Hank Paulson: Neither Butch nor Sundance

I feel like Butch Cassidy and the Sundance Kid. Who are these guys that just keep coming?

       -- Treasury Secretary Henry Paulson Jr.

A great quote from a great movie opens a tough-minded NY Times piece tonight about Henry Paulson's actions (and inaction) during the current crisis. There is now ample evidence to believe that letting Lehman fail was a mistake, and nothing in this piece does anything to persuade otherwise. Meanwhile, the article adds weight in showing how the last-minute Lehman negotiations were mishandled and unclear as the government couldn't decide whether it was more worried about moral hazard or a meltdown.

More broadly, expecting that Treasury or the Fed would get every decision right in this affair is unrealistic, of course. We have been living in uncharted territory, with decisions coming fast and furious, so you will get things wrong, with the associated consequences -- which points more to the inherent instability of the system.

The again, there are things that the Feds got wrong all along. It seems clear from the piece that they initially concocted the toxic asset purchase program as an over-linear solution to the problem of messed-up bank balance sheets. By the time they took the plan to Congress the problem had mutated, however, with it being far less important to move assets than it was to recapitalize banks altogether. Trouble was, Paulson already had the former plan, and even if it was inappropriate he stuck by it until events forced him to chance directions.

More here. And I'll leave to someone else the semiotic exercise of pointing out the inappropriateness of Paulson's cowboy metaphor. Really Henry? Really?

Comments

[axelrod608]

Wrong, Hanky panky, you're both !! A bank robber, the DEAN of bank robbers. Paulson belongs in jail, not the cabinet.

2008 Oct 24 02:37 PM

[billp37]

ns axelrod608

401k Financial advisor responded

Hi Bill

You are not alone in your concern. The scariest part of all is one of the principals of a firm responsible for the creation of CDS is the Government official in charge of the fix.

Ron




----------------------...

From: bill payne [mailto:bpayne37@comca...
Sent: Wednesday, October 15, 2008 4:38 PM
To: Short, Ron (RBC Wealth Mgmt)
Subject: CDSs and U colorado



A CDS is like selling insurance on your car to hundreds of people who don't own it -- yet if your car goes up in flames each of those people collects the full value of your car. More specifically, CDSs are insurance against a bond or loan default. Why are CDSs so dangerous? Three reasons: a CDS seller does not need to put any capital aside to cover losses if the security defaults, the buyer doesn't need to own the asset it wants to protect, and there is no central place where information about all these CDS deals is collected and updated.

_______

I have a liberal arts undergrad education.

I am not favorably impressed with business/econ, media, and lawyer educations.

All perhaps have their mouths open too often?

I may retaliate?

home.comcast.net/~bpayne37/whitman59/w...

2008 Oct 24 06:33 PM