As indicated in "The Proposed Bailout: Zero Pain for the Perpetrators, Toxic to Taxpayers" (September 21, 2008), the major provisions of the Paulson proposal cede enormous unaccountable power to the Administration (i.e., the Treasury Secretary), and virtually guarantee conflicts of interest for financial institutions that are going to be valuing one another's bad loans, creating "comparables" that can then be used to justify overvaluing their own loans.
An additional factor that must be considered is Treasury Secretary Hank Paulson himself. As former Chairman of Goldman-Sachs, it is highly likely that Paulson holds a significant stake in that investment-bank-cum-deposit bank. Any move Paulson makes with his $700B of unaccountable money will likely help Goldman-Sachs share prices.
How can he, Paulson, have any credibility making decisions in executing the mortgage related asset (MRA) sales to the government?
James Boyce pointed out today that Paulson is to the credit crisis what Powell was to the Iraq War...the front person with street-cred who can sell both the crisis and the prescription. ("In Today's Performance, The Role of Colin Powell Will Be Played by Henry Paulson", September 19, 2008).
Paulson should have lost whatever credibility he had with the Treasury proposal: Zero accountability, no court or review board can ever review their decisions. $700B. A license to hire financial firms (i.e., his buddies) to "help," even though many of those have conflicts of interests. No limitations on companies' executive compensation OR severance packages.
In business when one receives a totally outrageous proposal from the other side, trust immediately evaporates. That does not mean that proposals that one knows will be bargained are not advanced, but there is a general idea of the meets-and-bounds of what constitutes something reasonable.
So, with Paulson's personal conflict-of-interest, and his outrageous proposal, here's my question:
Why does ANYONE trust Hank Paulson?
p.s. Anyone wanting just to get an idea of transactions that got us here, go to http://en.wikipedia.org/wiki/Credit_default_swap, and read down to see how the Credit Default Swaps worked. How many of the banks that bought these really understood what they were buying?