Readers of this essay should be warned that the author is completely at sea when it comes to understanding what is taking place in Washington on the so-called bailout or now called the rescue package. I have no clue as to how the bailout package should work but there is consolation in the fact that neither does anyone else. That of course includes the President of the United States who long ago has taken his hands off the wheel as this country is proceeding down the freeway at breakneck speeds. Be that as it may, perhaps it is well to recite a few facts that have to do with the financial stability of all of us.
Henry Paulson is alleged to be the Secretary of the Treasury in this formerly grand country of ours. We can hardly call it a grand country anymore with the till in the back room showing zero and the ledger sheets showing minus zero. Mr. Paulson came to be Secretary of the Treasury after he had served as Chairman of Goldman Sachs, the mammoth investment firm. It is alleged that Paulson’s private fortune comes to somewhere in excess of five hundred million dollars. That is substantially more than essayists’ bank accounts reflect.
Sometime around September 15, Secretary Paulson’s hair caught on fire and he ran to the Congress to warn that the banking system in this country was about to be bankrupt. There was a great urgency in what Secretary Paulson had to say to the leaders of the Congress as well as to members of the Bush Cabinet, for whom Paulson produced a three-page memo that he wished to turn into a bill from Congress. That bill said that Secretary Paulson should be given $700 billion of your tax dollars and, interestingly, one provision in the little memo stated that there should be no oversight whatsoever. In effect, Secretary Paulson was to be given $700 billion to use as he saw fit. You may recall that the memo was turned into a bill of several hundred pages which was initially turned down. After adding some pork to the bill, it was passed.
The theory in Secretary Paulson’s view was that there were mortgages which he called toxic, which were clogging the system. His theory was that once these mortgages were removed, using his $700 billion kitty, the financial system would return quickly to normal, with the banks being able to lend to each other as well as to grant loans to individual borrowers and businesses. The key to Secretary Paulson’s idea was to remove these toxic mortgages, which were poisoning the whole system.
To help Secretary Paulson with his work, he brought in young man from Goldman Sachs named Neel Kashkari, who would do the financial wheeling and dealing. Mr. Kashkari may be a brilliant fellow as far as Mr. Paulson is concerned, but no one else has yet to find that out. In any case, we are told that Mr. Kashkari, who is in his early 30s and has the grand total of six years’ experience in the financial business, was given the direction to use the $700 billion to buy these toxic mortgages. This is an extraordinarily heavy responsibility for a man who has only six years experience in the financial community.
When the so-called toxic mortgages stayed in place and presumably continued to block the drainage system in our financial structure, Mr. Kashkari and Mr. Paulson seemed to turn to other devices to work their magic. Apparently the toxic mortgages were forgotten. Somewhere along the line, nine favored banks were given something like $50 billion on the theory that they would then begin to make loans not only to other banks but also to consumers. As it turns out, the banks took the billions of dollars and promptly refused to lend to other banks or consumers but instead set out to buy other banks. At this point, Secretary Paulson,
Mr. Kashkari, and President Bush should have said, “What the hell is going on here?” It is not clear in my mind that the favored banks, who were given the billions of dollars, even thanked the administration and Secretary Paulson.
It is now about two months since Secretary Paulson sounded the frantic alarm about the banking system and, if anything, we stand infinitely poorer than we were when Mr. Paulson’s hair was on fire. The stock market is down some 3,000 points and the joke is being heard that the 401(k)s are now 201(k)s. There is no humor in this situation in that lifetime savings are evaporating on a daily basis.
On Friday, November 14th, Mr. Paulson changed his mind about the toxic mortgages and announced a new proposition where he would loan money to various entities such as the credit card companies. He conceded under questioning that he apparently no longer wishes to deal with the so-called toxic mortgages but instead is casting about for some other means of solving this crisis. Mr. Kashkari appeared before the House committee and was totally eviscerated by such stalwarts as Dennis Kucinich, the former Mayor of Cleveland and former Presidential contender. Mr. Kashkari was told by Dennis Kucinich that it was clear that he knew nothing about what was going on. Neel Kashkari did not join in that assessment but objective observers agree that Kucinich’s view was precisely on point.
At the same time Secretary Paulson appeared on Jim Lehrer’s NewsHour program and was so fouled up in what he was trying to enunciate that even Jim Lehrer, the most moderate of questioners, became impatient with Paulson. Those who know Lehrer will tell you that his questioning of the Secretary would lead to the belief that he was telling the Secretary that he [Paulson] was out in left field and knew nothing about what was taking place.
It is at this point that I am attempting to dictate this essay and I hope that you are as confused as I am in trying to figure what our bailout package is supposed to do. I am told that the word “bailout” is out of style and should be replaced by the phrase “rescue package.” That really makes no difference because it is so confusing because Secretary Paulson and Mr. Kashkari simply are, as we used to say, “lost balls in tall grass.”
There is one other parallel that might fit this situation. During the Second World War, the term “snafu” came into general use. That was an acronym and it signified “Situation Normal All Fouled Up.” As you may imagine, soldiers such as myself used the “f” word instead of “fouled” but my seminary training would not permit me to put that horrid word in print. In assessing where we stand at this moment, I would say that snafu is much too mild a term. There was a second acronym that, in the latter stages of the war, was used not only by American troops but also by our British friends. That term was “fubar.” It stands for “Fouled Up Beyond All Recognition.” My case rests on the belief that with respect to our financial condition, fubar clearly applies. I can think of no other word that aptly describes where we are.
And so it is that Paulson’s follies really have turned into a burlesque. The crowning act in that burlesque has to do with twenty nations from around the world coming to Washington this weekend to have a dinner with George Bush and get the word directly from him as to how this is to be fixed. Anyone who believes that George Bush knows how to fix this financial situation is on a fool’s errand. In a speech earlier this week, our beloved President told us that the problem was not in government oversight of the market but that, in effect, the market should be ready to operate as it saw fit and would become self-correcting. This is a lot like his view on the war in Iraq, where we are told that the only way to attack that problem is to “stay the course.”
I know that this has been a confusing essay to read, just as it has been a confusing essay to write. But the facts are the facts and, as an old soldier, I am forced to tell you that the only applicable term for the follies of Secretary Paulson is fubar a thousand times over.
E. E. CARR
November 15, 2008
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Yeah, I dunno. Seems like an okay initial thought with some poor follow-through. Normally the idea with stimulus packages is that if the government spends a lot of money, that money goes into the pockets of the citizenry, who turn around and spend it or save it or whatever. If they spend it, it’s going into the pockets of other citizens, and if they save it then banks get to lend it out to people. This sort of primes the pump for the normal cycle of spending and lending which keeps the economy growing but in 2008 that wasn’t really enough.