Foxy Women, Again
54 minutes ago
| FOR IMMEDIATE RELEASE |
November 29, 2011
CONTACT: Congressman Dennis Kucinich
Nathan White (202)225-5871
Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co. (JPM)
Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae (FNMA) and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue.
Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.
“If you have a bazooka, and people know you have it, you’re not likely to take it out,” he said.
In late September 2008, Paulson, along with Bernanke, led the effort to help financial firms by agreeing to use $700 billion dollars to purchase bad debt they had incurred. He faced criticism from economists for initially refusing to consider injecting large amounts of cash into financial institutions directly by purchasing stock, an option which other countries in similar circumstances had pursued. This was the option favored by Bernanke, and the one that was eventually followed.
On September 19, 2008, Paulson called for the U.S. government to use hundreds of billions of Treasury dollars to help financial firms clean up nonperforming mortgages threatening the liquidity of those firms. Because of his leadership and public appearances on this issue, the press labeled these measures the "Paulson financial rescue plan" or simply the Paulson Plan.
With the passage of H.R. 1424, Paulson became the manager of the United States Emergency Economic Stabilization fund.
As Treasury Secretary, he also sat on the newly established Financial Stability Oversight Board that oversees the Troubled Assets Relief Program.
Paulson agreed with Bernanke that the only way to 'unlock' the frozen capital markets were direct injections into financial institutions (nationalization to republicans and bailouts to democrats) so the banks would have more capital to lend as they "waited" for the bad loans on their asset sheets to rebound. The government would take a non-voting share position, with 5% dividends for the first year on the money 'lent' to the banks and then 9% thereafter until the banks stabilized and could payoff the government loans. According to the book "Too Big To Fail", Paulson, NY Bank Chairman Timothy Geithner, Ben Bernake and Sheila Bair (FDIC Chairman) were at the meeting below on Oct. 13, 2008.
Documents obtained by government watchdog group Judicial Watch reveal that in an October 13, 2008, meeting with executives from 9 major American banks, Paulson told bankers that they would be forced to accept government bailout money, whether they wanted it or not. One of the documents, a talking points memo, gave bankers the ultimatum: "If a capital infusion is not appealing, you should be aware that your (FDIC) regulator will require it in any circumstance." The logic was that if everybody were forced to accept the money, then stakeholders in the market would not be able to identify which banks really needed the money, as opposed to those that did not, thereby making it harder for depositors, investors, or analysts to identify which banks were most vulnerable.
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”