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Paulson Claims Guaranteeing Lehman Would Have Cost Fed Massive Losses; No Mention Of Massiver Losses Coming From GSEs
The man on a book mission, who just incidentally destroyed America with his failed "bazooka threat" containment policy, is out with some new truly brilliant revelations, like for example that the consequences of Lehman's collapse were exacerbated due to the unanticipated actions of PriceWaterhouse Coopers, Lehman's receiver in the U.K., whose freezing of accounts is considered by Hank as the precipitating factor that nearly destroyed the money market system.
The former Treasury secretary said he, Geithner, and
Fed Chairman Ben S. Bernanke were well aware the bankruptcy of Lehman
would cause havoc in financial markets, although the consequences were
much worse than they had anticipated. That was in part because Lehman’s
U.K. bankruptcy receiver, PricewaterhouseCoopers, froze all of the
firm’s accounts in that country, refusing to transfer collateral back
to Lehman creditors, Paulson said.
Panicked investors then tried to withdraw funds from
other financial institutions, including Morgan Stanley and Goldman
Sachs, and credit markets froze. Concerned that publicly admitting the
government couldn’t help them would lead to a run that would bankrupt
those firms, Paulson said he maintained at the time the government
wouldn’t help because it would contribute to moral hazard, a belief the
government would always bail out investors.
So in the span of a few weeks, Paulson's (and the Treasury in general) idea of saving the economy goes from bailout (GSEs), to bankruptcy (Lehman), to bailout (AIG), to bankruptcy (WaMu), to bailout (Citi) and so forth. And while most of the "havoc" had been "anticipated," the straw that broke the camel's back ends up being PWC's decision to act prudently, not abrogate contract law, and preserve capital for Lehman's stakeholders? It is good to see that Paulson keeps living in an imaginary world ever since his departure.
And for some additional examples of dementia, here is a pure stunner:
Former U.S. Treasury Secretary Henry Paulson says in his memoir that he
was prepared to support a government backstop to prevent the bankruptcy
of Lehman Brothers Holdings Inc. until he learned the firm’s assets
were so mis-marked it would have guaranteed a loss to taxpayers. “The toxic quality of Lehman’s assets would have guaranteed the Fed a
loss,” Paulson 63, wrote, meaning the central bank couldn’t legally
make a loan.
That's interesting, because below we demonstrate the chart for the "seriously delinquent" loans held by Fannie Mae (Freddie can be seen here).
Keep in mind that according to St. Louis Fed's Bill Poole as of 2007 the total amount of GSE guaranteed liabilities on and off balance sheet was about $4.47 billion. Considering that something over 8% of this on the combined GSE balance sheet is now seriously delinquent, i.e., likely to result in a total loss to taxpayers, the question of how Paulson estimated that Lehman's CRE portfolio, which at its peak was about $50 billion, could have had a more negative impact to taxpayers (even assuming it was a total wash, which it couldn't be), than the GSE risk which through his actions he onboarded for taxpayers' safekeeping, and which even using stale numbers equates to hundreds of billions of dollars in losses. And the scariest thing is that the rate of deterioration in the GSE portfolio is not only not moderating, it is in fact accelerating.
But then again, Goldman wasn't really big in the mortgage business: what kind of benefit would the firm have had should the GSEs been forced to reorganize, and achieves something resembling a feasible balance sheet. Furthermore, as was pointed out earlier, it was all really for the benefit of foreigners, who were actively present on both the asset and liability side of the GSEs.
Certainly, these and more, are very relevant questions to ask of Mr. Paulson once he is at a local Barnes and Noble store signing his brand new book.
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Politics is ALL about sinning through omission.
+1....and hide the commission.
I can't wait to read it. BTW the combined Ginnie, Fannie, Freddie total today is 7T. Use your 8% and you get a cool $560b. The problem is the 8% is too low. So really it is north of $600. We have spent 100, so only 500+ to go......
I would like to read it but doing so will only cause my aggravation since it is 90% based on lies in my opinion. Also I have no desire to hand once cent over to John Paulson.
I might read it, but no way in hell am I paying for the Paulson book.
I find it remarkable that from all the "shooting at the hip" and gyrating between bankruptcy and bailout-- Goldman Sachs comes out of all this with a vitual monopoly in some of its business lines. This doesn't even include the monetary bailout money that went straight to the bottom line.
The only good thing about Hank Paulson's status today is that he is detached from public service.
10 points for use of "massiver".
Never, ever, ever do I buy the books of past, present or future politicos.
Even without a scratch n' sniff page, you always smell what's coming.
Too bad Playboy and RoboT didn't have scratch and sniff pages.
You really should buy and read End the Fed by Ron Paul.
I keep waiting for these guys - Treasury official, economists - to ask the next logical question: OK, so which regulatory agency was responsible for knowing what was on Lehman's balance sheet in the first place?
You populist,you. Why are you hurting the recovery with these pesky questions?
Gov. logic- focus on the problems not the causes otherwise we would be able to avoid problems.
Sorry TD,may be the guy didn't know the simple arithmatic operations. Have you heared of athletes graduating college,without knowing how to read?. Long time ago when there use to be TV and not propaganda, I watched a program(Nightline)that discusses that issue. Well,he certainly looks like he graduated college because he was a football(or some other sport) star.May be you otta look further into his biography...
Keep in mind that according to St. Louis Fed's Bill Poole as of 2007 the total amount of GSE guaranteed liabilities on and off balance sheet was about $4.47 billion.
You perhaps mean $4.47 Trillion, no?
if we had any balls left in this country he would have been tarred and feathered a long time ago.
Paulson was THE main problem during the "crisis". As I have said all along, it was easy to see the "hedge fund" quality of the deal making during this period. The Bear deal of $2, oh no, make that $10 was the tell, and when he came up with "conservator" for the GSE's all should have known to escape the market. While stooges Turbo boy and Helicopter Ben deserve to be tossed, they were simply out "dealt" by the BOSS hedgie Paulson. And now, the mofo doesn't even have the common sense to keep his head down. Paulson, above all others, should be wearing a jump-suit in up state NY. Hank, STFU!
SOP or Standard Operating Procedure is to rewrite and revise history once you have left office. The spin most certainly doesn't stop when you leave public "service" (I laugh when I write the words "public" and "service" together, the ultimate oxymoron) but in fact has only just begun.
The next step is for the MSM to print sections of the spin in their "news" papers and magazines (wait for a section of the New York Magazine to be devoted to Saint Pauly Girl), thus making it part of the public record and therefor an "officially" recognized and sanctioned part of history. Down the road (say 2-5) years, these same "facts" will become part of updated additions of "history" books, thus completely the final rinse of the spin cycle.
Its incredible all the BS that is in the history books. Excellent book on this is "The lies my teacher told me". Also goes into the process of choosing which books will be used in schools.
That should be 4.47 trillion, not billion. And, one of the ways Paulson got Frannie's 200, then 400 billion, now infinite, bail-out ok'ed was by promising to sink, er, shrink their balance sheet. Now that promise too is broken.
Time to eat the bazooka, Hanky.
Lee S.
Maybe it should have been Hank for the Nobell Peace prize?
Hank needs more dough....
What could be on the internet for free....
Mr. Paulon wants to sell johnny joe public....
And even make some more $dough....
To add to his several hundred million tax exemption...
For being the chief of US finance....
There is one basic truth about Paulson....
HE LOVES $$$$ ....
Just follow the money....and you will find the truth....
The GSEs are underwriting knowingly bad loans in order to keep the entire housing debt ponzi fluffed up.
Maybe the DXY will go to 200 with gas north of $10/gal. Either way, real shit priced in dollars can't coexist with price deflation so long as the entire Fed is stuffed with loans that are crap.
And if these go into foreclosure, prices fall and the dominos with them
Bazooka gummed it up. Now it's gonna pop. Does Cool Hand Hank live in an "imaginary" world or a lying criminal one?
Sometimes I think about what it must be like to be in these characters' heads. Do they really believe all this? Are they hopelessly confused between theory and reality? Are they so insulated by their own beliefs that they cannot possibly see reality? Or, do they suspect that such is the case and it drives them nuts, but they can see no other way?
Forgive me if I'm being too benevolent in my musings. Hank, Tim, Ben, Lloyd...they all remind me of junkies.
So it had nothing to do with the fact that letting LEH and BSC fail would leave GS as the last man standing? I call B.S. Mr. Paulson.
"...the total amount of GSE guaranteed liabilities on and off balance sheet was about $4.47 billion."
TD - don't you mean trillion?
By no means a defense of Paulson and his
abilities as a crisis leader but if at the time
it was a choice between the two, GSE"S
win hands down as it would be perceived to impact more people at a glance if you will.
What they failed to do was adequately access the impact Lehman's demise would
have on global markets and should have rescued them as well. The UK gov't would not backstop the Barclay's purchase of Lehman trade. At the end of the day,
it is very easy to criticize actions with the benefit of hindsight but when imminent collapse of global financial markets loom
and split second decisions are required
it's hard to be 100% correct in your judgement in retrospect. It's 2010 move forward
and live in real time it contains enough perils to an investor in and of itself as you
may have learned by now. At this point we must live with the mistakes made and
make the best of what we have. Which relatively speaking US is not Haiti and never will be. Sorry to repeat an old chestnut but things could be alot worse because in this case it is true.
That dude has woven a tangled web. Maybe by writing it down and trying to memorize it he will be able to continue bullshitting everybody with some consistency.
That is what he is doing. There is a syndrome out there whereby if you say it enough times you actually believe that what
you are saying actually is what happened.
He's erasing and whitewashing the past
events and the role he played as we speak in his own mind.
Paulson is a pawn just like the rest of them. Once in a while you will have an honest person with integrity in politics but they will be shut down or rendered impotent by the corrupt. Without massive revolts, protests, ect.. backing these honest people, they don't stand a chance.
The world is being run by dilusional and pathological nitwits. Buy canned food ;)
Who in all seriousness wants to read a book by this idiot Paulson? I think the publishers should have their head examined.
I shall wait until it is on sale for $.50 in a used book sale, and use the pages as toilet tissue.
One could prosecute the whole case in a criminal RICO action, foreigners conspired to finance a foreign socialist invasion of America engaged in criminal activities to finance criminally fraudulent home loans & securities for the purposes of promoting and subsidizing fraudulent home loans and criminal immigration policies.
Its no coincidence that everybody that voted for liar loans also voted for Amnesty and mass immigration, GW Bush was elected on the profits of sub-prime Ameriquest illegal alien home loans-as well as Obama.
The fraudulent home loans pumped local property taxes which were used to subsidize, promote, proliferate and protect immigrants and the mass immigration agenda.
We could both jail and stiff the foreign debt holders while protecting Americans for national security reasons.
LEH and Bear were owned by and financed by "regular" investors. He had to back stop the GSEs because they were financed by the Chinese. Make them take a haircut on the GSE paper, No more soup for you.
Check your facts you are wrong in every
sense. The GSE's were a major part of the household sector holdings, HF which manage the money of HNW US citizens were bailed out as part of the household sector, in sum we bailed out our own country and left the
rest of the world holding the bag. While
Asian central banks were significant
holders China was in the mix but not
in a major way relative to the size of their portfolio. Your comment on Leh and Bear
doesn't deserve a response. Again I say isn't there a minimum IQ to drive on ZH?
This is both absurd and obscene.
Case in point --- where were similar (either vintage, credit quality --- OOOPS, they were all AAA rated, geography, etc) securities marked on the books of GS, MS, MER, BAC and to a degree JPM at the time? Well, we now know that they are either MARKED TO MYTH (thanks to suspension of FASB MTM rules) or the FED owns them. So, let's take a look at where similar securities were purchased by the FED for the US Taxpayer. Luckily, we just got a 5 page list of CUSIPS (courtesy of the Hon. Towns and AIG themselves as they just disclosed this in an 8K today)which provides some pretty darn good price discovery on where they were marked at the time.
How far off were LEH's marks from where these traded? Can anyone categorically back up what Paulson is saying? Clearly, he had someone value them. Did he get those numbers from the NY Fed (their job) or from GOLDMAN. But, that was the NY FED's job --- they should have seen this well in advance. They had examiners in LEH's offices going over everything, and yes that includes marks. This is why Geithner is such an EPIC FAIL. He claims he was never a regulator (in sworn testimony) but was completely out of his depth when it came to doing his job or even knowing what teh job description was.
Remember when BSC was evaporating and Blankfein was trying to get his people in there "to help out" and BSC mgmnt didn't trust them and tried to get them to sign confi agreements and when they wouldn't refused to let them see the books and Blankfein went ballistic. Imagine his wizened, little gnome face all contotred in rage.
Similar situation happened w/LEH as detailed in ARS book TOO BIG TOO FAIL. It was under PAULSON's insistence that Fuld let GOLDMAN come in and look at books because at first they thought there would be some deal and then Fuld had to inform the staff that GOLDMAN "would be acting as principal." For that PAULSON NEEDS TO ROT IN HELL, THE DESPICABLE PIECE OF DETRITUS THAT HE IS. Who was he to determine who survived, who failed, who like a lamb was led to the slaughter. Clearly stated Morgan and GS would have failed.
Seems to me if I were a LEH creditor I would want to compare the assets on LEH book w/this recent SCHEDULE A price discovery and test these assertions. Heck, while we are at it, as the FED was the REGULATOR of IBANKS at the time, and they had real time pricing let's see where all of these were pxd at the time. Now, BB has pledged that the FED will be more transparent, so why not open up the kimono on this?
Paulson wants to try and salvage any pathetic legacy that he has, but as the story comes out more are getting disgusted and see him for what he is.
Anyone else hear steve liesman mention today that Paulson "didn't know what the auction rate security market was" when it started to collapse?
Can anyone else provide any information on whether or not this is true? Don't quite trust liesman as he seems to believe 100% of what he sees, hears, and is told by way of third hand information.