It is remarkable (and admittedly late, but late is better than never) that Congress is developing a spine and pushing back at Hank Paulson’s unprecedented land grab. Even better they got mad at something that made your humble blogger nuts. Trust me, I am highly confident that no Congressional aide picked up on the issue via this blog, but you did have to be paying attention to catch Paulson’s dishonesty, and to their credit, they took notice.
Of course, this is all part of a larger Kabuki drama. Paulson is insisting that Congress release the remaining $350 billion of the now-misnamed Troubled Assets Repurchase Program so he can hand out more cash to his industry buddies. Congress will be damned if it gives Treasury any more money, given that the funds have so clearly been dispensed with no controls to favored parties. But since they don’t dare say the taxpayer has been ripped off (that would call their judgment into question for acquiescing to the hastily drafted and aggressively sold TARP), they will pound on Treasury as many ways as they can.
But this is a central issue. Paulson was brazen enough to say that he had misrepresented his intentions while the bill was still being renegotiated. From our earlier post, “Paulson Now Admits Mendacity.” And that means Congress can say they were sold a bill of goods:
From the text of Paulson’s remarks today (boldface ours):
During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.
Either way you cut this, it’s a lie. Either Paulson let his intentions be misrepresented via his silence, or he is now falsely claiming to have changed direction earlier than he did. Nouriel Roubini has claimed that Treasury was resisting the idea of of inserting language that would allow for capital injections into banks but that some members of Congress thought it was necessary, and put statements into the Congressional record via floor debates to allow for that interpretation. Roubini further contends that Paulson changed his mind only as a result of the adverse market reaction after the bill was signed.
But if Roubini is wrong and Paulson’s statement is accurate, it is still completely in keeping with the conduct of an Administration that told the public that there were weapons of mass destruction in Iraq. The bill was drafted to be extraordinarily vague and sweeping, and yet did not clearly give Paulson the authority he now says he realized back then that he needed while it was still being renegotiated.
Now to the fulminating from the legislature, via the Financial Times:
A senior US Treasury official came under attack on Friday as critics of the $700bn bail-out from the left and the right questioned whether the Bush administration had deceived members of Congress over how the funds would be used.
Congressional leaders, including Chuck Schumer, a Democratic senator, and Spencer Bachus, a Republican congressman, applauded a Treasury move this week to scrap plans to purchase troubled securities in favour of direct capital injections into financial institutions.
But at a hearing on Friday, Dennis Kucinich, a liberal Democrat, and Darrell Issa, a conservative Republican, lashed out at Neel Kashkari, the Treasury official in charge of the bail-out, for ignoring “congressional intent”.
The criticism pointed to deeper unease about the Treasury’s handling of the rescue among rank-and-file legislators, which could make it more difficult for the administration to secure approval from Congress for the final $350bn of funds that it is expected to seek.
“I want to know whether Congress was lied to or whether there was a team all along that had an alternate idea of how the money was spent,” Mr Issa said, before demanding to know the “time and date” Hank Paulson, Treasury secretary, had decided to abandon his initial plan.
Mr Kashkari said the legislation authorising the $700bn bail-out had been designed to give the Treasury broad flexibility to adapt its strategies. At the same time, he said, as the bail-out was being negotiated in Congress, “credit markets were deteriorating much more quickly than we had expected”.
He also defended the Treasury against claims that it was not doing enough to immediately help homeowners at risk of foreclosure, arguing that “every American” would benefit from stability in the financial system….
Some lawmakers have expressed concern that, because Treasury will not be buying mortgage securities as planned, it will have less power to modify home loans on a large scale.
I welcome reader comment, but I assume the reason for beating up on Kashkari was 1) he was testifying and 2) it may have been hoped that someone not well seasoned in the art of speaking before Congress would be more likely to slip and make an embarrassing admission. But Goldman employees are well practiced in the art of minimal disclosure.
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Does it make any difference what CONgress says? congress is in the hands of big business and big corporations. They’re not looking out for the little guy, their actions show that. There was huge public opposition to the bail out package. All this market intervention has done little to prevent the crisis from unfolding and has saddles more debt on the people.
Let the bad debt be liquidated, damn the banks. We’ll get back. The world has to choose, 2 years of sharp pain and swift recovery or 10 years or more of stagnation and deflation ala japan, just worse as it will be global. DOW 4000 here we come.
What about all of the asset management contracts that were being fought over a few weeks ago? Are they still being paid for a job that no longer exists?
Kashkari was hired on for a job that he just testified does not exist. Why is he there? Talk about offering someone up. No one saw that coming.
Wasn’t there some fighting over disclosure of the term of these ‘asset management’ contracts?
Congress has proven over the last 8 years that it is irrelevant. They neither listen to the people, or understand the deeper ramifications of their actions. The real levers of power rest with whomever resides in the White House. This does not bode well for our democracy.
Yves, I have a question on your viewpoint. I do agree wholeheartedly with your disgust at the TARP and Paulson’s approach to his job. The only point I’m not persuaded on is that, even given the stupidity of Paulson’s intitial buy-up-the-assets plan, is this: isn’t it possible even for a fool or knave to realize, sincerely, that he was wrong? I differ with you in that I don’t find it implausible that while the TARP was being passed, and toward the end of the period of debate on it, which lasted around two weeks or so as I recall, it finally dawned on Paulson that the buy-the-assets approach was wrong, but that he felt nevertheless that the best thing to do at that point was to go ahead and let the bill pass, and then do what he could from there to change things via interpretation, or just get another bill passed. He does not have the option, in his role, of giving the Congress or the nation a stream-of-consciousness account of his thinking. Had he said, oops, sorry, the consequences might have been pitchforks in the street within a week (remember, the money markets were shutting down while this was all going on). Again, I really do not at all like how he has handled the crisis; his instinct seems to be to deal with the “optics” of things, and keep the monkey show going, rather than to really fix the problems with our brave new over-leveraged, over-derivativized financial system. But I do wonder if you are not going just one step beyond fair in not allowing that even a guy who is really wrong-headed can honestly change his mind, yet be hamstrung in his ability to say so as you or I might by the, oh, momentum or tragic logic of emergency legislation being passed with all of the world’s business and political press watching him. Would it really have worked for Paulson to change his mind publicly at the last minute? I would be interested in seeing you further explain your, to me, overly dire interpretation of this narrow question (and again, outside of this, I think you are dead right about the TARP and Paulson).
Anon of 2:27 PM,
The problem is that Paulson bullied (and I do mean bullied) Congress into passing this bill. He took the leadership and told them if the bill wasn’t passed, there would be financial armageddon, which he apparently described in some detail. That was part of the reason for the revolt by the rank and file. They weren’t included in the scare mongering lecture.
Now remember, the bill was considerably renegotiated. There was the 3 page original Treasury version, a version from Congress (not Frank, Dodd?) a 110 page version after that, and the final porky 400+ page monstrosity which substantively wasn’t hugely different from the original once you took out the pork.
The reason I have trouble defending Paulson is that while the bill was being negotiated, I am told by people with direct knowledge of the proceedings that some of the key Congressional negotiators raised several times the issue of capital injections into banks. I am also told that Paulson did indeed have his change of heart before the bill was finalized.
If true, then why couldn’t he have allowed language to be included that made that option more explicit and if he needed to save face, say something like, “Look, that isn’t what we are contemplating, but other experts are saying we should look at that too. We’ll put some non-binding language in and take it under advisement.” Then he could come back and say. “You guys were right, this is a good idea.”
This at best is childish and immature. The only reason I can think of for not allowing language to be put in that reflected his changed intent was that some constraints might be put around it, constraints that would help the taxpayer and keep this from being a handout to his buddies. There is no defensible reason for him not to have allowed a few phrases to broaden the possible uses to be slipped in WHILE the bill was being negotiated, particularly it was responsive to issues Congressmen were raising!
Yves, thanks for fleshing out your view, in response to my earlier 2:27 a.m. comment. I get where you are coming from now.
This exemplifies the culpability of the past administration. People drawing the inference to the Romanization of America by the the currant US policy makers is resolute. I no further care about the market but, wish to make sure the present bandits don’t get away with their loot.
As and old American flag once proclaimed “Don’t tread on us”
Neocons out Americanize or Patriot that position.
Skippy.
Re: release the remaining $350 billion of the now-misnamed Troubled Assets Repurchase Program
It is time to re-name this pig, like maybe Fraudulent Asset Re-Packaging Service (FARPS)
I like Taxpayers Underwriting Risky Debt (TURD)
It appears to me that Paulson realized that his initial idea (to buy up banks’ bad debt) wasn’t going to work, so he decided to try something else. Now, when did he come to this realization? Did he decide this before the bill was passed, or afterwards?
IIRC economists from everywhere were saying buying bad bank debt wasn’t going to work, that it would be hard to find the correct value, and could make things worse if done improperly. But, Paulson’s later ideas have barely gotten off the ground before they got shot down too (renegotiating bad mortgages, buying CC debt, etc).
So now he’s just going to shovel money at the banks (isn’t that what buying non-representative shares of stock is, basically?) in the hopes that they’ll act responsibly with it and start lending again. Is Paulson naive or is he betting that Congress and the citizenry are idiots?
The American press was COMPLETELY silent on how asinine it was to pick a 35-year old baby (Kashkari) to head up TARP.
NO PERSON 35 years old has the life experience to manage 750 billion dollars.
Period. Case closed.
NO PERSON 35 years old has the life experience to manage 750 billion dollars.
Much less someone who is only “above average” and whose biggest qualification, if you read through the lines of what Paulson said at the time, seemed to be that he sleeps just 4 hours a night.
And again, the American press, dumbed down to the extreme, didn’t know what a stupid appointment Kashkari was.
Matt Dubuque
Congress isn’t mad enough. they will do nothing. hearings are just a song and dance show for the tv audience. there will be no consequences.
The American Experiment in Liberty and Democracy is over
and we have already reverted back to the much more normal style of governance the human condition have put upon themselves over the millennia – a tyranny of the State.
“Supreme Court Justice Louis Brandeis warned, “The greatest dangers to liberty lurk in the insidious encroachment by men of zeal, well meaning but without understanding.” The freedom of individuals from compulsion or coercion never was, and is not now, the normal state of human affairs. The normal state for the ordinary person is tyranny, arbitrary control and abuse mainly by their own government. While imperfect in its execution, the founders of our nation sought to make an exception to this ugly part of mankind’s history. Unfortunately, at the urging of the American people, we are unwittingly in the process of returning to mankind’s normal state of affairs.” Destroying Liberty – A MINORITY VIEW, WALTER E. WILLIAMS
“and the final porky 400+ page monstrosity which substantively wasn’t hugely different from the original once you took out the pork.”
Yves, just to be sure we have the record straight on the TARP timeline, I believe that the “pork” wasn’t added to the TARP bill, but that TARP was grafted onto an existing House bill for procedural reasons. In other words, the extra pages were not a way to sneak pork into the bill; they were an original House bill that the Senate used (by grafting TARP onto) in order to bypass a procedural problem with the Senate originating spending bills (and pass TARP quicker).
– Hank Paulson’s Mom
“and the final porky 400+ page monstrosity which substantively wasn’t hugely different from the original once you took out the pork.”
Yves, just to be sure we have the record straight on the TARP timeline, I believe that the “pork” wasn’t added to the TARP bill, but that TARP was grafted onto an existing House bill for procedural reasons. In other words, the extra pages were not a way to sneak pork into the bill; they were an original House bill that the Senate used (by grafting TARP onto) in order to bypass a procedural problem with the Senate originating spending bills (and pass TARP quicker).
– Hank Paulson’s Mom
They’re beating up on Kashkari because that’s what a MiniMe is for: You beat up on the MiniMe when you don’t have the nerve or the brawn to go beat up on the REAL Dr. Evil.
what g. said.
cowards.
They will hand over the next $350m with little resistance. This is all a charade. Since Congress (nor the White House) really doesn’t understand the economy they have no choice but to trust the Treasury.
As I said all along, this was the last chance to steal for the Bush administration.
Thieves to the end.
Ooh, Congress is angry! I guess they will take the same kind of harsh measures against the administration as they took when
Bush illegally invaded Iraq, kidnapped and tortured innocent civilians, illegally spied domestically, and handed out billions to his corporate buddies for no-bid contracts.
Hurray for Congress protecting America from the rapacious, the vicious, and the fascist.
Frankly, every single person who has served in Washington in an appointed or elected office over the past eight years should be arrested, wagterboarded, tried, and executed for treason, theft, and generally being scumbags. There is not a single official in Washington who is not tainted and evil.
The American people should withhold all payments to the Federal Government until we know what is going on with our money and until Bush, Pelosi, et al are brought to justice. Let’s have a national strike. Let’s impeach all of them and toss them into the secret CIA rendition prisons.
Burn it all down!
The pork inserted by congress into the 3 pages orginal request by Paulson says much about the intent and oversight provided by the Congress.
The idea that Congress or some members are upset with Paulson is all about political cover or political theater what ever term feels right.
Little will change with Obama and his adminstration as corruption continues to be the primary goal of both political parties.
Hey Party On !
So Paulson lied huh? Well heck. And Congress is pissed. Hmm.
Good!! They deserve to be lied to. They are the most pathetic bunch in world history. And you couldn’t out-lie them if you told a million lies a minute.
Good for Paulson.
Paulson lied to them once already, when he asked for his “bazooka”, said he had no plans to use it, and then took over FRE and FNM just a few weeks later.
The Bush administration, of course, has lied to Congress before, including on the little matter of what its intentions were in Iraq.
Apparently few Congresspeople have heard the saying about “Fool me once, shame on you…”
More likely, they know they are being lied to and their outrage is itself a lie.
Remember the absolute fury that was aimed at the House Republicans who were balking at the bailout? They were right. Maybe for the wrong reasons, but still right.
You wouldn’t think that the World’s Greatest Deliberative Body would repeatedly make the mistake of acting rashly on decisions of the gravest consequences, but it seems to be the rule rather than the exception.
When I was younger I used to think that despite all the BS, the people in charge ultimately knew what they were doing and would get around to doing the right thing when it really was important. Even though I know better now, it still occasionally surprises me, and it saddens me deeply.
Matt, I hear what you are saying about Kashkari, but I go back and forth about how big an issue he is. It’s not clear to me that he was ever really in charge of anything of consequence. He apparently describes himself as more of a “Chief Operating Officer” (his words) in charge of executing what Paulson tells him to execute. I think he is a glorified assistant, not worth being angry at or demanding that the press take him down.
On a related side note, I have read the application form Treasury put out for asset managers who want to apply to oversee the various equity and debt placements Treasury has made. When you read the application, you get the distinct sense that it was crafted by someone who really did not have a clear vision as to what it was they want the applicants to do once they are hired. Amusingly, at one point it asks the applicant to provide two POLICY suggestions for Treasury. In another question it asks for the applicant to tell Treasury how Treasury ought to monitor its investments. It is an RFP that that asks the applicant not only to describe its qualifications for the job, but to define the job.
I found it to be a minor but telling indication that they don’t know what they are doing and have no plan.
Paulson needs no doctor..cuz he knows what’s ailing him:
http://www.youtube.com/watch?v=BXWKMwnWP4Q
Congress may have beaten up Kashkari a bit, but you can tell they liked him.
He was polite, and his lies were sincere, and congress appreciates that.
Regarding the no person 35 or under being allowed to manage 750 billion bucks, just think of it this way: statistically speaking, a younger person has more life left to leave, time during which he or she can personally benefit from the billions likely stolen for personal use.
Just think of all the jobs such a person would create during their long remaining life: (1) illegal immigrants hired as construction workers on his new Malibu mansion, (2) more illegal immigrants hired as house servants, (3) nice British butler (also an illegal immigrant), (4) undocumented French cook, (5) full team of lawyers hired on a lifetime basis to defend against the inconveniences of Congressional prosecution, and finally, (6) a heavily armed “team” of Russian ex-mobster bodyguards (these guys carry forged U.S. passports). That alone should make an unnoticeable dent in the unemployment rate.
Julian
PS – Thanks, Yves, for this extremely informative blog. I hope it’s ok if my contributions will be on the comic relief side – in such deeply cynical times, humor is one of the few productive defense mechanism we are left with.
Vinny here, Hank Paulson’s cousin. Let’s cut to the chase ‘cuz I ain’t got no time to waste. How much, in cash, would it take to shut you guys and gals up on this blog, and turn you into a Fox News subsidiary? We need your support. We’re willing to pay for it, and we’re offering protection as an added bonus. Come on, name me a price. We’ve got the cash. A billion each OK? Two? Anything.
Could it simply be that once they began to look at the assets they realized that to put a price on them would force major write downs of the remainder? In particular of the worthless synthetic CDOs? Thus, they backed away in complete fear that a reverse auction would cause a downward spiral into oblivion. Worse than pushing on a string they would be pulling the plug on the bathtub.
So on to the next best thing…dump in some new capital and hope the private sector will do the right thing and make more bad loans to keep everything afloat.
Not likely, of course, but what else could they do? Give the money back? LOL.
Thank you, Vinny. Please deliver my personal billion in small bills via UPS second day service to 1600 Pen Ave., suite 1. And, make sure you have the guys count it twice.
Thanks,
Sergio “Sharky” Mascalzone
PS — And, give my regards to cuz Hanky — I feel like I’m part of family too.
Is “is kashkari a chump” a rhetorical question?
So Paulson duped congress……well, how many times has congress duped the taxpayer?