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So, Paulson lied? He’s misled America from Day One

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By Michelle Malkin  •  October 5, 2009 12:20 PM

Before we get to the new TARP IG revelations of Hank Paulson’s deceit on the health of financial institutions, let’s take a trip down bank bailout memory lane. He’s been misleading America from Day One.

On September 19, 2008, I declared the death of fiscal conservatism:

Bush Treasury Secretary Hank Paulson just wrapped up his press conference announcing the Mother of All Bailouts. He said a “bold” approach was needed to achieve “stability” in the market.

Let me translate that.

“Bold” = Massively massive, taxpayer-funded rescue.

“Stability” = Privatizing profits and socializing losses on a scale we have never seen before in our lifetimes.

I have had it with Pollyanna conservatives who continue to parrot the “fundamentals of the market are great!” line.

The fundamentals of the market suck. The fundamentals of capitalism have been sabotaged.

Yes, yes, crony Democrats are to blame for much of how we got here. You don’t need to recite all the talking points back to me. I’ve been writing about the Fannie/Freddie debacle for years.

But it is September 19, 2008. And this is a Republican White House presiding over the Mother of All Bailouts. Every step along the way since stimuluspalooza began last summer, we’ve heard that every bailout step was just a one-off. Each step was supposed to calm the markets. Each new government intervention and allocation of taxpayer dollars was supposed to achieve “stability.” Each new package of goodies rewarding irresponsible behavior and bad financial decisions was supposed to prevent new ones.

None did. And now, here we are.

This is your Bush legacy — not Pelosi’s, not Reid’s, not Obama’s: A ginormous bailout of every last, failing, panicked financial institution’s illiquid assets that may reach into the trillions — TRILLIONS — when all is said and done.

Reader John in Venice, CA e-mails: “Going forward there is no debate a conservative can win when pitted against a liberal wanting to spend money on social programs. What would the argument be against spending money on terrible social programs? Government money does not work? Conservatives who are supporting this welfare bailout are no different than Maxine Waters or Barbara Boxer. We have lost. Conservatism has absolutely no more moral high ground to speak from.”

Fiscal conservatism has been on life support for quite some time. Bush/Paulson pulled the plug permanently today.

On September 22, 2008, I wrote “Why Henry Paulson must be contained:”

Both parties in Washington are about to screw us over on an unprecedented scale. They are threatening us with fiscal apocalypse if we don’t fork over $700 billion to Treasury Secretary Henry Paulson and allow him to dole it out to whomever he chooses in whatever amount he chooses — without public input or recourse. They are rushing like mad to cram this Mother of All Bailouts down our throats in the next 72-96 hours. And right there in the text of the proposal is this naked power grab: “Decisions by the Secretary 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.”

Stop.

My question for fellow conservatives: Do you trust this man?

I don’t.

Do you trust Hank Paulson’s judgment?

I don’t.

Listen to what he said about the subprime crisis in April 2007:

U.S. Treasury Secretary Henry Paulson said…the housing market correction appears to be at or near its bottom and that troubles in the subprime mortgage market will not likely spread throughout the economy.

“We’ve clearly had a big correction in the housing market. Retail housing was growing for some time at a level that was not sustainable,” Paulson said in a speech to The Committee of 100, a business group in New York promoting better Chinese relations.

“I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained,” he added.

Listen to what he said about the subprime crisis in May 2007:

JIM LEHRER: One final question, and a third subject. How worried are you about the slump, so-called slump in the housing market in the United States right now? And what kind of damage, if any, is it doing to the economy?

HENRY PAULSON: Well, let me say this. As you’ve pointed out, we’ve had a major housing correction in the U.S. The U.S. economy had been growing at a rate that was unsustainable and, in housing, it had clearly been growing at a rate for a number of years.

That correction was inevitable; that correction has now been significant. We think it is near the bottom. It will take a while to work its way through the system. Fortunately for us, we have a very diverse, healthy economy. There are other things that are positive that are offsetting that.

…So my very strong view is that we are near the bottom and that this will be contained as — the housing will be contained, and we’re fortunate that we have a diverse, healthy economy.

Listen to what he said about the subprime crisis in August 2007 while on a trip to Beijing (more on Paulson’s ChiCom ties in a moment):

Treasury Secretary Henry Paulson said on Wednesday the repricing of credit risk was hitting financial markets, but U.S. subprime mortgage fallout remained largely contained due to the strongest global economy in decades.

Speaking to reporters in Beijing, where he ran into stiff resistance in persuading Chinese officials to let the yuan strengthen more quickly, Paulson said markets were unwinding excesses in U.S. mortgage and leveraged buyout financing.

European and Asian stocks tumbled on Wednesday following a sharp drop in U.S. shares on Tuesday, after American Home Mortgage Investment Corp. said it might have to liquidate assets, fuelling worries over problems in the subprime mortgage market spilling over into other sectors.

“The market has focused on this. There’s a wake-up call, and there’s an adjustment to this repricing of risk, but I see the underlying economy as being very healthy,” he told reporters before leaving Beijing.

Paulson added that he did not see anything that caused him to reconsider his view that the economic damage from the housing correction was “largely contained,” despite losses in a number of financial institutions and a long period for subprime issues to move through the economy.

Here’s Paulson in October 2007 assuring us that he had no interest in government bailouts while touting the economy’s health again:

Paulson: Subprime help needed – but no bailout

Treasury Secretary Hank Paulson is walking a fine line, pushing the need to help troubled mortgage borrowers without rewarding past risky behavior.

I have no interest in bailing out lenders or property speculators. Still, we must recognize the very real harms to families affected by the housing downturn,” Paulson said in prepared remarks for a speech given Tuesday at Georgetown University.

…Although the speech seemed to mark a step up in activism on the part of the Treasury Department, Paulson was quick to point out the limitations of the government’s approach during the question and answer following the talk.

Referring to HopeNow, he said, “This is a 100 percent market-based solution. I believe in markets. The government is doing nothing here but facilitating people coming together.”

Paulson also downplayed the possibility that the housing crisis could plunge the nation into recession. “I’ve seen turbulence in the market a number of times and I can’t think of any situation where the backdrop of the global economy was as healthy as it is today,” he said.

And here’s Paulson in May 2008 declaring the credit crisis on the wane:

The credit crisis that has scorched international financial markets is on the wane but more shocks are ahead, U.S. Secretary Treasury Henry Paulson told the Wall Street Journal in an interview published on Wednesday.

‘The worst is likely to be behind us,’ Paulson told the paper, in one of the most optimistic comments by a top U.S. finance official since sub-prime mortgage losses set a domino effect in motion in mid 2007.

Paulson said it would take ‘some months longer’ for the situation to stabilize and cautioned there would likely be further ‘bumps along the road’.

Yeah. A freaking $700 billion bailout bump. That’s all. Guess that little detail just slipped his mind.

On Sept. 15, Paulson was patting himself on the back for refusing to “put taxpayer money on the line” to rescue Lehman Brothers. On Sept. 16, just a day after drawing a line in the bailout sand, Paulson teamed up with the Fed’s Ben Bernanke to engineer the $85 billion federal bailout of AIG. And on Sept. 19, he was telling Americans that “hundreds of billions of dollars” — their dollars — were needed to “be big enough to make a real difference and get at the heart of the problem” and “stabilize the system.” This is on top of the estimated $200 billion in capital and credit lines committed by Paulson to Fannie Mae and Freddie Mac — capital that he had promised he wouldn’t be injecting into those two government-sponsored entities in August ( “We have no plans to insert money into either of those two institutions.”)

***

Now: Who is Paulson looking out for? A quick review of the Treasury Secretary’s record, political activity, and business priorities makes clear: He ain’t looking out for you.

Paulson has positioned himself as a champion of transparency. Me, too. Let’s shed some light on the man who wants total control over $700 billion of your money.

Robert Novak called attention to Paulson’s Democrat DNA last October. It’s worth reminding you of Paulson’s instincts and the liberal allies he has installed at the Treasury Department:

…[T]he former Goldman Sachs CEO does not act or sound much like a conservative Republican to the GOP remnant at the Treasury. “It’s not in Hank Paulson’s DNA,” one official told me. Is he loyal to Bush? “Hank is for Hank,” he replied.

Paulson marched to his own drummer… by naming Eric Mindich, chairman of Eton Park Capital Management, to head the Asset Managers’ Committee of the President’s Working Group on Financial Markets. A former Goldman Sachs colleague of Paulson’s, Mindich is a top-level Democratic fundraiser. He was in Sen. John Kerry’s inner circle for the 2004 presidential campaign and backs Sen. Barack Obama for 2008.

Republicans in the administration were amazed that the White House acquiesced in appointing a Democratic activist to lead a group “to develop best practices” for asset managers. These critics wonder why President Bush did not ask Paulson why he could not name a Republican financier for this position…[A] Treasury spokesman replied that “we were looking for somebody who is well respected in the industry” to fill what is “not really a political position.” By that measure, no Treasury job can be considered political.

That includes Bob Steel, under secretary for domestic finance…Brought to the Treasury by Paulson a year ago, Steel is a retired Goldman Sachs vice chairman who worked there with Rubin and Paulson. Federal Election Commission records show no political contributions by Steel since the 2002 cycle, when he gave exclusively to Democrats (including Sen. Charles Schumer of New York). Steel, who is Board of Trustees chairman of Duke University in Durham, N.C., contributed to the North Carolina Democratic Party and its Senate candidates, Dan Blue and Erskine Bowles.

Although Paulson was a generous Republican contributor and prodigious Bush fundraiser (over $100,000) in the 2004 cycle, his earlier political giving was more varied. He contributed to Bill Clinton in 1992, Democrat Bill Bradley’s 2000 presidential campaign, the feminist Emily’s List and Wall Street’s favorite Democrat, Chuck Schumer. Most of the Paulson family’s Democratic contributions come from the secretary’s wife, Wendy, who has supported Hillary Clinton.

All this was known to Bush in May 2006 when he tapped Paulson as a Treasury chief who would command respect on Wall Street. It should be no surprise then that he is regarded in his own administration as less a true Republican secretary than a transition to the next Democratic Treasury — a trademark of a lame-duck regime.

Paulson is also an activist eco-zealot who pushed Gore-esque, mandatory global warming reduction schemes as head of the Nature Conservancy and while at Goldman Sachs. From a 2006 WaPo profile touting Paulson’s green pedigree:

“It isn’t every day that the Sierra Club finds itself welcoming a nomination to George W. Bush’s Cabinet while ultraconservatives decry the move,” said Carl Pope, the Sierra Club’s executive director.

“But on issues like global warming, Hank Paulson appears to favor managing risk rather than cooking the books,” Pope said. “It is heartening that someone of Mr. Paulson’s stature in the financial world is willing to say that immediate action must be taken to combat global warming.”

Last year under Paulson’s direction, Goldman Sachs issued an eight-page position paper on environmental policy, saying it accepts a scientific consensus, led by United Nations climate experts, that global warming poses one of the greatest threats this century.

Like Bush, the Goldman Sachs statement endorsed a market for businesses to buy and sell rights to emit greenhouse gases, saying it will spur technology advances by companies “that lead to a less carbon-intensive economy.” But, it added, “Voluntary action alone cannot solve the climate change problem,” a position contrary to the Bush administration’s view.

The Nature Conservancy, under Paulson’s direction, likewise supports a mandatory approach. It supports legislation by Sens. John McCain, R-Ariz., and Joe Lieberman, D-Conn., to cap U.S. greenhouse gases at 2000 levels, within five years. The Senate defeated the measure last year.

Then there are Paulson’s longtime ties to the ChiComs. The Center for Security Policy’s Frank Gaffney blew the whistle during Paulson’s confirmation hearings in 2006. Prescient as always, Gaffney foresaw the very national security and economic conflicts of interest that now cloud the Paulson bailout plan. Paulson’s China promotion and profiteering are all the more relevant given the clamoring of foreign banks for a piece of the monster bailout action — and Paulson’s confirmation yesterday on ABC’s “This Week” that foreign-based banks would not be excluded:

Under Mr. Paulson’s leadership at Goldman Sachs, the company has been instrumental to the growth of Chinese economic power and particularly to its penetration of Western capital and other markets. He has been directly involved in developing his firm’s relationships with the PRC, priding himself on having made 70 trips there since late 1991. Consider just a few of the deals Goldman has managed, underwritten or otherwise facilitated under Henry Paulson’s leadership:

In 2005, Goldman Sachs not only advised the China National Offshore Oil Corporation (CNOOC) in its attempted takeover of Unocal. It also strove to ensure that the Chinese state-owned company’s bid prevailed after ChevronTexaco offered $17 billion in an effort to keep Unocal in U.S. hands. CNOOC was able to up the ante to $18.5 billion for the American concern, thanks to a bridge-loan Goldman Sachs arranged (along with J.P. Morgan). Fortunately, despite the assiduous efforts made by Mr. Paulson and his firm to secure Unocal for Communist China, the American people and Congress strenuously opposed the transaction, leading ultimately to its derailing.

In late January 2006, Goldman Sachs purchased a stake in the Industrial and Commercial Bank of China (ICBC), China’s biggest bank, for $2.58 billion. According to press reports, Mr. Paulson’s personal stake in this transaction was $25 million.

This is but one of many such state-owned banks the Chinese are interested in bringing to Hong Kong and other Western capital markets. As I told the U.S.-China Economic and Security Review Commission last August:

These are foreign government-owned entities, not private firms. The Chinese government appears to be actively working with leading international banking houses [notably, Goldman Sachs] to shape the appearance, assets, liabilities, profit margins and public relations tactics of these state-owned enterprises.

Despite such efforts, the PRC seems simply to be dressing-up what were, until recently, insolvent banks in the hope that international capital markets will contribute to bailing them out. This process involves the off-loading of non-performing loans onto asset management companies in a fashion very reminiscent of the U.S. savings and loan crisis. Indeed, the PRC appears, in fact, to have modeled its strategy on the American experience.

No less worrisome is the fact that these banks’ assets include not only its non-performing loans, but also the loans made to various Chinese enterprises of grave concern to the United States, including elements of the PRC’s military-industrial complex; entities involved in the manufacture and perhaps the proliferation of weapons of mass destruction and their delivery systems; human and labor rights abusers; environmental despoilers; etc.

Speaking of banks, in May 2006, Goldman Sachs helped with the underwriting of the Bank of China’s IPO, listing $9.7 billion worth of its shares on Hong Kong’s stock exchange. Among other problematic activities the Bank has engaged in has been the financing over the past fifteen years of extensive infrastructure projects like dam-building for the mullahocracy in Iran.

…It seems predictable that a man with Henry Paulson’s background, track record and relationships with Communist China will play a worrisome role in U.S. government deliberations. Unless he recuses himself from involvement in the following sorts of issues, Mr. Paulson assuredly will be participating in and exercising great influence over far-reaching decisions in which he has a vested policy, if not financial, interest. These will likely include, for example:

Contending with China’s ongoing manipulation of its currency which it uses to help sustain its advantageous trade relationship with the United States;

Addressing the strategic implications of the PRC being the largest holder of U.S. debt;

Considering the need to impose economic and perhaps other sanctions on Chinese proliferators, not at the subsidiary level (as has been done to date) but against their parent companies, when some of the latter may include Mr. Paulson’s former clients;

Allowing China to purchase strategic U.S. companies and assets;

…Since Communist China’s interests and those of the United States are likely to diverge ever more sharply in the years ahead, the very least that should be required of Paulson is that he recuse himself from involvement in matters of interest to the PRC. Unfortunately, as the foregoing list suggests, since China’s interests and activities figure so prominently in the Treasury portfolio, such a recusal would reduce the job to a part-time one.

In the absence of such a recusal, however, Paulson’s China-related work at Treasury will require an extraordinary level of transparency and accountability by members of Congress, the media, and the American public. We must be assured he is working for us in this job, not for Communist China as he did so successfully in the last one.

…One last item if all this wasn’t enough to stop your heart. This is Paulson on “Face the Nation” yesterday:

Mr. Paulson said he hoped that the government would recoup much of the cost of buying distressed mortgage-related assets. But he did not rule out that the initial cost of the bailout could rise beyond $700 billion, the limit set in the terse proposal sent by the Treasury to Congress on Saturday.

“That doesn’t mean we’ll go all the way there, or it doesn’t mean it will stop there and we won’t ask for more,” Mr. Paulson said on the CBS program “Face the Nation.” “What we need is something that is big enough to get the job done. We’ll ask for what we think is a right amount to give us plenty of flexibility.”

And now, Washington is on the verge of handing this man unchecked power to grab $700 billion-plus in taxpayer money to stabilize a market he said was “healthy” in order to fix a crisis he said had been “contained” more than a year ago?

Henry Paulson must be contained.

On November 14, 2008, I wrote about the Naked Emperor Paulson and his flock of sheeple in Washington:

Treasury Secretary Hank Paulson finally confirmed what lonely bailout opponents tried to tell the American public all along: The man doesn’t know what the hell he’s doing.

Paulson held a bazooka to taxpayers’ heads. He groveled on his knees in front of Democratic House Speaker Nancy Pelosi. He lured leaders from both political parties into linking arms in a panicked Chicken Little line dance for the beleaguered mortgage industry. Paulson demanded an unprecedented $700 billion troubled assets relief program for the good of the country. For the health of the housing market. For the survival of the economy. No time for deliberation. No time to review the failures of such interventionist approaches around the world. Now, now, now!

And now? The pulled-out-of-the-posterior “$700 billion” price tag has ballooned into the trillions. The “mortgage industry rescue” has expanded to banks, insurance companies, automakers, credit card companies, and possibly the entire national volume of consumer lending. Oh, and that vaunted “TARP” component, Paulson admitted this week, is nothing but a four-letter-word that rhymes with TRAP.

In September, Paulson offered his lofty pledge: “The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars. I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.” Two months later, Paulson’s conviction melted faster than microwaved butter. “Our assessment at this time is that this is not the most effective way to use TARP funds,” he sheepishly told the nation Wednesday.

Hey, who died and put Emily “Never mind” Litella in charge of the economy?

Paulson explained at his non-mea culpa press conference that he knew when the bailout was signed that it wasn’t going to work as sold: “It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem.”

Now he tells us? Would have been nice if he had made this clear — quickly, forcefully, and publicly — to the Beltway stooges who were pulling the TARP over our eyes. So much for Paulson’s earnest transparency commitments on the Hill.

Members of Congress who let themselves be bullied into switching their votes on the bailout should be experiencing the biggest case of buyers’ remorse in U.S. history. They fell for what Nobel Prize-winning economist F.A. Hayek called “the fatal conceit” — the disastrous idea that a federal bureaucrat has the knowledge to do a better job than the private market in organizing and directing an economy. They gave unchecked power to a single government official without a clue. Wielding his enormous authority, Paulson is desperately throwing our money at banks in a futile attempt to convince them to lend. Instead, those banks are either hoarding the cash or acquiring more assets. In other words: Paulson is helping the banks that were “too big to fail” grow even bigger with taxpayer backing. Swell.

On December 18, 2008, Paulson lied again — reneging on his assertion that he wouldn’t seek the second half of the TARP dough.

Now comes word from the TARP Inspector General Neil Barofsky that Paulson lied about the health of nine banks clamoring for bailout funds:

The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, a government watchdog states in a new report released today.

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (SIGTARP), says that despite multiple statements on Oct. 14 of last year that these nine banks were healthy and only receiving government funds for the good of the country’s economy, federal officials knew otherwise.

“Contemporaneous reports and officials’ statements to SIGTARP during this audit indicate that there were concerns about the health of several of the nine institutions at that time and, as detailed in this report, that their overall selection was far more a result of the officials’ belief in their importance to a system that was viewed as being vulnerable to collapse than concerns about their individual health and viability,” Barofsky says.

Last October, the government was in the midst of trying to contain the worst financial crisis in decades. On Sept. 7, 2008, mortgage giants Fannie Mae and Freddie Mac were placed under conservatorship. On Sept. 15, the massive investment bank Lehman Brothers filed for bankruptcy. The next day, insurance giant AIG needed an $85 billion government loan to avoid collap

On Oct. 13, after Congress had passed the $700 billion financial bailout program earlier that month, Treasury provided capital injections for nine institutions that together held over $11 trillion in assets: Bank of America, Citigroup, Wells Fargo, JP Morgan Chase, Goldman Sachs, Morgan Stanley, Merrill Lynch, State Street and the Bank of New York Mellon. As of June 2008, these nine banks accounted for around 75 percent of all assets held by U.S. banks.

In announcing the initial $125 billion provided to these banks, former Treasury Secretary Hank Paulson on Oct. 14 said, “These are healthy institutions, and they have taken this step for the good of the U.S. economy. As these healthy institutions increase their capital base, they will be able to increase their funding to U.S. consumers and businesses.”

…In a letter to Barofsky, the Fed’s General Counsel agreed with the report’s findings, noting that “an important lesson illustrated by the events that shocked the financial systems over the past two years is that transparency and effective communication are important to restoring and maintaining public confidence, especially during a financial crisis.”

The lesson for Washington is that Chicken Little lawmakers need to get a grip when habitually wrong-headed financial “geniuses” declare an economic apocalyse — and must resist the urge to throw money at them in fits of hysteria while railroading the deliberative process.

The lesson for taxpayers is that they need to elect lawmakers whose spines won’t turn to Jello whenever the Treasury Department’s Goldman Sachs/Citi cronies come knocking.

There weren’t enough Joe Wilsons last fall in the halls of Congress to scream the bloody obvious to Paulson and his pals: “YOU LIE!”

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