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The smartest guy in the room?

September 24th, 2008

One thing that really puzzles me about the great bailout plan is the almost universal acceptance that Paulson should be the one to run it, at least until the next Administration. More generally, I’m surprised by the kid-glove treatment he’s been getting in public discussion, even from people highly critical of the plan.

Let’s stipulate that he’s a smart guy. He wouldn’t have risen to the top in Wall Street if he wasn’t. And, of course, if having smart guys running the show was sufficient to ensure good outcomes, Wall Street wouldn’t be in its current mess.

Looking back at the record, plenty of people have observed that, at least in his public statements, Paulson repeatedly underestimated the severity of the crisis. And there’s nothing in the ad hoc shifts between cash infusions, bailouts and bankruptcies to suggest that he has much more of an understanding of what’s going on than anyone else. As Paul Krugman has said, he’s making it up as he goes along, just like the rest of us.

But the bailout plan is something else. The possibility of a meltdown like this has been talked about, increasingly seriously, for the last couple of years. Yet Paulson responds with a three page document saying “I need $700 billion, no questions asked”. Wasn’t there a contingency plan? Or worse still, was this the contingency plan?

Either way, Paulson should be sacked forthwith.

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  1. observa
    September 26th, 2008 at 14:38 | #1

    Big fish eating small fish eh Ian and all those previous tax losses to boot most likely? More problems for the taxeaters down the track no doubt.(ah income/company tax, aint it grand folks?) Morgan want to be careful all that blood in the water doesn’t attract SWF sharks ultimately, although they may be in bed with sharks already I suspect. And to think WaMu were offered $4/share by Morgan back in March. So long sardines!

  2. Ernestine Gross
    September 26th, 2008 at 14:41 | #2

    Other contenders:

    “Self-regulation, laissez-faire and “the market is always right” were finished, Mr Sarkozy said….

    “Mr Sarkozy said German chancellor Angela Merkel supported his proposal to convene a summit of heads of state and government of the main countries concerned, by the end of this year. “I am convinced we must refound the world financial and monetary system, as was done at Bretton Woods after the second World War.”

    http://www.irishtimes.com/newspaper/world/2008/0926/1222374595726.html

  3. observa
    September 26th, 2008 at 14:56 | #3

    As for accountability ghandi, there’ll be plenty of time for that. Basically we’re it and we’re all freaking doomed to borrow a line.

    Interesting that the Repubs are not happy and McCain is accused of being the spoiler. McCain has a habit of doing the unexpected, so what’s he up to eh-

    ‘US Republicans stymied a late-night session of talks designed to resurrect an enormous economic bailout package but new negotiations will be held tomorrow, a top Democrat said.
    Barney Frank, chairman of the House of Representatives financial services committee, said a House Republican introduced an alternative plan on a single sheet of paper — which he brandished at an impromptu press conference.

    Reflecting the unease of many Republicans at the government’s $US700 billion ($840 billion) intrusion into private enterprise, the new plan called for an independent entity to dispose of bad assets, and a cut in capital gains tax.

    Congressman Frank said the top Republican on his committee, Spencer Bachus, was his party’s sole representative at the late-night talks attended by Treasury Secretary Henry Paulson.

    At first, according to a bemused-sounding Congressman Frank, Senator Bachus said he was “not empowered to negotiate” for his party and left the room. He then reappeared later with the sheet of paper, and then quit the room again.

    Congressman Frank said the discussions would reconvene early Friday (overnight AEST) without Mr Paulson, following a day of drama when a deal appeared to be nearing only to prove elusive after an emergency session of talks at the White House.

    Democrats accused Republican presidential hopeful John McCain of sabotaging an agreement in a bid to wrest back the initiative against Democratic rival Barack Obama.

    Senator McCain insisted Democrats had been premature in talking up prospects for a deal given the high level of Republican discontent at the plan, especially in the House of Representatives.’

  4. observa
    September 26th, 2008 at 15:03 | #4

    “Self-regulation, laissez-faire and “the market is always right� were finished, Mr Sarkozy said….

    Well he would say that being among the usual suspects watching their fiat money gravy train going down the plughole now wouldn’t he Ernestine?

  5. observa
    September 26th, 2008 at 15:07 | #5

    Let them eat their Monopoly money.

  6. Albert Ross
    September 26th, 2008 at 16:13 | #6

    Aren’t the Seppos going to have “fold their tents, like the Arabs, and as silently steal away” in Afghanistan and I-rack real soon now?

  7. Ubiquity
    September 26th, 2008 at 19:26 | #7

    The banks burnt themselves with the fractional lending policies implicitly guaranteed by our governments.

    Now those “poker faced” pollies at the fed, treasuries and sec look us in the face and tell us that they need to the boost the money supply again!

    So the assumption of course by the experts is that more money is the agent of economic growth when really its just a medium of exchange and cannot create wealth. In fact monetary expansion destroys real wealth. A metaphorical example, you spend twelve months growing Oranges and have a 1000 boxes. You know the market price is say $24 a box. Suddenly new opposition springs up and magically with wave of a wand creates from nothing a 1000 more boxes, so realistically the price of a box of oranges is probably $12. So wealth is reduced.

    So I ask myself do the men at the top of the money tree really understand this example (simplistic as it might be). It would be safe to assume they do. OK so have they forgotten to apply this simple logic to ther plans to save the US from a impending depression. I think not.

    Maybe their egos are so big that they must save face. They can’t do what the rest of us do when we’re insolvent, go bankrupt.

    Here lies the answer I think, these people are not acting in the best interest of the people but are saving face and meanwhile they blame, bankers, brokers , shortsellers and whomever else they can to take the attention of their follies.

    Irresponsible policies of money supply creation, the idea that more fiat money creates growth is an illusion they sell the people at the expense of their egos and lining their pockets with money.

    So regulation by big government has failed and the individual investors will walk with their money and doing so will not only finally tear them down from their big ivory towers and unfortunatley also leave the majority of US citizens much poorer for along while.

    Was that a bit doomsdayish ?

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