date, April 28, 2004, on which SEC gave the OK for the five banks that have precipitated the current spiral of the global financial crisis to begin their own financial risk monitoring programs rather than continuing to use the objective models then restraining all other banks from 'overdoing it'. The multimedia presentation at the above link traces the story back to when Goldman Sachs was headed up by the very same Henry Paulson who is now presiding over the Treasury to decide how the multi-billion dollar bailout will be used. Paulson made the decision that his bank should be able to proceed upon its own risk analysis and got the SEC to agree.
"We [SEC] said these are the big guys...but that means if anything goes wrong, this is going to be an awfully big mess and do we feel secure that if there are these drops in capital and other things we really have investor protection?"
How crazy am I to think this: that it is absurd for the man who was top decisionmaker at Goldman Sachs when his bank urgently felt the need to be exempt from the very constraints which, upon their removal, have crashed the finance system of the world, to be in charge? Should Henry Paulson now be the decisionmaker to get us out of what he urgently appealed to the SEC to get us into!? Please tell me what is very wrong with this picture? Just how nuts am I, anyhow? Review the piece linked below and let me know, will you? NYT: The Day the S.E.C. Changed the Game Really, am I missing something?

Comments

I have been swimming upstream to tread water...

by cho - 10/04/2008 - 13:03
and haven't had much time to pay attention, but of course I don't think you are crazy.

There are no coincidences.

by susie dow - 10/04/2008 - 13:44
Just moments of clarity. Those in power operate within a closed loop. They go to the same schools together - either undergraduate or graduate or both. If you want to be one of them - you have to assimilate - which means adapting their views so even if you didn't go to their schools, you still tailor your thoughts to be just like them. No thank you.

can you relocate that piece with which you first alerted me

by luaptifer - 10/04/2008 - 15:32
to this story, susie? At the time you did so, I'd not connected the tic marks on the timeline to put Paulson in the driver's seat at Goldman Sachs though I guess one needn't have connected exactly those dots to get the picture. Still, it's stunning to me, one who's lost the shake my head in disbelief reflex that we'd let--LET, no GIVE! the %@*#1* essential immunity much less have him run the damn show! If I'm not insane, who is it then?

"So your party is the only party that can save the country from the mess that your party created?" - attrib. Jon Stewart

Big Picture?

by susie dow - 10/04/2008 - 16:24
This is the link to an earlier comment I posted in another thread. I first learned of the SEC actions from a post at the Big Picture blog: How SEC Regulatory Exemptions Helped Lead to Collapse Big Picture learned about it from The NY Sun which unfortunately ceased publication on September 30.

That was it, thank you.

by luaptifer - 10/04/2008 - 17:58
Sorry to see that NY Sun departed so shortly thereafter. One of the symptoms of Paulson's unleashed great beast, perhaps? Btw, I've been trying to keep up with The Big Picture, where I was clued into that NYT story first, in fact. It's a very informative site so finally glad to get there frequently after you pointed it out a while back. Gracias :-)

"So your party is the only party that can save the country from the mess that your party created?" - attrib. Jon Stewart

jimstaro's picture

The Succesful?, As We Define.............

by jimstaro - 10/05/2008 - 01:54
The educated? over seeing the candy stores wanting more of that Sweet Stuff, Greater Wealth, saw the Easy $$ signs to be had and smart enough on that to figure the ways to gain them. So greedy and corrupt in their needs though they forget a simple force of nature, like a snow ball rolled down an incline it grows but not with the wealth sought but those pesky little problems, over looked but commonsense, grow bigger and bigger and quickly pass the point of correction, Than The Snowball Quickly Melts With The Heat Generated, and Collapses into Vapor eventually!! Do We Need Change, You're Damn Right We Do, And The World Needs Us To Change, Now!!

"that I will support and defend the Constitution of the United States against all enemies, foreign and domestic">

Follow the Money?

by susie dow - 10/05/2008 - 16:12
This might be of interest to you: Did JPM Cash Call Bring Down Lehman ? A look at the movement of money into and out of JPM and Lehman around September 15th including a potential infusion of $138 Billion from the Treasury Dept that has the looks of a bail out. Yes, One Hundred and Thirty-eight Billion dollars. Fascinating. I wonder if anyone will follow this further?

Fascinating find, as always

by cho - 10/05/2008 - 16:31
Even the role J.P,Morgan played in precipitating the mess:
JPMorgan had more than $17 billion of Lehman's cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank ``froze'' Lehman's account, the creditors claimed.
JPMorgan, the biggest U.S. bank by deposits, financed Lehman's brokerage operations with daily advances, while money market funds and other short-term lenders provided overnight loans, according to bankruptcy court documents. When JPMorgan shut Lehman off from funds, Lehman ``suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,'' according to the filing.

The problem

by susie dow - 10/05/2008 - 17:19
If the Treasury did in fact decide to bail out JPM and let Lehman fail - and is even now deciding which companies are worthy and which are not regardless of actual financial health, then we have truly entered into full blown government interference in competition. And that of course, is fascism.

That is exactly it.

by cho - 10/05/2008 - 17:27
That's luaptifer's and my complaint about the so-called "Plunge Protection Team" -if the Administration exercises a special "shadow" financial group of both private and government agencies to keep markets humming by buying and selling financial instruments... that ain't "free markets" -- that's behind the scenes, hypocritical manipulations. Better regulations, enforced, out in the open and in sunlight.

Fascinating indeed and it invokes my reflexive need

by luaptifer - 10/05/2008 - 18:01
to point out what you may tire of my pointing out each of the rare times I do it. JP Morgan was the first bank -- first ANYTHING -- allowed by our glorious leaders to open operations in Iraq once we'd achieved the requisite level of "Mission Accomplished". A money center bank, it's not surprising they'd prop up operations with $138 BILLION from Treasury. That printing machine's gotta be out of ink by now, doesn't it?

"So your party is the only party that can save the country from the mess that your party created?" - attrib. Jon Stewart

New Times piece on the role of JP Morgan in Lehman's collapse

by cho - 10/05/2008 - 19:07
Lehman Brothers' final days
Lehman executives complain bitterly that any chance of keeping the firm alive began to dissipate rapidly just after Labor Day when JPMorgan Chase, which handled Lehman’s trades, came calling for more money. Lehman had put down securities it believed were worth $6 billion during the summer to assuage the bank’s concerns that its trades were risky. But JPMorgan thought those securities had deteriorated in value, and asked for $5 billion in cash or liquid assets on Sept. 4.
Over the course of the next week, JPMorgan requested more money from Lehman. However, executives at the two companies disagree over how much money was requested and whether the requests were reasonable. The dispute has become part of a legal claim filed by creditors of Lehman.

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