With his latest policy switch to buying stock in banks and other companies, Henry Paulson has more zigs and zags to his credit than a fox trying to escape a pack of hounds.
The fox and the hounds, of course, have a clear idea of what they want to do and how they want to do it, which is more than you can say of Paulson. Sums of incalculable size are being spent or pledged by Paulson and his playmate, Ben Bernanke, chairman of the Federal Reserve Board, and nobody outside their organizations, or maybe inside them either, knows who got what, how much they got and under what conditions they got it.
In the past couple of months Bernanke has loaned out $2 trillion to unnamed companies under eleven different programs, all but three of which have been slapped together in the past fifteen months of financial crisis. To repeat, we do not know who got this money or what collateral was put up in return for the loans or what conditions were attached to them.
The sums involved are almost three times as large as Paulson’s $700 billion muddled bailout efforts that Congress voted for last month. Bernanke does have the legal authority to pass out these trillions without Congressional authorization and without explanation, but secrecy breeds suspicion and loss of confidence.
These officials preface every speech by talking about “transparency,” their favorite word, at the same time they are handing off $2 trillion and they won’t say to whom, leading Bloomberg News to file suit under the Freedom of Information Act.
Paulson has made off with $50 billion to give to AIG for the purpose of setting up a special entity where the company’s lousiest loans are to be kept off the books and the unknown debtors protected. When asked about this by the New York Times, Lynn E. Turner, who sits on the Treasury Department’s Advisory Committee on the Auditing Profession, complained that “We’ve had way too many things here that nobody knows anything about…. That’s why no one has faith in the capital markets.”
Paulson appears to have given away, invested, loaned or lost about $300 billion of the first $700 billion Congress gave him, but he has lost more than money: nobody believes him or Bernanke anymore.
Every day another company steps forward with its handout–American Express, Chrysler, GE Financial–and every day it appears Paulson and Bernanke are prepared to accommodate these corporate mendicants.
Paulson left his job as CEO of Goldman Sachs to become treasury secretary, and by now it may be dawning on him that CEO-ship is no substitute for an apprenticeship in public service that might have given him the political skills he lacks. The same may be said of Bernanke, who spent much of his life as a harmless Princeton professor of economics.
Both of these men are convinced, doctrinaire free-marketeers. They hate supervising this intervention into American business. Paulson repeatedly bemoans what he is doing.
Hence, both the principals are trying to devise and carry out programs that they do not believe in. They cannot have spent time thinking about how government might regulate and intervene successfully. It’s as though one were to ask a couple of prolife physicians to conduct a series of abortions. Should we be surprised they do not do it well?
With President Bush hors de combat and having rendered himself a nullity, we are reduced to Paulson and Bernanke to show the way in this maelstrom. That may explain why criticism of their work has been so muted.
Two female officials, however, have conducted their offices with distinction. Sheila Bair, chair of the Federal Deposit Insurance Corporation, has moved heaven and earth to get Paulson and Bernanke to embrace a massive program to stop the housing foreclosures and take the first step toward ending the chaos. To say that she has had mixed success with the men is an understatement.
Less well known is Brooksley Born, who will be a major figure when the history of the Great Debacle is written. Born was the chair of the Commodity Futures Trading Commission from 1996 to 1999. She foresaw the calamity that runaway use of credit default swaps and other derivatives would cause, and battled to impose regulation on them. She was stopped by Alan Greenspan, Arthur Levitt and Robert Rubin, the major economic figures in the Clinton administration.
After a distinguished career in law, Brooksley Born has retired to watch birds and play with her grandchildren. Sheila Bair battles on against the dunderheads, and we are left helpless, waiting.