- advertisements -
Bruce: Entirely plausible scenario - and it only validates the thesis that pols in D.C. are too ##* stupid to be in charge of anything resembling a "market".
Barney Frank is probably hoping and praying this issue dies, so he can slink away into the shadows of history without the humiliation of the majority of the public knowing and understanding that his actions contributed to the capitulation of the once soverign US to China and Russia. Whether he's a witting or unwitting tool of the intl. bankster class, he is a turd bumping POS. I know, it's not fair to lay too much blame on any individual, industry owned politician, but he deserves as much blame as anyone. How he or Pelosi keep getting re-elected in their districts is simply amazing.
Spot on, Bruce. Absolutely brilliant. That's what it smelled like to me from the start, and no one talked about it. We bailed out foreign central banks. Treasonous, in my book.
Well, if you want to be jingoistic about it, then there was plenty of foreign hosing involved in the conservatorship--like billions in Fannie preferred equity that was issued, it seemed, mere moments before. ME sovereign wealth funds snapped the crap up, and the US Government immediately suspended payments on dividends. The holders experienced an almost total loss right away.
C was a similar story, with a similar collection of foreign dupes getting fleeced. On balance it's probably a good thing that somebody out there with nuclear weapons has a reason to care whether they get robbed blind, or else it would happen far more often than it does already.
Bruce, the Fed is a private entity not subject to FOIA.
And unfortunately DeMarco is right - Fannie and Freddie are also private and not subject to FOIA. Government meddling in the housing market needs to end. Fannie and Freddie should be put out of business.
The Fed is an agent of Congress. It does not exist to carry out it's own will; rather, it exists to carry out the will of Congress. That fact stands on its own. I still wouldn't hazard a guess about whether the courts would apply the FOIA laws to them, or any other agent of a government entity. If there is a precedent for this somewhere, I don't know what it is.
Come on - the Fed is the government! And the GSE's too (unless you can say the taxpayers don't have risk there which you can't). I can see it now - the government will kill Fannie and Freddie to cover up the crime - and then start a NEW and Improved mortgage business called Herbie (it will also be private - to protect the guilty).
Bruce is right on. The GSE's are at the heart of the crisis - they were/are the Ponzi on top of the Ponzi. One Ponzi obviously wasn't enough for the Bankstas! We definitely need this bill to pass but it's been in committee since January? Don't count on it.
Haven't read Paulson's "memoir", but it's been a patently obvious part of public record that the Chinese wanted out of the GSE debt they had accumulated selling us building materials and financing our subprime boom and home equity cash out orgy (their selling began in 2008 according to U.S. Treasury documents). Not that the foreigners were alone: hello PIMCO, hello Buffet, I remember your pleading eyes broadcast across the land in 2008.
These GSEs are/were/and will always be a bad idea. Please name one that has not lost monumental amounts of taxpayer-backstopped fiatscos. Even the Red Cross needed a bailout of 25mm.
The US is no longer our government, and the overall system is highly unstable. It is composed of people for whom we vote in elections, but the candidates and the information we know about those candidates is controlled. That is counter to the democratic principles on which this country was founded. The situation is made worse by individual entities tossing money about - the Fed, Treasury, Fannie/Freddie (oops, our trillion dollar RE hedge fund portfolios went bust - save us or the US is toast!), etc. I really do wonder if they have anything left EXCEPT the control of information?
Fannie and Freddie were always implied to have government backing. It became explicit during the nationalization. But to say the people have no right to know anything is absurd. These aren't military secrets, and the only thing I can think is someone doesn't want to be embarrassed.
Uhhh "Here's how I think this went down", this same exact scenario was played out in the HBO TBTF flick.
Not trying to knock the author here but.......
I agree that F/F books need to be opened, as well as all others who caused this mess, but it will never happen, to many in power would be subject to treason.
It's never good to stiff your bookie. They'll get what's owed to 'em, one way or another.
"our government", LOL
Bruce, until you get over this childish notion, you're never going to understand anything about what is going on and why. It's time to remove yourself from Plato's cave and stop confusing shadows for the shapes that make them.
An easy way to do this, is every time you use the word "government" stop for a second and replace it with the word "mafia." Next, ask yourself what the expected outcome would be if this were true. Finally, notice how much better these expectations fit the actual results as opposed to the fiction of representative government.
Do this enough times, and the logical conclusion becomes inescapable. If you don't do it though, then you keep empowering the beast that is destroying society.
This would indicate the debt anyone had to a GSE was likely paid off as well, eliminating the grantor from responsibility on any loan. 1 Trillion is about what the liabilty is going to be for the lenders and GSE, before they turn over the rocks. The idea that 5 or 17 billion is going to remotely compensate for the fraud is a bad joke.
Does the US enforce the death penalty for Treason ??
Whose version of it?
To understand this bunch (Paulson,Corzine, ect) you need to remember how they became sucessful. They came of age in the late 1970's and early 1980's and made fortunes through leverage. And every time they screwed up they doubled down and the Fed cut rates and they were bailed out. Except now it's game over and they can't understand it. They keep thinking they can kick the can down the road. Corzine was my favorite example. A couple of months after he was booted out as Gov of jersey he took over MF Global. These clowns were effectively broke. His first public statement was (you can't make this stuff up) WE'VE GOT TO GET THE RISK UP AROUND HERE.
QE3 is already in full swing, problem is you don't know it.
Hank Paulson lives to the creed "Graft with Gusto!"
"Foreign investors held $1T of debt issued or guaranteed by the GSEs", and how much debt was held by domestic investors? By Goldman, JPM, et al? Paulson is more likely to have initiated the buyback to save his mates at Squiddy & co., rather than because of pressure from the big bad foreign bogeymen.
The reasoning that he did the buyback to save American firms from collapse and to save America from an economic war it couldn't win with foreign bogeymen kind of makes him a hero doesn't it? I don't buy that for a second from Paulson.
I agree that Paulson was and is not a deep strategic thinker. He was focused on the immediate emergency with a fear that Americas large financial institutions could start falling like a string of dominos.
We all tend to become tools of our tools. Under stress our solutions tend to be predicated on things we think we know, or see, using personal experience, fully relevant or not.
The alternative is to reach for advice (where?) or to go to references (history?) and try to think again.
Paulson needed a short term solution to the immediate problem that he was equipped to see.
"Paulson needed a short term solution to the immediate problem that he was equipped to see. "
Yep, that sounds just right to me.
I think the idea itself is probably correct, but I doubt the situation was quite as stark as all that. If I recall correctly, at the time Russia was having to go all-out to defend the Ruble, and dumping Agencies would have been a good way for them to raise dollars.
In the end, I think the more potent incentive was not any back-channel Russian threat, but the simple fact that the banks in the UK and continental Europe were up to their necks in RMBS of all varieties, and a panic in the Agency market could have been a death blow for a lot of them.
This fact is in its own way revelant to the Russia / China question, since in essence although the global power game is now being played out in the economic rather than military sphere, we are still fighting the Cold War. Seen this way, the primary strategic goal must be to protect our allies; the secondary strategic goal is to maintain the state of mutually-assured economic destruction that was engineered in the 90's.
So Russia and China were going to take a big hit on their GSE bond holdings. Are you saying they were going to dump their T's to get even? What am I missing here? So they got the Fed to create "Magic Money" to protect the Russians and the Chinese?
So, in Aug. '08 the Russians wanted to dump bonds and "break" America? And jsut weeks later in Septemer/October '08 our own Fed stuffed the Russian Central Bank (among many others) with hundreds of billions of dollar swaps to prevent Russia from their own collapse due to (rising) dollar-denominated borrowing they've done?
And since then the Fed drove oil prices from low-30s to low-100s, making hundreds of billions flow into russian coffers again? No, Russians by far are not the most evil ones here.
stuffed the Russian Central Bank (among many others) with hundreds of billions of dollar swaps to prevent Russia from their own collapse due to (rising) dollar-denominated borrowing they've done?
dont be stupid...
before crisis n 2008 Russia (central bank) had almost 600 bln in reservers ( euro+$)..
it spent almost 200 bln to fight capital flight from country and defend ruble from big devaluation..
yet, ruble was debased by 50%..
Excellent logic Bruce. This may not have been the only reason, but I strongly suspect it was a big piece of the puzzle. Everyone knew at the time that foreign pressure was being applied re. Fannie. I still think Paulson/Bernanke/etc. misplayed their hand rather badly. But since they're more loyal to banks than the public, they had a much different motivation.
When government sets up a corporation that then demands special favors from government, is that "crony capitalism" or something far worse?
Good essay, especially Paulson's imaginative conversation. A suggestion, please stop using the red ink. Simple italics, bold face type and underlining are plenty to emphasize important points. Thanks.
Sorry. I like the red ink....
Another vote for red ink stays.
I enjoyed this post very much, because Geithner (although, yes, has also made some very bad decisions) has been left to clean up Henry Paulson's shit left on the toilet seat, Geithner has gotten 80% of the blame for what is 95% Hank Paulson's shitting on the seat. This stuff was obvious to Paulson and Greenspan long before the 2008 Olympics or any off the record talks with Chinese players (although the scenario portrayed by Krasting above seems very realistic and probable to me). They thought they would shove this one off on the next administration----that was a huge betrayal of the American people, and a betrayal which Paulson and Greenspan should never be forgiven for. If I ever saw either of the two of them in a public setting, either one would be EXTREMELY lucky to get off with a pie in the face and an angry lecture on what assholes they are.
By the way, I have pondered buying Paulson's book, as he is knowledgeable and I am sure many things to be learned from it, but I will not buy Paulson's book for moral reasons. I will not reward a man financially for the trashing and betrayal of his native country.
The red ink is appropriate...and unfortunate.
Dig the red ink too. BK style
Me too. Best highlight.
Tar and Feather and put them in new reality show
"the Horny Bunkie Diaries"
So the purpose of QE1 was to protect the US from a financial attack from China and Russia. The US did this by buying up apparently "worthless" paper. So then QE2 was to buy up the nonperforming mortgage back securities ... to protect the US from a financial attack from China and Russia as well? If that is the case, there must come a point where no country will buy our paper.
Oh wait, we are already there.
I've never understood why they allowed the FOIA in the first place or how come it hasn't been nuetered (totally) yet. It's one of the mysteries of life.
How does the Fed buy GSE debt if they are private? I thought the rule was only AAA government debt?
'Exigent circumstances' clause. Those two words cost us a cool trillion.
Me too Bruce, good luck with that. Nothing short of a revolution will get that kind of information out.
Off topic....but a cool new weather site http://weatherbell.com/ Has some very good Reports on ENSO and PDO. Hope this doesn't seem like spam....I just know that you are a weather bug too! Have a great holdiay weekend!
Paulson has been proven to be above the law.
"China: We know the law. But now I tell you our law. If you stiff us with these bonds we will be at economic war with America, and we will win."
Lol. It definitely didn't go down like that. Nobody in China is feeling remotely confident about their economic footing. The threat of a hard landing isn't just financial there, it's a matter of the bloodiest revolution in Chinese history which will spare none of the new wealth, and devastate the nation for decades.
Economic war with America is not a sure thing for China by any measure.
China's ponzi is as closely tied to our ponzi as anyone's. They are not immune from the global house of cards and will help prop it up to save themselves.
1> Paulson was granted conressional dispensation
2> as with any shell game, its important to keep ones mark (the public) distracted long enough for them not to know that the ball has been removed from the game.
Tips: tips [ at ] zerohedge.com
General: info [ at ] zerohedge.com
Legal: legal [ at ] zerohedge.com
Advertising: ads [ at ] zerohedge.com
Abuse/Complaints: abuse [ at ] zerohedge.com
Advertise With Us
Make sure to read our "How To [Read/Tip Off] Zero Hedge Without Attracting The Interest Of [Human Resources/The Treasury/Black Helicopters]" Guide
How to report offensive comments
Notice on Racial Discrimination.