Paul Krugman today catches Hank Paulson in a lie (chapter and video and verse at Think Progress). Does this mean that Paulson is Not To Be Trusted? That's what Krugman thinks:
If Paulson can't be honest about what he himself sent to Congress -- if he not only made an incredible power grab, but is now engaged in black-is-white claims that he didn't -- there is no reason to trust him on anything related to his bailout plan.
It's quite clear that Paulson (a) originally asked for almost imperial levels of power before (b) appearing before Congress and telling them that actually, in fact, he welcomed their oversight and had wanted it all along.
What explains this? I think that part of it is a simple alpha-politician's inability to admit to making a mistake. If Paulson had apologised for the no-oversight part of his original proposal, that might have felt like a sign of weakness.
And part too is embedded in the very vagueness of this plan, whose defining element -- in both its Paulson and its Dodd flavors -- is the extremely broad discretion given to the Treasury secretary in terms of the price at which he buys banks' troubled assets.
I'm not entirely clear on why such broad discretion is necessary, but at the margin I suppose it will make it a little more likely that the banking system will come out the other side of this crisis in healthy enough shape to be able to drive an economic recovery going forwards. That's the danger with wiping out banks' equity and even their subordinated debt, and that's why it's a good sign that Goldman is showing signs of being able to raise a lot of capital in this market, even as investors really have very little idea about the degree to which its new status as a bank will affect its leverage ratios and profitability.
In any event, given that the plan in any incarnation gives the Treasury secretary enormous powers and discretion, it's maybe simply prudent for the Treasury secretary not to admit to making significant mistakes with the plan before it's even passed into law.
What actually happened? Well, Paulson likes giving himself a bazooka, and so he drafted for himself the biggest bazooka he could muster. When Congress balked at allowing him sole unfettered control over such a large and powerful weapon, he backtracked. That's politics, it's nothing to write home about. And neither, frankly, is the slightly clumsy lie that he made in his testimony.
Underlying all the technical details of all the bailouts and "emergency" lending facilities is the need to restore faith in the markets and the people that lead them
How are people supposed to have faith in leadership that we know is lying to us?
www.youtube.com/watch?...
As far as I'm concerned, there isn't going to be an economic recovery. What's we're witnessing is the deterioration of the debt market, of the shadow system that props up international finance. I like to think of the debt market as - black matter. If the volume of black matter in the universe retreats below a certain threshold, the universe implodes. So it goes with international finance.
The unwinding of real estate speculation is destroying the debt market. Then there's also the matter of deleveraging. People talk about this all the time. I was talking about it almost a year ago, saying to anyone who would listen: 'Deleveraging caused the 1929 crash, and now the financial markets are -as- leveraged, if not more so, than in the 20s.'
In conclusion, the credit crisis will be like the war on terror: endless and escalating.
In Secretary of the Treasury Henry Paulson's testimony before the Senate Banking Committee yesterday, he directly contradicted his "simple proposal":
Secretary's Testimony Before the Senate Banking Committee on Tuesday:
"We gave you a simple, three-page legislative outline and I thought it would have been presumptuous for us on that outline to come up with an oversight mechanism."
Secretary Paulson, Again in Yesterday's Testimony:
"If any of you [Senate Banking Committee members] felt that I didn’t believe that we needed oversight, I believe we need oversight. We need protection. We need transparency. I want it. We all want it.”
BUT:
Secretary Paulson’s Text of the Three-page Bailout Bill Presented on Friday, Just Four Days Earlier:
“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency...”
No Wonder So Many Americans Are Confused. What do we make of such contradictory statements? We don't like to believe that people lie, and yet such contradictory statements as Secretary Paulson made within a few days of each other represent either:
Lies or Senility or Merely Incompetence
How Can This Man Be Trusted? Whether the Secretary is senile or dishonest or merely incompetent, the contents of the United States Treasury should not be put at his disposal. We must not place our trust in this self-discrediting man.
Better Thinking Must Prevail. In terms of additional "bailouts" or other solutions to the current economic crisis, clearer thinking and more-responsible options must be examined---by more creditable people---and then pursued.
Congress Must Not Rushed Into Foolhardiness Yet Another Time.
As President Bush Himself Once Put It So Well, "Fool me once; shame on you. Fool me twice.....and I won't be fooled again."