It takes a Harvard MBA to raze an economy. Perhaps that is too narrow a judgment given that a law degree from that institution or from Yale University seems to serve as well. But the Harvard MBA is the degree that George W. Bush and his last treasury secretary, Henry Paulson, had in common, and their shared ignorance as they presided over the collapse of the U.S. economy is on full display in the former president's newly published memoir.
Bush makes clear that the economic crisis came late to his attention and that it was not until March of 2008, as the Wall Street investment firm Bear Stearns was tottering, that it dawned on him that something was seriously amiss:
I was surprised by the sudden crisis. My focus had been kitchen-table economic issues like jobs and inflation. I assumed any major credit troubles would have been flagged by the regulators or rating agencies." He assumed that because he had signed off on the Sarbanes-Oxley Act "[i]n response to the Enron accounting fraud and other corporate scandals.
It is instructive that this is the only reference in the memoir to Enron, a company headed by his old friend Ken "Kenny Boy" Lay, who chaired Bush's presidential campaign finance committee the year before Enron collapsed. The grief caused by Enron's contrived electrical blackouts and the lost jobs and savings following its collapse did not make for one of the "Decision Points" worthy of examination by Bush in his book of that title. Had he done so he might have discovered that the primary problem with Enron was not its fraudulent accounting but rather the wild trading practices in derivatives and other suspect financial gimmicks that had brought the company to its knees and which the accounting trickery was designed to conceal.
Enron was the dead canary, ignored by Bush, that predicted the banking meltdown. The "Enron loophole" in the Commodity Futures Modernization Act that Republicans pushed through the Congress and Bill Clinton signed into law in the last months of his administration opened the door to the collateralized debt obligations and other financial devices that proved so toxic to Wall Street. The securitization of housing debt in such packages spiraled out of control throughout Bush's watch, but he was clearly unaware of the problem until that market collapsed.
Even then he did not have the foggiest idea of what the crisis was all about, any more than did Treasury Secretary Paulson, who admits in his own memoir that he did not know that mortgages were at the heart of the derivatives causing all of the trouble. Of course he should have known since Goldman Sachs, the company he headed earlier, had been in the forefront of packaging and selling the assets that turned out to be malignant.
In his book, Bush indicates similar denial when he writes of Bear Stearns' impending collapse that "the problem was not a lack of regulation by government; it was a lack of judgment by Bear executives." But the problem in finding a buyer for Bear Stearns was those unregulated derivatives, as Bush writes: "Executives at JPMorgan Chase were interested in acquiring Bear Stearns, but were concerned about inheriting Bear's portfolio of risky mortgage-backed securities."
Bush goes on to justify the deal he and Hank Paulson concocted with Fed Chair Ben Bernanke, whom he had appointed, to guarantee the sale of Bear Stearns: "With Ben's approval, Hank and Tim Geithner, the President of the New York Fed [currently President Barack Obama's treasury secretary], devised a plan to address JPMorgan's concerns. The Fed would lend $30 billion against Bear's undesirable mortgage holdings," a development that cleared the way for the sale.
That was just a warm-up for the much larger deal to bail out AIG that the same cast of characters hatched when, as Bush writes, the firm with its tentacles spread wide in pension funds, municipal bonds and 401(k)s "was somehow on the brink of implosion," and had to be saved through a $180 billion infusion of government funds, leaving U.S. taxpayers today with 92 percent ownership of the company. "It was basically a nationalization of America's largest insurance company," writes the former leader of the political party that routinely labels the current occupant of the White House as a socialist. "My friends back home in Midland [Texas] are going to ask what happened to the free-market guy they knew," Bush laments. "They're going to wonder why we're spending their money to save the firms that created the crisis in the first place."
The answer to that question, raised far beyond the confines of Midland, is evidently the main thing Bush learned in the Harvard MBA program: "The well-being of Main Street was directly linked to the fate of Wall Street." Not exactly. They are linked -- but inversely.
Harry Shearer: Fact-Checking the Bush Memoir: New Orleans
Rev. Chuck Freeman: Jesus Christ, George Bush and Torture
I didn't know.
I didn't realize.
I didn't notice.
One HELL of a legacy.
and Arthur Levitt. Speaking of Levitt, while at the SEC he joined with Joe
Lieberman to prevent FASB from requiring companies to expense stock options
and was also responsible for the exemptions that allowed the accounting insanity
at ENRON. Bush committed enough mistakes on his own without having to shoulder the blame for the regulatory changes made under CLINTON.
Once you dig through the ashes of the financial collapse, bad government
policies and choices are the culprits at every stage of the disaster. Yes, Wall St
carried the ball over the goal line from the 5, but the U.S. government carried it
the first 95. Pardon me if I don't feel Dodd/Frank has made the system any
safer. What continues to be puzzling is how Paulson having just left Goldman
in 2006 didn't grasp the oncoming tsunami.
Does that mean the "government carried it (over) the first 95"? I don't think so, but it did show how good regulation *did* apparently save Main Street and the overall US economy a great deal of headache, stress, and overall systemic risk. It was a good regulation, and Phil Graham's name is now Mudd.
Well said, as usual.
From my perspective, one of the enduring hallmarks of the Bush Administration will be its relentless ability to - be surprised!!
Surprised by the 9/11 terrorist attacks (despite the prevalent intelligence warnings provided),
surprised that we didn't find WMDs in Iraq (despite the fact that they fabricated the evidence that there were themselves),
surprised that the lack of security and infrastructure following the initial military operations in Iraq led to a virulent insurgency (even though all the military planners warned that this would occur),
surprised that Katrina did so much damage in New Orleans (when the Army Corps of Engineers had already said the levees were inadequate),
and surprised that the unprecedented spiraling of the national debt in combination with the lack of the most rudimentary regulatory oversight of our financial markets resulted in a bit of an "economic upset".
I mean, who knew? Of course, a lot of people knew.
To my mind, part of being an effective leader is anticipating that their might be some surprises - that everything might not go exactly as one has planned it to go and might wish that it would go. Perhaps prepare a contingency plan? Nah.
Horrible president or worst president ever?
JM
Lie after lie. The man clearly thinks the public is too stupid to know the difference. (And I'm of the "not clueless, deceptive and sneaky" school of thought regarding him).
The lie was wildfire in our media and any truth was snuffed, no matter how sharp or tough you were.
Second paragraph: People who had an agenda and a financial stake in policy choices were able to frame the options into simplistic terms which Bush, a bright guy but of limited vision, would assess as a case for political advantage or a case for a world and economic order which took the worse elements from the philosophies of Yankee Brahmins and Texas Wildcatters.
Well. We clearly see the wisdom, or street smarts (makes no never mind to me), of those who suggested to Bush that the book be postponed until after the election.
Nothing enrages me like the phrase, "Despite the billions infused into the banks by the Fed, the credit market is still frozen." It sounds like lending is a function of the weather.
Paulson forced small solvent banks to be taken over by large insolvent ones. When banking should have been broken up, he made the 6 biggest even bigger, even more "too big to fail".
Paulson-Bush, imo, should go down as two of the biggest crooks in U.S. history for their income redistribution (from us, as taxpayers, to banks and bankers--including hundreds of millions of dollars in bonuses).
As for the rest. Geithner and Bernanke. Bernanke and Geithner.
Where have I heard those names before?
It is scary to think that those two are still colluding, still hiding bank failure with our money (and in Bernanke's case, still giving away hundreds of billions of dollars to BANKS--now buying up their bonds--with no benefit to taxpayers whatsoever).
For Congress to have given Bernanke a new term, when they had the chance to dump him, still rankles. "Fox. Henhouse."