Fire Hank Paulson Now

The Wall Street Journal says that the original $700 billion bailout will not be enough (surprise, surprise), which makes it likely that Treasury Secretary Hank Paulson will be forced to go back before Congress and ask for still more money. Just amazing. Congress has a chance to do the right thing and stop this before we send the economy into another Depression. Do any of us think that they have the courage to do this? Outside of Ron Paul and a few others, it’s doubtful, but maybe we’ll see them actually listen to their constituents this time. But hey, who am I kidding?

I recently had a great talk with Wayne Allyn Root, the VP nominee for the Libertarian Party, who, along with presidential nominee Bob Barr, received the second highest vote total in history for their party, which is truly impressive as they were essentially shut out of the process. Why they were not invited into the debates, I have no clue (well, that’s not quite true), but my guess is that in four years, when Mr. Root is hopefully at the head of the Libertarian Party, things will be quite a bit different. Many of you reading this will hear Wayne speak at the upcoming WMI Wealth Conference (Nov 21-24) in Marco Island, FL. According to Wayne, things will only get worse as we abandon our capitalist system and embrace socialism, as evidenced by the ongoing nationalization of our banking system and coming auto industry bailout/takeover. Get ready folks…Wayne is going to rock the house!

I just read a spirited piece from Kevin Depew of Minyanville.com. He writes:

So what happens if Congress stops the bailout, even going so far as to refuse to authorize the second half of the original $350 billion? We will probably see a huge drop in financial markets. Stocks will likely plunge 30% or so from present levels. There will be bankruptcies and layoffs. Times will be tough. Very tough. What if Congress approves still more bailout money? That money will be quickly absorbed by a financial system staggering under the weight of unprecedented levels of debt. We will see a continued decline in the velocity of money and business activity. Stocks may slowly fall 30% or so from present levels. There will be bankruptcies and layoffs. Times will be tough. Very tough. So, where’s the difference? The difference is that without more bailouts, within a decade - give or take a few years - we will emerge as a healthier, stronger economy with companies that operate as if they are deeply responsible for their own business decisions. With continued bailouts we will emerge from a lost decade with an economy and society crippled by the cost of bailing out businesses that operated with irresponsibility and a near total disregard for not just taxpayers but for their very own shareholders. This is it. The last chance to do the right thing.But you and I already know how this story ends. The right thing will not be done. There will be more bailouts. And then more bailouts. Meanwhile, even as we continue writing checks to failed businesses, once-healthy businesses are facing doom, victimized by zombie companies absorbing dollars that, if freely spent, would be rightly theirs.

For those that may not know, Hank Paulson made all of his hundreds of millions while running Goldman Sachs (GS). That was his job before being anointed as Treasury Secretary; the next brain from Goldman that would save us all. What people should know - what everyone should know -  is that Goldman was one of the major players in the creation of most of the derivatives being blamed for our debt implosion and severe recession, namely credit default swaps.

On October 16^th, the American News Project published a report on the economic crisis and subprime lending schemes. The report mentioned that many foreclosures were being pursued by Litton Loan Servicing, a company owned by Goldman Sachs. That’s right…Paulson’s Goldman Sachs. Litton is a leader in the field known as subprime servicing, which specializes in the handling of subprime mortgages where the homeowner has fallen behind in payments and is at risk of foreclosure. In other words, they are a type of collection agency for people that are about to be kicked out of their homes. Litton has frequently been accused of engaging in abusive practices, including more than 100 lawsuits in federal court since the beginning of 2004!

In December 2007, Goldman Sachs bought the company for $428 million, plus repayment of $916 million of outstanding Litton debt. Goldman, which probably didn’t want the world to know of its buyout, never issued even a basic press release. Is Hank Paulson’s delay in really helping struggling homeowners an effort to help Goldman’s Litton operation?

The bigger question is; why aren’t we being told about this relationship and why isn’t there an investigation into this, along with Goldman’s role in the very derivatives that spawned this crisis in the first place?

A couple of weeks ago I wrote that until we had a “Perp Walk”, with these criminals in handcuffs, that there was little chance of confidence being restored. Now that its been reported that Warren Buffett lost $9 billion in the last quarter due to bad derivatives bets on the stock market, along with his poorly timed $5 billion investments into Goldman and GE (GE), maybe he will lead the way in the upcoming criminal investigations, assuming they ever take place. He’s certainly motivated to do so.

Speaking of Buffett, I wonder if he will be writing another “Buy America” piece for the New York Times anytime soon?

Folks, we are going lower; much, much lower. I see little chance that the lows of 7800 on the Dow hold up. SDS is still the play, but keep in mind that it’s very volatile and only for shorter term investors willing to take the risk of a bear market rally. While I doubt that we will have one soon, you never know what the government will do to prop the markets up.

Finally, gold is being hit again, and headed back to $700/ounce and maybe lower. Deflation fears and needed liquidity are the reasons, along with a strong US dollar. Classic flight to safety move. Once the printing presses really get cooking, this will change and the next big move higher in precious metals will begin. It may be this month or next, or possibly even next year, but I see no way that gold doesn’t break $1000 on its way to much, much higher prices. The BIG move will come in the miners, specifically the ones that are down as much as 60-80%. It takes courage to buy them now, but I believe the timing is about as good as it will get.

Disclosure: Author holds a long position in SDS

Comments

[Cellman49:]

Excellent article. Paulson must go! He is so biased in his decision making - just ask any former Lehman employee. Had Goldman Sachs been Lehman, it would never have been allowed to fail. That fact alone showed Paulson's true colors. Having watched him on C-Span yesterday, it's obvious he is a puppet that knows very little.

The DJIA will go to 5K-6K range for sure. The S&P will surely go to 650 to 700 range. Markets will win regardless of what the US government or any other goverhment does. The only question is: Why do taxpayer's have to subsidize CEO greed and businesses that derserve to fail?

2008 Nov 13 08:26 AM

[Kip Herriage_:]

Exactly...and any confidence in him is history. Goldman would have had him replaced before they were allowed to fail. He actually got down on his knees and begged for the TARP to be passed...and now it's 100% different. All for his master.

On Nov 13 08:26 AM Cellman49 wrote:

> Excellent article. Paulson must go! He is so biased in his decision
> making - just ask any former Lehman employee. Had Goldman Sachs been
> Lehman, it would never have been allowed to fail. That fact alone
> showed Paulson's true colors. Having watched him on C-Span yesterday,
> it's obvious he is a puppet that knows very little.
>
> The DJIA will go to 5K-6K range for sure. The S&P will surely
> go to 650 to 700 range. Markets will win regardless of what the US
> government or any other goverhment does. The only question is: Why
> do taxpayer's have to subsidize CEO greed and businesses that derserve
> to fail?

2008 Nov 13 08:32 AM

[Keithpirelli:]

Opening scene.
Boys boys, don’t vorry so much, Goldman Sachs sold and packaged the CDO's to you all so what? Did they force you to buy them? Was there no demand? So they shorted the market of their own toxic waste products, isn't everyone entitled to a little insurance already? So you will see this year we made a few shekels to share amongst ourselves, maybe 18.8 billion dollars or something, maybe 70 million for Mr. Blankfein,who knows, who knows, but we earned it didn't we? Aren’t Mr. Paulson and our own Mr. Bernanke trying to help you all in this little sub prime credit mess, just like kind Mr. Greenspam before them? What about our Mr. Rubin taking the helm at Citibank? You think we will not make some more funds available to you all? Haven’t we always? Now you accuse us of making ze problems we help you to resolve already? Ok, so the interest will be a little higher, but think of our risks already. Nu, stop vorrying all of you, so a couple of million homes get repossessed, it will be better for you all in the long run, have a nice holiday, be happy, next year you can buy a cheaper home, it will get better, its no sin to make a profit....close curtain.
Free unregulated markets helping us all....but not the rest of us, not yet… (sic)

This was first posted last November.......If Goldman's goes bust,the world will be a better place,here is hoping.....

2008 Nov 13 09:16 AM

[R. Richard ...:]

Why is it so difficult to understand the shift from taking losses off the books of banks (by buying "toxic" assets) and thus bearing the entire loss thereon, as opposed to leaving the loss in the banks to be shared by the original capital structure along with new capital injected?

Why has it not been seen that there are cases of "Too big to Manage," as well as "Too big to Fail?"

2008 Nov 13 09:37 AM

[ronald paxton:]

Somewhere in the world Michael Millken is shaking his head and wondering why he went to jail, paid a huge fine, and was banned from the industry.

2008 Nov 13 10:10 AM

[Socialism c...:]

We need a Revolution -- a dramatic downsizing of the federal government, with the result of letting American workers keep more of their own money. Abolish the income tax (repeal the 16th Amendment!) and add a Balanced Budget Amendment.

fairtax.org

2008 Nov 13 10:31 AM

[User 283977:]

Fire Hank Paulson Now!

2008 Nov 13 10:51 AM

[Konsta:]

Hank Paulson had to sell his 500 milion stake in Goldman Sachs tax free when he became treasury secretary, according to Bloomberg's magazine. Also, he had a chance to sell at it at the peak, about 240 a share, now that stock is at 60. Tax savings of about 150 million $ for 2 years of public service and a chance to make valuable government connections, priceless. Who said he is not smart and capable, on the contrary.

2008 Nov 13 01:16 PM

[Moon Kil Woong:]

The problem is Paulson's Goldman sold bad CDO and CDS to AIG and others so they could bet against mortgages, but now AIG can't pay as most others as well. That leaves Goldman with a lot of losses and paid premiums that they won't be able to collect on their insurance on. So what do they do? They use the US to bailout AIG so they can pay them billions of CDS and CDO contracts to offset their losses. Your money is going directly to Goldman for no other reason than the Government gave the former President Paulson the keys to the Treasury and all America's money.

Blame the current administration. What did you expect him to do? Play fair haha. Like the way he played fair by betting against the US and the US real estate by issuing and buying CDS contracts to bet the market will go down?

2008 Nov 13 08:49 PM

[You're Kidding:]

You make it sound like nationalizing the banking system would be a bad idea. Here's my take:

Its time to nationalize the banking system!

It should not be in private hands. If it stays this way, we'll repeat this meltdown over and over again, every so often, forever.

(Watch "Money as Debt" on YouTube. This is an amazing animation, beautifully done, that shows how banking got started and why being in private hands will eventually completely ruin the world's economy, as we are saddled with an unending avalanche of debt.)

The world's banking system is the epitome of human greed, institutionalized. It will never serve our interests. Those of you who are afraid of this idea and call it "socialism," should ask yourselves if you think that the fire departments, the police departments, and the military structure in this country should be privatized. Think about it. These are socialized institutions, and nobody in their right mind wants to change this because anyone's home can be broken into, or catch on fire, or be threatened by outside force. Or shall we turn over the Environmental Protection Agency to private hands? How about the world's management of rain forests? Would that be a good idea? Do you think Blackwater should run the military? When everyone is in the same boat, you need a nationalized solution that puts everyone on an equal footing.

The problem with our "government" is it is controlled by PRIVATE interests, far more than PUBLIC interests. Our government has been taken over by the private sector, and what good has this brought us? Enjoying the meltdown?

There is nothing wrong with "socialism" per se. The only reason most people think there is, is because when we were kids, we were brainwashed into thinking it was "bad" by our school system. And socialism IS bad when it is forced upon people. But most everything is bad when it is forced upon people. Even "unregulated capitalism" is. How about that...

Here's the kicker, though:

What is the most fundamental unit of human endeavor on this planet?

I'll give you a hint. Its a communistic institution.....Give up? Well, here it is...:

The Family Unit: parents and kids.

That's right: "From each according to their ability, to each according to their need." The family unit is pure Marxism! (Uh oh, should we privatize it?!)

Of course, we really don't mind this because, whether you call it marxism, communism, socialism, or whatever, the family unit is based on LOVE, and that trumps everything else. Now imagine for a moment that human beings actually cared for other human beings that they didn't know. Imagine if we as Americans, couldn't stand it when we heard that people were starving or being murdered by genocide, and cared enough to actually help out and solve the problem. Imagine that. Not like today, when no one gives a damn.

But if we were like that, our institutions would be different wouldn't they? They wouldn't be set up to help just special interests, they would help all who needed help, equally. We would all see ourselves as one big family, based on love, and whether you knew someone or not, it wouldn't matter. And all the starving people in the world wouldn't end up starving because they would be part of the ONE Family of human beings on this planet and they would get the food they need, rather than us spending the money on other ridiculous, unnecessary material things. Hasn't this been the message of all great religious/spiritual leaders who have lived?

The problem with our institutions is a reflection of the state of spiritual consciousness we humans have attained. And right now that level of consciousness is really, really low. Can you feel it?

But all this CANNOT be forced on people, it must be "realized." And that is the essence of what is going on with the current meltdown today. We are all "waking up" to a slightly higher level of consciousness, and realizing that unregulated capitalism, unregulated banking, and self interested, short term greedy thinking, is all a very shortsighted way of existing. There's a better way. And now that a lot of people are in pain, watching one of their biggest "loves" (money) disappear right in front of their eyes, they are opening up to a more logical way of thinking: one that is more inclusive (socialistic) than individualistic. We are realizing we are all in the same boat when it comes to our economic institutions, and fair is fair. And its not fair for self interested, ego-centric, skumbags to be running and scamming our financial institutions which we are all affected by, because they don't have an inclusive vision of human beings as a whole.

We are witnessing the beginning of the end of unregulated capitalism. The government is taking a "stake" in the banks, by necessity, because they have proven they cannot run themselves in all of our best interests, because they have only been interested in THEIR best interests. But the banking system must be run in all of OUR best interests, or it will eventually fail as we are seeing. The banks aren't loaning right now because they are in private hands and concerned only with their own interests, and not the "cash flow" of the banking system as a whole. Can you imagine the military operating this way? There must be a governing force overseeing it all and paying attention to it all. This force, for better or worse, is called the "government," and we should not be afraid of it, because it is us. WE the people ARE the government. And we proved that when we won our independence from England upon winning the revolutionary war, and we proved it when we threw Marie Antoinette out during the French Revolution, and we proved it when we knocked the wall down separating East and West Berlin, and we proved it when we took to the streets in Russia and the Eastern block fascist dictatorships in the early '90's, and we will prove it again now, when we take our country back from the slimy, shark-eyed ba$tards who have been stealing us blind throughout our political and economic systems to this very day.

Its time to turn things around and nationalize the banking system. Its OUR political and economic system, not "theirs."

2008 Nov 14 12:53 AM

[cyerman:]

There is another alternative outcome to either stopping the bailouts or continuing them.

After watching and listening to Paulson a number of times and lately his getting defensive about changing the course of where he sprays our dollars, I think that third alternative would be no matter what Paulson does or his replacement (s) many many people will lose faith that anything is being done and that the financial system is a failure beyond remedy. Then times really will be tough, very tough. Because all of the financial system rests on confidence, transparency and competition. When these pillars are dissolved by a congress and treasury and presidency that does not know how to resolve these entangled financial tentacles crusted in e coli the whole system begins to come apart.

Firing Paulson is too simple a move and it is not a useful improvement.

At least not until we know which congress, which presidency and which set of regulators including the Secretary of Treasury knows how to fix the disintegrating American financial empire?

2008 Nov 14 03:48 AM

[lickbush:]

Paulson is a Wall Street whore. No need to say more.

2008 Nov 14 01:25 PM

[kurt walter:]

Paulson will be gone when the 2nd coming takes the oath of office in January.

2008 Nov 14 02:17 PM

[Kip Herriage_:]

My biggest concern with your very well-reasoned piece is that the government has yet to show us that they can run anything efficiently.
"I'm from the government and I'll here to help"....words we should all shutter at hearing


On Nov 14 12:53 AM You're Kidding wrote:

> You make it sound like nationalizing the banking system would be
> a bad idea. Here's my take:
>
> Its time to nationalize the banking system!
>
> It should not be in private hands. If it stays this way, we'll repeat
> this meltdown over and over again, every so often, forever.
>
> (Watch "Money as Debt" on YouTube. This is an amazing animation,
> beautifully done, that shows how banking got started and why being
> in private hands will eventually completely ruin the world's economy,
> as we are saddled with an unending avalanche of debt.)
>
> The world's banking system is the epitome of human greed, institutionalized.
> It will never serve our interests. Those of you who are afraid of
> this idea and call it "socialism," should ask yourselves if you think
> that the fire departments, the police departments, and the military
> structure in this country should be privatized. Think about it. These
> are socialized institutions, and nobody in their right mind wants
> to change this because anyone's home can be broken into, or catch
> on fire, or be threatened by outside force. Or shall we turn over
> the Environmental Protection Agency to private hands? How about the
> world's management of rain forests? Would that be a good idea? Do
> you think Blackwater should run the military? When everyone is in
> the same boat, you need a nationalized solution that puts everyone
> on an equal footing.
>
> The problem with our "government" is it is controlled by PRIVATE
> interests, far more than PUBLIC interests. Our government has been
> taken over by the private sector, and what good has this brought
> us? Enjoying the meltdown?
>
> There is nothing wrong with "socialism" per se. The only reason most
> people think there is, is because when we were kids, we were brainwashed
> into thinking it was "bad" by our school system. And socialism IS
> bad when it is forced upon people. But most everything is bad when
> it is forced upon people. Even "unregulated capitalism" is. How about
> that...
>
> Here's the kicker, though:
>
> What is the most fundamental unit of human endeavor on this planet?
>
>
> I'll give you a hint. Its a communistic institution.....Give up?
> Well, here it is...:
>
> The Family Unit: parents and kids.
>
> That's right: "From each according to their ability, to each according
> to their need." The family unit is pure Marxism! (Uh oh, should we
> privatize it?!)
>
> Of course, we really don't mind this because, whether you call it
> marxism, communism, socialism, or whatever, the family unit is based
> on LOVE, and that trumps everything else. Now imagine for a moment
> that human beings actually cared for other human beings that they
> didn't know. Imagine if we as Americans, couldn't stand it when we
> heard that people were starving or being murdered by genocide, and
> cared enough to actually help out and solve the problem. Imagine
> that. Not like today, when no one gives a damn.
>
> But if we were like that, our institutions would be different wouldn't
> they? They wouldn't be set up to help just special interests, they
> would help all who needed help, equally. We would all see ourselves
> as one big family, based on love, and whether you knew someone or
> not, it wouldn't matter. And all the starving people in the world
> wouldn't end up starving because they would be part of the ONE Family
> of human beings on this planet and they would get the food they need,
> rather than us spending the money on other ridiculous, unnecessary
> material things. Hasn't this been the message of all great religious/spiritual
> leaders who have lived?
>
> The problem with our institutions is a reflection of the state of
> spiritual consciousness we humans have attained. And right now that
> level of consciousness is really, really low. Can you feel it?<br/>
>
> But all this CANNOT be forced on people, it must be "realized." And
> that is the essence of what is going on with the current meltdown
> today. We are all "waking up" to a slightly higher level of consciousness,
> and realizing that unregulated capitalism, unregulated banking, and
> self interested, short term greedy thinking, is all a very shortsighted
> way of existing. There's a better way. And now that a lot of people
> are in pain, watching one of their biggest "loves" (money) disappear
> right in front of their eyes, they are opening up to a more logical
> way of thinking: one that is more inclusive (socialistic) than individualistic.
> We are realizing we are all in the same boat when it comes to our
> economic institutions, and fair is fair. And its not fair for self
> interested, ego-centric, skumbags to be running and scamming our
> financial institutions which we are all affected by, because they
> don't have an inclusive vision of human beings as a whole.
>
> We are witnessing the beginning of the end of unregulated capitalism.
> The government is taking a "stake" in the banks, by necessity, because
> they have proven they cannot run themselves in all of our best interests,
> because they have only been interested in THEIR best interests. But
> the banking system must be run in all of OUR best interests, or it
> will eventually fail as we are seeing. The banks aren't loaning right
> now because they are in private hands and concerned only with their
> own interests, and not the "cash flow" of the banking system as a
> whole. Can you imagine the military operating this way? There must
> be a governing force overseeing it all and paying attention to it
> all. This force, for better or worse, is called the "government,"...
> and we should not be afraid of it, because it is us. WE the people
> ARE the government. And we proved that when we won our independence
> from England upon winning the revolutionary war, and we proved it
> when we threw Marie Antoinette out during the French Revolution,
> and we proved it when we knocked the wall down separating East and
> West Berlin, and we proved it when we took to the streets in Russia
> and the Eastern block fascist dictatorships in the early '90's, and
> we will prove it again now, when we take our country back from the
> slimy, shark-eyed ba$tards who have been stealing us blind throughout
> our political and economic systems to this very day.
>
> Its time to turn things around and nationalize the banking system.
> Its OUR political and economic system, not "theirs."

2008 Nov 16 10:13 PM

[31October:]

Re: You're kidding

As a former government fiscal analyst who is still involved in the political process and who often heard the deals, I must tell you this:

Do not let those public officials have one penny.

Jan 15 11:07 AM