Be Quiet And Give Paulson What He Needs
It may not seem this way, but Americans are a lucky people.
Last week, we did our best to destroy the financial system but somehow came through it. This week, Congress will have only 72 hours to ruin the Treasury's $700 billion mortgage plan before it recesses.
If our luck holds, Hank Paulson will get the extraordinary authority he seeks. If we are really lucky, Paulson may actually fix the mess we have made. So why not give him whatever he needs?
Of course, it is easy to be outraged by the Treasury's bail-out proposal. Lots of money. Lots of power. Naked, ugly dictatorial power.
'Decisions by the Treasury 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.' Such language could have been drafted by any Third World caudillo.
But it wasn't. It was drafted by U.S. Treasury lawyers at the behest of the Secretary of the Treasury.
And Paulson isn't any Secretary of the Treasury. He doesn't need power. And he certainly doesn't need money.
Of course, he isn't a saint or Superman. He is awkward and an awful public speaker. But he is the one man that can serve as an honest broker between the banks and the taxpayers-between Wall Street and Washington.
He can do the right thing for the country. How many other people on Wall Street or Washington can we say that about?
Certainly, the behavior of our Wall Street CEOs has been pitiful. Tick through the CEOs of the fallen institutions: Jimmy Cayne of Bear Stearns, Daniel Mudd of Fannie Mae (FNM), Dick Syron of Freddie Mac (FRE) and Dick Fuld of Lehman Brothers (LEHMQ).
Any heroic acts of leadership there? No, it was all self-preservation. The CEOs held tight to the toxic assets that were killing them, hoping beyond hope for a recovery in prices that never came.
Don't expect great things from the remaining CEOs either. Their job is to care about their shareholders, not the country. And they will do only what is in their interest.
Paulson gets that. He knows that money and fear are the only two things that motivate these CEOs. And that he will have to bribe and bully them into accepting any sensible bailout.
This is why Paulson is resisting Congressional proposals to cap executive pay in the plan. And why he will fight the Democrats' efforts for the government to take equity in any bank that participates in the plan.
It isn't ideological. It's practical. These measures cut down on Paulson's flexibility. And a broker needs flexibility to cut a deal that both sides can live with. That is why Paulson wants a blank check.
This terrifies Washington politicians, as the blank check usurps their power.
That is why Congressmen have been crying about the plan's 'accountability.' Do they want to protect taxpayers? Or is it their own privilege to dispense public money that concerns them?
How else can you explain the crazy logic of additional homeowner aid now demanded by the Democrats to be included in the bill?
Here is how their plan would work: The government buys a defaulted mortgage from a bank. The government then hands more money to the homeowner who defaulted on the mortgage in the first place so that the homeowner can make a payment on the mortgage now owned by the government.
Wasn't the original problem that the homeowner couldn't afford the house? How does additional aid help anybody?
But that is Washington logic. Paulson should resist it at every turn. If he lets Congress get its way, his negotiating power with the banks will be curtailed.
And that is all this $700 billion bailout is-a negotiation between the Treasury and the banks over who picks up the tab for $2 trillion of bad mortgages.
There is a lot of money at stake, so it will be almost impossible to produce a plan that makes everyone happy. But the plan has to produce winners on both sides. Push the banks too far-and the Treasury may get more bankruptcies than the system can handle. Don't push the banks hard enough-and they will get rich at the expense of the taxpayer. It is a balancing act, but who better to find that balance than an honest broker like Paulson?
Is Washington afraid he will be too soft on his Wall Street buddies to the detriment of the taxpayer? This is the guy, after all, who 'never once' considered bailing out Lehman.
My guess is that Paulson has moved well beyond Wall Street. His sole concern is to save the U.S. financial system-and as a taxpayer, I will take him over anybody else on Wall Street or Congress to do just that.
Evan Newmark |
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