Hank Paulson: Smartest Man in the Room 12 comments
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This bill can only get passed in between quarters and Hank Paulson knows it. US markets have been dominated by panic at the end of each quarter this year. In March, the S&P 500 went down 5.6%, in June it went down 8.6%, and now in September the index is down 14.1%. Within these earnings/economic report dead zones, investors forget about the fundamentals and assume worst case scenarios.
Do you think Hank Paulson factored this cycle of fear into his plan to get this $700 billion bill passed? Absolutely. Will a bill still get passed? Absolutely. Hank has known that we needed a trillion dollar Superfund since October of 2007 when he tried bringing the three largest banks Bank of America (BAC), Citigroup (C), and JP Morgan Chase (JPM) together to form an SIV Superfund to stimulate the frozen mortgage market. He initially tried to raise $75 billion but quickly realized a much larger pool of money was needed to bring stability to the $14 trillion mortgage security market. The only alternative was to orchestrate a dramatic yet contained unwind of the financial system to spook Congress into passing a Superfund bill.
The time to create a capitulation of fear was pre planned to take place this September. Naked short selling wasn’t banned and neither was mark-to-market accounting. These two policies allowed the market to structurally de leverage the system seemingly overnight. Hank could have stopped the process but he didn’t. He needed something to take everyones focus off the fact that economic conditions really aren't that bad. He needed to orchestrate fear. Wall Street has gotten into a dangerous habit during these quarterly dead zones of acting like the sky is falling. The real data shows that:
- Unemployment is little more than 6% today compared with 25% during a real depression.
- Yearly GDP growth is over 3% compared with a 25% contraction during a real depression.
- Consumer prices are still rising compared with a 30% fall during a real depression.
- Only 4% of mortgages are delinquent today compared with 40% during a real depression.
- Fewer than 20 banks have failed over the past couple of years compared with 9,000 during a real depression.
Hank knew that the ‘sky is falling’ mentality would return this September and he was intent on turning the panic into a long term solution for the mortgage market. This proposed bailout plan isn’t a bailout at all. The only reason that term has been used is to add to the panic. It’s really a Superfund that will act as a mortgage security specialist to provide confidence and liquidity during housing cycles. Its ability to hold these beaten down assets and turn a profit over time will cause the legislation to become a permanent solution.
Sometimes you have to sacrifice a Lehman, a Wachovia, a Merrill Lynch, or a Washington Mutual in order to structurally improve the system for the long haul. The history books will ask how Hank orchestrated such a massive de leveraging of the financial system without lines outside of banks or deposit failures. The answer is that Hank planned the whole thing. He knew September 08 was his moment to stave off a severe recession if he could cause a capitulation of fear to get his Superfund. That’s what this week is all about. Don't get caught up in the ugliness of the legislative process. It's part of the game. The next bull market is right around the corner thanks to Hank. Hank Paulson is the smartest man in the room.
Disclosure: None
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This article has 12 comments:
As for the conclusion that Paulson is the smartest guy in the room, who knows. Look what the other smartest guys in the room did for America. If you are saying he is of that ilk, I would have to agree.
Paulson has bankrupted the treasury. Inside it's vault's you will find worthless paper. It has been used as a slush fund by his 6 friends GS, JPM, MS, BAC, AIG, and C. Redistribution of wealth orchestrated by King Henry. Unprecedented abuse and corruption, was the reserves of entire nation not enough? Now they must blunder even more from our citizens?
Yes, all you are geniuses and Paulson knows nothing. The author may be a little too much in favor of Hank, but it's clear that Paulson has some plan. A lot better than what I've heard from the uber-bears. Most of which I see post again and again on these articles with nothing ever to say.
The simple fact is America and Americans are getting poorer and poorer by the day and at an ever accelerating pace. Hank Paulson is one of the people principally responsible and he has many hundreds of millions of dollars to show for it because that's how the great American plutocracy works.
His latest masterpiece is to gift 700 billion Zimba..oops sorry, American dollars (actually it will all have to come from those suckers in China and Japan) to the same clowns who caused all the problems in exchange for a lot of toxic worthless rubbish.
You deserve everything that's coming sport and one thing I do know is that you won't see it coming cos prescient is something you aint.
You quote numbers from "a depression" as if there's a representative standard, rather than from THE great depression.
You compare numbers from today, when NOBODY says we're in a depression, to numbers from the deepest depth of the great depression, as if this comparison shows that we shouldn't do anything. A more apt comparison would be now versus 1930, when the depression was just getting warmed up.
You claim real GDP is growing at 3% per year, despite the fact that recent numbers have massively understated inflation.
"Hank knew that the ‘sky is falling’ mentality would return this September..."
If this was so predictable, why did hedge funds lose money this month?
"This proposed bailout plan isn’t a bailout at all. It’s really a Superfund that will act as a mortgage security specialist to provide confidence and liquidity during housing cycles...Its ability to hold these beaten down assets and turn a profit over time will cause the legislation to become a permanent solution."
Kind of like how RTC became a permanent solution? Oh, that's right. IT DIDN'T. No, this is not a solution that is envisioned to have a continuing life after this correction.
"Hank planned the whole thing."
Hank planned for overnight LIBOR to spike from 2.5% to 6.8% in one day? Hank planned for the effective federal funds rate to run more than 3 times the target rate? Hank planned for money market withdrawals that threatened to bring down the entire commercial paper market? Hank planned to force his old firm to change the nature of its organization and raise capital?
"The next bull market is right around the corner."
Suppose you got dropped at 7th Ave. and 57th St. in New York. You're told something is right around the corner and you start walking. If you've headed north, the corner's less than 100 yards away; if you've gone east, it's three times as far. But here's the catch - there's an open manhole between here and the next corner.
Better to watch where you're stepping than to worry about where the corner is. You'll get there eventually, as long as you don't fall into the abyss.
"Hank Paulson is the smartest man in the room."
Though this is almost always true, when it comes to matters of the economy, you clearly don't believe it. Nobody even close to the smartest in the room would play chicken with the economy.
Jason Schwarz clearly thinks he himself is the smartest man in the room, and Paulson is right behind him. He's far wrong on both counts.
Paulson's blunders have driven the world's banking system to the precipice of catastrophe, destroyed trillions in capital and knocked $170 off the value of every share of Goldman Sachs. With more to come.
I suggest you get another photo, Jason. You like like a grifter. Your desire to be rich in a hurry will destroy you in the end.