Why Paulson's Plan is Bullshit

I’ll be upfront: I have never liked Hank Paulson. Maybe it’s the glasses. Maybe it’s his perfunctory baldness. Or maybe it’s his spot-on imitation of Skeletor.(1) Whatever the reason, something always struck me as queer about the guy, and his hair-on-fire response to the financial crisis does not help his image one bit.

I am not discrediting the credit crisis in any way, as it has the potential to be the Great Depression Part Deux. Institutions are not only failing left and right, but the sheer magnitude of those institutions is enough to get any economist's blood boiling. AIG, for example, (the latest bank to go running for big daddy government) held over $1 trillion in total assets. Freddie Mac and Fannie Mae, two government-backed loan enterprises that imploded and were subsequently inhaled by the government, held over $5 trillion in mortgage-backed securities. We are talking about a huge amount of money here, and therefore government interaction is necessary.
The Paulson Plan, however, is wrong on so many levels it is startling. Here are some of the bigger points:

1. LOTS of dough...for Wall Street: We all see the magic number--$700 billion of our tax payer dollars to buy garbage mortgage backed securities(2), possibly at inflated prices. The total could balloon to the $1 trillion mark. Yet, nowhere does Paulson's Plan contribute any money to Main Street. No money for home foreclosures. No stimulus relief funds. Nothing. All the money would back the same, predatory Wall Street barracudas that launched this catastrophe. And once this lending is over, nothing is asked in return of the institutions. No further deregulation measures. No limits to CEO compensation. No higher taxes on future trading. Not even a measure that guarantees rewards for taxpayers should these securities increase in value after the governmental takeover. NOTHING.

2. Arrogance: As Paul Krugman said on "Countdown" the other night, there is a stunning arrogance to Paulson's Plan and his gung-ho of support for the measure. Since the plan's introduction, Paulson has not provided a single shred of argument on why his plan will even work. Appearing on “Meet the Press” this last Sunday, Paulson achieved a grand balancing act of fiercely endorsing his plan of unlimited buyouts while cautiously dodging any substantive questions from moderator Tom Brokaw. So we were treated with the familiar mantra of "this is a crisis, we need to act now, we need to act fast, more recession could follow," while there has been no substantive argument from the man on why we should even put our trust in this plan. A $700 billion proposal and the man provides no JUSTIFICATION on why it would work? INSANITY.

And all the while, Senator Chris Dodd, head of the Senate Banking Committee, has constructed a plan that is much more feasible and well-thought-out than Paulson's, though Dodd is a mere Senator compared to the “expertise” of former Goldman Sachs CEO/Harvard-educated Paulson.(3)

3. Fascism: This is the biggie, as Paulson's Plan is horrifyingly similar to the Iraq War Resolution that gave President Bush the authority to invade Iraq. And no, I'm not making that up. I quote Section 8 of the plan:

"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."

In other words, Paulson has carte blanche, a free hand to use our money any way he pleases with absolutely no constraints. The man can literally lock himself in his office until December and not issue a single report on his actions. And then, when he emerges with worthless securities on his hands and plunges the country into a deeper recession, he will have no legal accountability for his actions. Newsweek had it right with their headline on the mess: "King Henry."

And once again: this is exactly like Iraq.

The language, the bravado, the eagerness. It's all the same. Paulson continues to press the idea that immediate action is needed. Act now. Act fast. TRUST ME. Haven't we fallen for this before? Are we ready to fall for it again? Considering that we are knee-deep in the failures of the worst administration in United States history, the last thing we should be doing is awarding that same administration with this kind of power. Our congressmen owe us that much.

1. Seriously: if this bid as Treasury Secretary doesn’t work out, Hank could be a shoo-in for the next season of “America’s Got Talent.”
2. So me economists are dubbing Paulson’s plan “Cash for Trash”.
3. And one more thing on that: Paulson is the same guy who, just one week ago, decided to stop government bailouts and let the institutions fail...until the walls started caving in the next day. So far, he has been a guy effectively out of his element with no idea on what to do and no premise to work with. As historians, is there any reason to put our faith in him now?