14:58if you’re looking ahead of the elections15:00do you think that the outcome of the15:01elections either way15:03would influence foreign policy going15:05forward and as a result15:07foreign countries decisions to hold more15:09or less gold15:11absolutely i mean we’re working on a15:13report right now15:15on the implications of the election for15:17for gold and precious metals15:19uh and you have like four different15:22scenarios on how things15:23shake out but definitely i mean you know15:26this15:27administration has um15:30excelled in its ability to reduce the us15:34stature around the world15:36and to create hostile relationships with15:39countries around the world15:41it’s had a negative effect on cpm group15:43because15:44there are people who don’t want to deal15:46with u.s companies15:49and and so i think a change in the15:51administration15:53while it wouldn’t be a 180 degrees turn15:55because15:56there are people in the democratic party15:58including joe biden15:59who will probably retake retain would16:02retain16:03some sort of hostile posture toward16:06china16:06it may be less hostile than the current16:09one and it may be less hostile toward16:11canada16:12and and other countries around the world16:15so you should see16:17if you saw a change in the16:18administration and a change in the16:20senate16:20you should see some improvement in the16:23u.s relations with16:25the rest of the world but there’s been a16:27tremendous amount of damage16:30done to the u.s stature globally16:34and it’s probably not going to get16:36changed by one16:37by a change of government for four years16:40do you think the us dollar then going16:42forward could lose its status as a de16:45facto reserve currency of the world16:47because you see another currency16:49challenging that status16:51as i said the part of the problem is16:53that the u.s owes the world so much16:55it owns it we have 62 percent of16:58monetary reserves17:01the u.s dollar will lose its stature17:04as the reserve currency in the future17:08the future may be 50 years from now and17:12it is it not it is reversible17:15this could not happen if the u.s17:18government got its act together but i17:19have17:20no hopes for that well if the u.s if the17:23u.s loses that status17:24who’s what’s going to take over who or17:26what well i was getting to that17:28as i said earlier most central banks in17:31the world17:32see as an ideal a multi-polar17:36international currency regime they17:38understand that it will take17:40decades to get there because of the17:42imbalance and liquidity between the17:44dollar and17:44all of the other currencies in the world17:47yeah17:4862 percent of their money of their forex17:51is in dollars that means that there’s17:53only 38 percent and everything else17:55they have to slowly make that transition17:58away17:59no government wants to see18:02its currency replace the dollar as the18:05reserve currency18:06what they’d like to see is a multi-polar18:09international currency regime18:11where people are free and companies and18:14governments are free18:15and there’s sufficient liquidity in18:17non-dollar currencies18:19that you can own and hold a portion of18:22your wealth18:24in those other currencies a greater18:26proportion of it18:27no one like if you talk to the chinese18:29central bankers if you talk to18:31other central bankers in around the18:34world18:34no one expects the dollar to disappear18:37as a18:38quote de facto reserve currency18:41but they‘d like to see it disappear as18:43the de facto current18:45reserve currency but they’re fully aware18:48that this is something that’s going to18:50take decades to execute18:52if it can be done okay you brought up18:55china i’m surprised to see that china18:57was relatively low on the list18:59when you’re talking about their19:00percentage of foreign reserves19:02in gold holdings it’s only four percent19:04of the foreign reserves in gold19:06are you surprised at how low that number19:08is19:09no um i’m not surprised i19:12i should ask you why you’re surprised19:14that it’s high19:15but you know china that should the19:18people’s bank of china for19:20decades had a view that gold was a small19:22and insignificant portion of its19:24monetary reserves19:26it changed that view in 2015 at a time19:29when it rolled out19:30a massive acceleration of19:33its efforts to make the rmb19:37more of an international currency it’s19:39still not you know fully convertible19:41but they expanded the daily trading19:43ranges and they expanded the longer term19:45trading ranges that they found19:47acceptable on the rmb19:49they started encouraging rmb19:52bonds offshore being issued offshore19:56and they said okay we’re adding some19:59gold to our reserves and we’re going to20:01continue to buy gold because20:02we see gold as a small but significant20:05part of our monetary reserve policy20:08going forward20:08now this was in 2015 and it’s very20:11important to understand that that was20:13after 2008 and 2009 when the u.s20:16treasury20:17basically stuffed everybody else and20:20protected20:21the bankers or the executives at the20:23banks uh20:24in the us and and so this was a direct20:27reaction20:28to the inappropriate behavior that the20:31us20:32treasury had during the financial the20:34global financial crisis20:36uh and and the chinese central bank20:39basically said we have to accelerate our20:41effort20:42to help move toward that multi-polar20:45currency20:46regime that we all would like to see in20:48the long run20:50uh and so they started adding their goal20:52if you go back to 201520:54they probably had about 1.1 1.3 percent20:58of their reserves in gold so the fact21:01that it’s up to four percent21:02and the fact that they have like three21:04trillion dollars of dollar reserve21:06of of foreign exchange reserves means21:08that it’s going to be a slow transition21:10as they add gold to it and as i said21:12they’re very price sensitive21:14they pulled out of buying gold for about21:1615 months a few years ago21:18then they came back and they were buying21:20but then they pulled back at the end of21:22201921:23and they haven’t reappeared they said21:25you know in the past they said21:27we’ll buy gold below a thousand when21:29gold went over a thousand they21:31didn’t buy any gold for several years21:33then they increased their threshold21:35and they knew they were buying uh and21:37then when the price started rising this21:39year they said no21:40you know we’re going to wait finally21:41jeff with everything that’s happened21:43this year and in particular with the um21:46central bank activity or slowdown of21:48central bank buying activity21:49do you think the run-up of gold prices21:52to two thousand dollars21:53all-time highs has made sense to you do21:55you think valuations are21:57correct as they should be right now yeah22:00i think they are22:01uh you know obviously the trend of the22:04next year or two is going to depend on22:06several things the outcome of the us22:08elections for the senate as well as the22:10presidency22:11brexit is coming up the pandemic which22:14is getting worse in europe now and is22:16expected to get much worse in the united22:18states22:18there are a lot of negative factors22:20there uh that fully support the idea of22:23a two thousand dollar22:24gold price now i wouldn’t be surprised22:27to see the price of gold22:28spike up higher on a short-term basis uh22:31then maybe plateau depending on what22:33happens politically22:35uh but we expect higher prices later22:37like22:382023 2025 because22:41none of these things are being solved22:43would you have a long-term price target22:45in mind22:47we’re looking at a gold price that is22:50very significantly higher than it is22:53today22:54all right perfect jeff jeff i want to22:57thank you so much for uh speaking with22:58me today that was a fascinating talk23:00thank you for your time thank you for23:02your time23:03and thank you for watching kiko news23:05we’ll have much more coverage for you23:06at the denver gold form stay tuned23:34you
The Motion: This House Regrets Blaming Wall Street For The Global Financial Crisis.
Steve Eisman continues the case for the opposition, as the fourth speaker of eight in the debate.
[Music] you know to Steve Eisman to continue the case the opposition it’s been my experience that most people even extremely educated people don’t fully understand what the financial why the financial crisis happened so rather than throw Thunderbolts let me spend most of my time trying to explain what happened because I think in the explanation the answer to the question will be fairly clear the financial crisis is due really to four major interlocking factors too much leverage a large asset class known as subprime mortgages that blew up systemically important banks owning the asset class and derivatives tying balance sheets all over the world let me start with the leverage between 1997 and 2007 leveraging the large banks in both Europe and the United States tripled that’s only the stated leverage if you add on top of it the shadow banking system and all the off balance sheets stuff that was really on balance sheet the amount of leverage went up four to five times it’s a lot of leverage now there are a lot of reasons for why this happened I could probably spend the next two hours discussing why let me discuss just one aspect of it that most people don’t have never really read about and that is psychological there is an entire generation of Wall Street executives my age and up who had a very strange experience in the 1990s in the early aughts they made more money every single year now the reason why they made more money every single year was that their firms made more money every single year but their firms made more money every single year because the leverage of their firms was going up every single year and really what was happening was they mistook leverage for genius and the problem that will emerge was that if you had gone to any of the executives of these firms and I did and said to them listen the entire paradigm of your career is wrong the response would have been listen kid I made fifty million dollars last year what did you make it’s very hard to tell someone who thinks he’s God that he’s wrong subprime mortgages you know people today not even remember really what a subprime mortgage was all about it was a mortgage that had a two or three year teaser rate and then was Reese price up for it for the next 27 or 28 years and most mortgages originated between 2002 and August of 2007 had a teaser rate of 3% and a go to rate of 9% 3 % 9% the industry and Wall Street under wrote the loans to the teaser rate which is a fancy term that means that the underwriters knew that the consumer could only afford to pay the 3% for the two to three years he or she could not afford to pay the 9% now why would anyone write a loan a 30-year loan where the customer can only afford to pay the teaser rate for the first two to three years and here’s the second great lesson of the financial crisis incentives Trump ethics almost every time the reason why this happened was that the consumer would take out a loan and would pay three to four points upfront for the privilege of getting the loan and because he or she could not afford to go to rates after two to three years the consumer had to refinance and would pay three to four points for the privilege of doing so which meant that the consumer could not afford the loan and would have to refinance and would never be able to pay off his or her principal from a societal perspective this was a disaster but from an economic perspective for the people who were writing the loans the subprime mortgage companies and for the Wall Street securitization departments that were buying them packaging him and securitizing him and selling him all over planet Earth it was a boondoggle because it meant they got to make they got to redo the loans and re-securitizing every two to three to four years and make their bonuses over and over again as the underwriting deteriorated and the credits began to get worse as was became very obvious in 2006 no one neither the underwriters or Wall Street said there’s something wrong here our underwriting is bad let’s do less securitize less and tighten our standards and the reason for that is no one has ever begun a sentence in the English language where they say I think this year I’ll make less money because it would have meant they would make less money and they didn’t want to make less money they wanted to make more money so they let the underwriting standards deteriorate with full knowledge that they were deteriorating and that’s the story of subprime third systemically important firms owned the asset class this is a bit of an irony the model of Wall Street is to buy it and sell it not buy it and hold it and here Wall Street bought it sold some of it and kept some of it something they never ever did why well over the years between 2002 and 2007 it did become more difficult to find investors to buy all of the product because so much was being generated now if we lived in a rational ethical world and we don’t but if we did then what would have happened is Wall Street and the underwriters would have tightened standards and underwritten less because there was if there was not enough end-users but instead they convinced their firms to hold the paper and invest in it with the rationale of how bad can it be it’s rated triple-a and now derivatives this is one of the more important parts of the story if I own debt and GE and I want to mitigate my risk I can buy a credit default swap from goldman sachs pay a certain fee for that and if GE goes bankrupt goldman sachs pays me so I have now mitigated my risk by owning a credit default swap credit default swaps reduce risk for individual transactions but the problem is that the only works in this example when GE goes bankrupt if Goldman Sachs is not is not not bankrupt and essentially what has happened is my balance sheet has been tied to Goldman Sachs is balance sheet multiply that transaction by trillions and you can see balance sheets all over the world were tied together and that’s the crisis Wall Street created the leverage it securitized and sold subprime mortgages all over the world and it created the derivatives that tied balance sheets together who should be blamed is there anyone else well there are two alternatives that people like to propogate first we should blame the regulators and there there is some blame from the early 1990s the regulatory apparatus of the United States adopted a position that was different from the position that had adopted before which is we were gonna let the large banks manage their own risks because we trust them essentially in the 1990s of the 2000s the US and European financial systems had the trappings of regulation but in reality they were completely unregulated institutions you know there are many good books about the financial crisis but there’s one that I think has the best title that captures the essence of the crisis which is a book by Judge Richard Posner the title of which is a failure of capitalism and that’s what happened in the financial crisis it shouldn’t be a surprise unregulated banking systems fail all the time they go boom and bust the difference this time was the fact that the sheer size of the global banking system and its interconnectedness because of derivatives created a bust that had planet earth burned and the last thesis and is sometimes propagated it’s not Wall Street’s fault it’s not the regulator’s fault its Fannie Mae’s fault Fannie Mae and Freddie Mac you know I have a little history with Fannie Mae and Freddie Mac I began analyzing him in 1994 I think I was probably on the next 55 conference calls quarterly conference calls I analyzed them extensively I didn’t like them I thought they took too much risk I thought they manipulated the the political system but I like to blame people for what they actually did Fannie Mae and Freddie Mac did not cause the financial crisis this is a Shibboleth that is propagated by ideologues who were unwilling to admit that the financial system crashed because of the people who ran it Fannie Mae did buy some subprime mortgages it did cause a partially caused the demise of Fannie Mae but trust me on one thing if Fannie Mae and Freddie back had bought zero subprime mortgages the exact same thing would have happened because there were people lined up all over planet earth to buy them I thank you for your time and there’s a pleasure you
The coronavirus has thrown us into truly unprecedented times. Most countries have enforced a lockdown, and global travel has ground to a halt, and this, in turn, has had an enormous impact on the economy.
Stock markets all over the world experienced huge volatility. Wall Street suffered its worst day since ‘Black Monday’, oil prices went negative for the first time in history and governments all over the world have been implementing extreme fiscal and monetary policies.
Many analysts have suggested that rather than coronavirus being the cause of this economic downturn, instead, it was merely the pin that popped the bubble and the enormous debts that have been amounting since long before the 2008 global financial crisis was a disaster waiting to happen.
So, how do we get out of this mess? Who stands to benefit from government money printing? Who has to pay this money back? And, why the fuck is Steve Mnuchin, the Secretary of the Treasury?
To answer these questions and more, I am joined by leading finance experts: Andrea Ferrero, Andreas M. Antonopoulos, Caitlin Long, Ben Hunt & Raoul Pal. We look at the corruption and mismanagement of the economy by central banks and governments.
David Axelrod is a political consultant who served as chief strategist for Barack Obama’s presidential campaigns and later as a senior adviser in the Obama administration.
Axelrod’s candid, full interview was conducted with FRONTLINE during the making of the two-part January 2020 documentary series “America’s Great Divide: From Obama to Trump.”
It was a message he never expected to deliver. Henry Paulson—free-market thinker, former CEO of Goldman Sachs and Treasury secretary to a conservative Republican president—was unveiling to the world a massive taxpayer bailout of the American financial system. Afterward, as he headed into yet another weekend of nonstop work with his team, carrying the weight of the troubled markets on his shoulders, the former college-football star was clearly conflicted about what he’d just proposed. “It’s very unpleasant for me, but it’s a lot more attractive than the alternative,” Paulson told NEWSWEEK. “We can spend a lot of time talking about how it happened and how we got here. But we have to get through the night first.”
Let us hope the old saw, about the night being darkest before the dawn, is true. Recent weeks certainly have been the darkest Wall Street has seen since October 1929. Investment banks that had survived the Great Depression, the crash of 1987 and the trauma of 9/11—venerable names like Lehman Brothers and Merrill Lynch—fell by the wayside. They were just the latest victims in the subprime-mortgage and credit debacle that has taken down banks and lenders across the country, and yanked the dream of homeownership away from millions of Americans. For the past several months, the government’s solution to the problem has been to make a series of Solomonic decrees about who would live and who would die. Investment bank Bear Stearns? “Too big to fail,” the government decreed, arranging a sale of the firm to JPMorgan Chase. Lehman Brothers? It must be sacrificed and file for bankruptcy. Overextended homeowners? Try renting. The nation’s largest mortgage companies, Fannie Mae and Freddie Mac? Bail them out and let taxpayers foot the bill. AIG, the world’s largest insurer? Uncle Sam owns it now.
Wielding much of this power over financial life and death is this tall, calm man. Paulson came to Washington from Wall Street in 2006 expecting to deal with issues like Social Security reform and trade agreements. But the economy had other ideas. At a time when President Bush seems to have largely checked out, the teetotaling 62-year-old has emerged as the nation’s most powerful leader—the investment banker in chief. As he did on the Street, Paulson continues to advise CEOs on the best course of action, to arrange financing and to get the best terms possible for his clients. Only now his clients are American taxpayers, the president and the global financial system.
With the help of his counterparts at the Federal Reserve and the Securities and Exchange Commission, Ben Bernanke and Christopher Cox, Paulson has succeeded in fundamentally altering the relationship between Wall Street and Washington—almost to the point where D.C. is now the world’s financial capital. “There’s no doubt that he’s in charge,” says Roy Smith, a former partner with Paulson at Goldman and a professor at New York University. An indifferent orator—Paulson hunches his 6-foot-2 frame over lecterns and has a halting speaking style—the Eagle Scout has emerged as the pre-eminent market whisperer and cajoler of the American financial system. And yet Paulson has rankled some in Washington by conducting business like a Wall Street Master of the Universe: the marathon late nights and weekend meetings with a small group of people, followed by an unveiling of the result as a fait accompli.
“For Bear Stearns and AIG, members of Congress were simply informed that these were decisions made by the Bush administration, specifically Secretary Paulson and Chairman Bernanke,” says Barney Frank, chairman of the House Financial Services Committee. “I can’t tell you what they were thinking.” Paulson and Bernanke make an unlikely duo—the relentlessly forward-looking Christian Scientist investment banker from the suburbs of Chicago and the more placid history-minded Jewish economist from South Carolina. New York Federal Reserve president Tim Geithner has also been a key player.
The prospect of unelected officials putting massive amounts of taxpayer resources to work without transparency or approval from Congress, and without a clear process at work, is indeed troubling. In addition, the constant improvisation by Washington financial officials may be sending mixed messages. “There hasn’t been a consistent pattern,” New Jersey Gov. Jon Corzine tells NEWSWEEK. “We save Bear Stearns but not Lehman. The market is going to have a hard time sorting through what the underlying principle is.” (Corzine served with, and clashed with, Paulson when they were senior executives at Goldman in the 1990s.)
The Democratic strategist James Carville once said that he wanted to come back to life as the bond market, because it exerted such power over Washington policy. And for the past many years, Wall Street has been the tail that wagged the Washington policy dog—deregulation, tax cuts on capital gains and dividends. No longer. Now Washington is dictating terms to Wall Street. And Americans will be dealing with the consequences of that for years to come.
How did we get here? And who is this guy who has become, almost by default, the face of American capitalism?
In many ways, Paulson was the ideal person to deal with this mess. A 32-year veteran of Goldman, he helped take the venerable (and venerated) company public and served as CEO from 1998 to 2006, an era in which the firm prospered. Goldman enjoys legendary status in New York, the elite among the elite. In the new book “The Partnership: The Making of Goldman Sachs,” Charles Ellis describes Goldman as a company with “such strengths that it operates with almost no external constraints in virtually any financial market it chooses.” Paulson, who excelled in the classroom (Phi Beta Kappa) and on the gridiron at Dartmouth (All-Ivy offensive lineman), worked in the Nixon White House as liaison to Treasury and Commerce before pursuing an M.B.A. at Harvard and joining the Chicago office of Goldman in 1974.
He became a partner in 1982 and helped build the firm’s Asian investment-banking business, making more than 75 trips to China. “Paulson was seldom thought of as a pal, a charmer, or particularly charismatic,” Ellis writes. But he was noted for self-discipline, focus on controlling risk and mastery of detail. He rose to Goldman’s leadership ranks in 1994 when the firm was in the midst of a major crisis, says Lisa Endlich, a former employee of the bank and author of “Goldman Sachs: The Culture of Success.” Nearly one third of the partners were leaving after the company had suffered significant trading losses. As senior executives made the case as to why partners should stay, Paulson focused on the nuts and bolts. “He described the minutiae of how they were going to cut costs and make money the next year,” says Endlich. In 1999, Paulson and a few other partners pushed out Corzine.
Paulson adheres tightly to the Goldman ethos: Make enormous amounts of money but don’t act like it (though Paulson’s stake in the firm was worth about $500 million when he cashed out in 2006, he wears a digital training watch, not a Rolex). Get involved in civic causes (he served for two years as chairman of the Nature Conservancy, and his cavernous corner office on the third floor of the Treasury Building is filled with photos of birds taken by his wife of 39 years, Wendy). And embrace the role of corporate statesman (in 2002, in the wake of corporate scandals, he gave a speech at the National Press Club calling for an improvement in corporate ethics).
Paulson had always been a Republican—but more a Rockefeller Republican than a DeLay one. Goldman Sachs was no place for ideologues or hyperpartisans—its ranks have been filled over the years with both Democrats (Corzine and former Treasury secretary Robert Rubin) and Republicans (White House chief of staff Josh Bolten) who went on to become public servants. It was Bolten who recruited Paulson to succeed John Snow as Treasury secretary in the spring of 2006. At first Paulson demurred. The ultimate realist, he doubted whether anything significant could be accomplished in the last two years of the Bush presidency. But Bolten made the case that there were other ways to contribute beyond the legislative agenda. And after Paulson and Bush met in the president’s study and talked for more than an hour, he agreed. With their children grown—their son, Merritt, owns minor-league sports teams in Portland, Ore., and their daughter, Amanda, is a reporter for The Christian Science Monitor—Henry and Wendy Paulson settled into a house in Washington.
Paulson instantly became the leader of Bush’s economic team. He had a very distinct idea of what the job would be—”the top policymaker in the administration, the chief economic adviser to the president and the top economic communicator,” says Tony Fratto, the White House deputy press secretary who worked at Treasury during the early portion of Paulson’s tenure. But the possibility that Paulson would make his mark seemed to evaporate when the Democrats assumed control of Congress a few months after his arrival. The new Treasury secretary had greater concerns than regime change on Capitol Hill, though. In his first official meeting with Bush at Camp David in July 2006, Paulson told the president it would be surprising if the United States made it through January 2009 without some disturbances. “We have these periods every 6, 8, 10 years, and there are plenty of excesses,” Paulson recalls telling Bush. He just didn’t know what those disturbances would be.
The problem became clearer as the housing bubble burst in mid-2006; borrowers started defaulting on mortgages and lenders began going belly up. The mortgages had been packaged into exotic securities, sliced and diced and sold as bonds and purchased by investment banks and hedge funds. Because lenders, executives and traders had convinced themselves that home prices would never fall, anything went. The result was debt layered on debt, piled on top of debt, supported by small amounts of cash. And so as Americans in increasing numbers defaulted on their mortgages in 2007 and 2008, it kicked off a domino effect. The value of the mortgage-backed bonds fell, as did that of the financial instruments based on those bonds. Banks were forced to write down the value of their holdings and raise new cash from foreign sovereign-wealth funds—only to report fresh losses as the housing market weakened. This past spring, the chain connecting underwater subprime borrowers to New York investment banks and Fannie Mae and Freddie Mac—the Washington-based quasi-governmental firms that together guarantee or insure $5.4 trillion in mortgages—grew increasingly taut.
The government response to the housing mess took two main forms. The Federal Reserve slashed interest rates repeatedly, hoping to make life easier for borrowers and lenders. And under Paulson’s direction, the Treasury Department put together the Hope Now coalition, an industry-led group that would modify mortgages before foreclosure. But by the time such efforts got started, too many dominoes had fallen.
In March, when Bear Stearns, the perennially troubled teen of Wall Street, got in too deep, Paulson hammered out a deal for JPMorgan Chase to access credit from the Federal Reserve to buy the investment bank at a bargain-basement price of $2 per share (later revised upward to $10 a share), because he didn’t want to make it seem as if public shareholders were being bailed out. Paulson knew the plan flew in the face of the free-market philosophy to which he, and all his colleagues on Wall Street, clung so fiercely. But this was a special case. When commercial banks failed, a tried-and-tested procedure kicked in: the Federal Deposit Insurance Corp. took charge and made insured depositors whole. But there was no existing protocol or regulatory framework to deal with the failure of an investment bank. And because of its massive levels of debt and significance in the markets for credit-default swaps—a sort of insurance policy against investment losses—Bear Stearns had the capacity to harm hundreds of financial institutions. “The Federal Reserve believed—and I supported them—that it was the right thing to come in and intervene,” Paulson tells NEWSWEEK.
The downfall of Bear Stearns sent Paulson and his colleagues into crisis mode—a mode they have yet to exit. For Paulson and his team at the Treasury Department, the summer was a string of ruined weekends. In July, Congress gave him authority to come to the aid of Fannie Mae and Freddie Mac. “If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out,” Paulson said. (Translation: if the market knew the companies had a federal backstop, investors would be more likely to give them more time to work out their troubles.) Paulson was forced to use the bazooka sooner rather than later. By the end of August, the weakened financial state of the two giants was threatening both domestic mortgage markets and the value of hundreds of billions of dollars’ worth of bonds they had issued that were owned by central banks around thethe morning of Sunday, Sept. 7, the government essentially nationalized Fannie Mae and Freddie Mac, agreeing to backstop their debt and provide new capital.
Given the unique nature of this financial crisis, Paulson—who spent his entire private-sector career at Goldman—has been a better fit for this job than his predecessors in the Bush administration. Snow ran a railroad company, and Paul O’Neill headed the aluminum producer Alcoa. Paulson, as Bolten notes, has the credibility and the respect of the markets, as well as power and authority. As a result, he has operated with considerable autonomy. “President Bush has delegated a great deal to me, and it’s an awesome responsibility,” Paulson says. “He’s very supportive.” The two Harvard M.B.A.s have spoken at least once daily for the past several weeks, in addition to having regular meetings. One reason Treasury has emerged as the leader in this crisis, more than the Federal Reserve, is that the problems in the main aren’t in the banks that are part of the Federal Reserve system. They are in the unregulated Wall Street investment banks, which are Paulson’s turf.
The key skill of an investment banker is understanding the thinking, motivations and fears of the person on the other side of the table. And Paulson has had to put all his skills to the test. Over the second weekend in September, when Lehman Brothers came seeking the kind of help that the government had given Bear Stearns, Paulson was conflicted about what to do. He was reluctant to set a new precedent and encourage what’s referred to in the world of economics as “moral hazard”—the notion that the existence of a backstop would encourage further reckless behavior. Paulson essentially told Lehman CEO Richard Fuld, whom he knew from his days on Wall Street, that the bank needed to find a buyer in the wake of new losses. But Fuld dithered. And although Lehman was in bad shape, unlike Bear Stearns it didn’t threaten to bring down the whole system. “I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers,” Paulson said at a press conference in Washington. His refusal essentially forced Lehman into a bankruptcy filing and spurred Merrill Lynch to seek a deal with Bank of America. At Lehman, workers set up photos of Fuld and Paulson and stuck pins through their eyes.
Asked at that press conference if the public should interpret the refusal to help Lehman as an end to assistance for the financial sector, Paulson was cagey. He said he had to worry first and foremost about the “stability and orderliness of our financial system.” He went on to prove his flexibility less than 24 hours later, with AIG. The gigantic insurer, which is a component of the Dow Jones industrial average, had several healthy units in its core business. But its AIG Financial Products unit, which had sold large volumes of credit-default swaps on subprime mortgages, was deep underwater. Were it to fail, AIG would pose the same systemic risk to the financial system that Bear Stearns had. Paulson informed congressional leaders that the government was coming to AIG’s rescue. Using the Fannie/Freddie rescue as a template, he hammered out an aggressive deal. He installed a new CEO and extended $85 billion in credit—at a high interest rate—in exchange for an 80 percent stake in the company.
But given the uncertainty about who might fail next, the markets continued to panic. Investors turned against the only healthy players left on Wall Street, Morgan Stanley and Goldman Sachs, pummeling their stocks and threatening to force them into mergers with other firms. Banks began to lose confidence in one another, cutting off the flow of capital. Concerns arose even about money-market accounts, long considered among the safest of investments. Paulson again took out the bazooka: he and Bernanke crafted their plan to create a taxpayer-backed entity that would acquire mortgage-backed bonds from banks, and requested $700 billion from Congress to do so. Treasury also temporarily extended insurance to money-market funds. By the end of last week the stock markets were soaring.
While bailouts are regrettable and expensive, Paulson argues that one is needed to restore confidence in the system. “We’re going to have housing issues and mortgage issues for years,” he tells NEWSWEEK. “The key is to get stability.” But unlike other recent actions, this one will require greater cooperation from Congress. And there Paulson is likely to run into some roadblocks.
Paulson works at a pace to which Washington isn’t quite accustomed. All month the staff dining room at Treasury has remained open on weekends, with a buffet of tuna-fish and peanut-butter sandwiches. Paulson doesn’t use e-mail and prefers to get information by phone. Staffers refer to him as a “serial dialer.” But he doesn’t spend a lot of time making small talk. “He’s a no-bulls––t kind of guy,” says Barney Frank. “He gets down to business and gets things done.”
This brusqueness, and the desire to move on to the next problem, doesn’t always go over well on Capitol Hill. The criticism of Paulson has come mostly from conservative Republicans in the House who are incensed over the bailouts. “I think for all intents and purposes, Congress has been left out of the loop and treated after the fact,” says Rep. Scott Garrett, a New Jersey Republican. Having already acquiesced to the creation of hundreds of billions of dollars in potential taxpayer obligations, Congress isn’t likely to just hand over hundreds of billions more without demanding some concessions like assistance for strapped homeowners.
The decisions made on the fly these past several months will have impacts that last deep into the next administration, long after the end of Paulson’s tenure—perhaps one of the most eventful of any Treasury secretary since Alexander Hamilton. To add to his burden, Paulson has been tasked with briefing Sens. John McCain and Barack Obama on the situation. Late last Thursday evening, as Obama was about to fly from New Mexico to Florida, he held his plane on the tarmac for 10 minutes to hear the latest from Paulson, just one of many recent conversations. McCain and Paulson have also spoken on several occasions.
The Treasury secretary, who repeatedly describes the bailouts as “unpleasant” but necessary, knows that the United States will now be the international butt of jokes for nationalizing huge chunks of its once vaunted financial system. But as the Wall Street saying goes, it is what it is. At the end of the Street’s craziest week in recent memory, Paulson was still working the phones and facing another ruined weekend, in which he and congressional leaders would iron out the details of the bailout plan. “Like every other weekend, we’ll just be working hard doing what we need to do,” Paulson said. For all our sakes, let’s hope there won’t be many more marathon weekends in the months ahead.
How Corporations Destroyed American Democracy – Chris Hedges.
Filmed at Socialism 2010 in Chicago by Paul Hubbard
<iframe width=”560″ height=”315″ src=”https://www.youtube.com/embed/ZyH2wXC6DkY” frameborder=”0″ allow=”accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture” allowfullscreen></iframe>Nov.14 — Blackstone Group Inc. Chairman and Chief Executive Officer Stephen Schwarzman talks about starting the firm, surviving the real estate crash of 2007, and being rejected from Harvard. Schwarzman appears on “The David Rubenstein Show: Peer-to-Peer Conversations.” The show was recorded on Sept. 4 in New York.18:15it worked out and alchemy you did the18:18IPO and Chinese invested and then after18:21you did the IPO let me mention two deals18:24that you did one was the biggest real18:26estate deal in history GOP real estate18:29company built by Sam Zell and you did a18:3240 billion dollar buyout in effect is18:34that right yeah it’s 39 actually okay18:36all right thirty nine billion dollars it18:39was a bidding war you won the bidding18:41war but the real estate market crumbled18:43right after the deal was done so how did18:44you survive with that deal well we18:47worried18:47because the same reason we were going18:49public I sense we were a market top forreal estate so so just buying 39 billiondollars of real estate III thought wasdangerous because you had to pay apretty good price to get it because itwas competitive so as as soon as wedecided we were going to actually raiseour price enough to be the winner therewere two or three of us sitting aroundsaying this deal is potentiallydangerous we’ve got to reduce theleverage and we’ve got to take advantageof the crazy pricesthat people are paying so we’ve decidedto sell half of what we bought the sameday we bought it so when I told peoplethat they just sort of looked at me andand said the same day I said I don’twant to take any risk that the world’sgonna change and we’re gonna be stuckwith all of this so we basically hadevery conference room at the firm activeone buying but then we broke it up intoall these pieces but if you hadn’t doneyou would have lost all your money Ithink that’s probably a market crateredvirtually the next day right becausemost of the people who bought from usbasically got into enormous financialtrouble or went insolvent and and soafter we did that and closed everybodywent homethey’d been sleepless three days laterthey came back and we said let’s sellhalf of what we got left now and be evenmore conservative so everybody went backto workand we ended up with one quarter of whatwe bought very conservatively priced sowe could survive any kind of nuclearwinter we ended up making three timesour money buying right this this giantthing at the top and andthere’s never been more than ten billiondollars bought or sold by a group we did70 billion so you wants to blot anothercompany before the recession really hitthat was caught Hilton and that was aleveraged buyout and some people might21:17say at the top of the market and that21:19deal went down in terms of the debt and21:22maybe the equity but then you openly did21:24things that made it the most profitable21:26buyout in the history of buyouts what21:28did what did you do well that was pretty21:29easy actually looked hard but you know21:34Hilton had not been integrated they were21:36running for different headquarters and21:38there was a huge modernization and and21:42and and cost takeout Oklahoma you sold21:45it up about a fourteen billion dollar21:47profit yes well if we had held it it21:49would have been held it longer it would21:51have been over 20 so so it was a good21:54day21:54cuz nice forty nine billion in recent21:57years you’ve become one of the nation’s21:58biggest philanthropists you gave three22:00hundred and fifty million dollars to MIT22:03for a computing Center and related to22:05artificial intelligence you never went22:07to MIT you had no connection there how22:08did that come about well that was that22:10was really fascinating i I’m not a22:12technologist I had met the president of22:16MIT Rafael Reif and we started talking22:19and you know I we were concerned that22:23the u.s. was just not investing enough22:25in these technologies and I said do you22:28have any interesting ideas so he came22:33back with a let’s double the computer22:36science faculty let’s take our it’s22:39established a new department in effect a22:42new school called it a college which is22:46now gonna be the MIT schwartzman College22:48of Computing and let’s connect AI to all22:52the other departments at MIT so MIT will22:57become the first AI enabled university23:00in the world and I said now that’s a23:03vision I could buy in on final question23:06I’d like to ask you it just deals with23:08this if somebody is watching or reading23:10your book23:11and they want to be a leader a leader in23:13business or philanthropy or or in23:16government what do you think is the key23:17quality to be a leader and what have you23:19seen as their key quality enable you to23:21be a leader I I think to be a leader you23:23have to be a really good listener you23:27have to understand what’s going on23:29around you you you have to be measured23:33and and you have to realize that23:36everything you do is amplified in the23:41minds of the people who are listening to23:42you so so care nuance kindness but23:49defining a culture it’s what a leader23:53does Steve thanks very much for this23:56time I appreciate it thanks David