03/31/2008 11:32 pm ET Updated May 25, 2011

Frauds R' Us: The Hank Paulson Regulatory Revue

I am sure that others besides me remember the extreme weirdness of learning about a 1300-page USA Patriot Act that had already been drafted and thoroughly honed for the express purpose of gutting the United States Constitution well in advance of the attacks that took place on September 11, 2001.

I remember this period all too well: in particular, I recall the rising gorge I experienced in observing how certain ultra-reactionaries really do play for keeps.

OK, so the ultimate stakes may not be quite as huge. Just the same, my skin started to quiver and my gorge rose perceptibly yet again when our Treasury secretary, Mr. Henry "Hank" Paulson, late of Goldman Sachs, rolled out his financial markets reform package over this past weekend.

And how very fascinating it has been for the past 36 hours to watch how the corporate media, including allegedly liberal organs like The New York Times and NPR have been reviewing this lame show.

They really cannot help reporting that Paulson has wanted to do all of this earlier. They cannot help pointing out -- however deferentially and delicately -- that what Paulson really wants to put in place is regulatory consolidation without regulatory power. They cannot help noting -- for those still paying attention at the end of the jump page -- that Paulson's scheme would considerably weaken the Securities and Exchange Commission's existing powers.

Superficially, Paulson's script is about the need to get a grip on the enormous unregulated capital flows currently controlled by the hedge funds and private equity firms that constitute the leading edge of what, back in the Age of Innocence, we used to call investment banking.

But on the absolutely essential regulatory point -- that these high-stakes players no longer be allowed to do huge deals with none of their own money at risk, with only leveraged capital -- Mr. Goldman Sachs takes a hands-off approach. Ditto for any related regulatory demand that such firms (and their so-compliant accountants) be able to report actual assets on actual balance sheets: the routine kind of reporting that you and I are routinely expected to provide as individual taxpayers and/or small business owners.

This conforms to The Hank's stated belief that U.S. financial markets will lose out to foreign capital markets if we ask for more integrity and more accountability on the part of our financial firms. It hardly matters that this "competitive disadvantage" notion has no basis in reality. What matters is that this notion has been assiduously propagated over several years by the very same U.S. private equity firms whose captains pocket hundreds of millions in compensation each year-and who are still taxed at a mere 15 percent rate as a further reward for practicing unfettered greed with such panache.

And so, in a perverse plot twist that beggars the moral imagination, the precise moment when these big-money players have been caught with their pants down could well become their moment of anti-regulatory triumph.

That is, unless the Democratic leaders of the Democratic Congress speak up and speak out.

So far it's not looking good. There are two key Democrats to watch: Barney Frank and Chuck Schumer. Both have already said that Paulson's medicine is terribly weak, but neither has said that Paulson's medicine is yet more poison.

And why might that be?

Hmmm...let me think.