Why did Geithner and Paulson so strongly favor the banks during the bailout?

Besides cozy relationships, it's hard to explain why both the Bush and Obama administrations were so friendly to the banks yet so harsh with AIG and Chrysler. Wouldn't it be nice is either of the two administrations were honest with the public about their reasons for favoring the banks that delivered the global recession? The long term love affair hasn't even ended regardless of who is sitting in the White House, unfortunately.

The documents also indicate that regulators ignored recommendations from their own advisers to force the banks to accept losses on their A.I.G. deals and instead paid the banks in full for the contracts. That decision, say critics of the A.I.G. bailout, has cost taxpayers billions of extra dollars in payments to the banks. It also contrasts with the hard line the White House took in 2008 when it forced Chrysler’s lenders to take losses when the government bailed out the auto giant.

As a Congressional commission convenes hearings Wednesday exploring the A.I.G. bailout and Goldman’s relationship with the insurer, analysts say that the documents suggest that regulators were overly punitive toward A.I.G. and overly forgiving of banks during the bailout — signified, they say, by the fact that the legal waiver undermined A.I.G. and its shareholders’ ability to recover damages.

“Even if it turns out that it would be a hard suit to win, just the gesture of requiring A.I.G. to scrap its ability to sue is outrageous,” said David Skeel, a law professor at the University of Pennsylvania. “The defense may be that the banking system was in trouble, and we couldn’t afford to destabilize it anymore, but that just strikes me as really going overboard.”

“This really suggests they had myopia and they were looking at it entirely through the perspective of the banks,” Mr. Skeel said.

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Congressional Oversight Panel rips AIG bailout

The fingers are being pointed directly at Hank Paulson during the Bush administration and the Federal Reserve which would be Tim Geithner at that time and location. Taxpayers will never see their return on this and Goldman is still getting a free ride from the billions they had riding on that deal. Paulson was of course the former CEO of Goldman Sachs.

The federal government didn't exhaust all its options before it committed tens of billions of taxpayers' dollars to bail out the American International Group during the height of the 2008 financial collapse, according to a new report from a congressional watchdog panel.

The Congressional Oversight Panel , which was created to monitor the spending in the 2008 bank bailout bill known as the Troubled Asset Relief Program, or TARP, detailed in its latest monthly report the government's extraordinary rescue of AIG and its lingering effects on taxpayers and the financial markets.

AIG, once one of the largest and most successful insurance companies in the world, collapsed in 2008 when it couldn't meet the collateral demands of its customers. The firm, the oversight panel said, had an "insatiable appetite for risk" but a "blindness to its own liabilities."

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Paulson: Banker's pay 'out of whack'

If only he had been in a position to influence the problem while at Goldman or running Treasury. CNBC:

Paulson has a new book on the crisis called "On the Brink: Inside the Race to Stop the Collapse of the Global Financial System."

"What I say in the book is that when I ran with Goldman Sachs, even during benign times, I had felt the compensation in the industry seemed out of whack, and I would occasionally go off in partners meetings and say something to the effect, 'I hope you guys all understand,' and remind them, 'people don't like you. Very few people do,'" Paulson told CNBC.

"When the government did what it did and saved the entire financial system … these paychecks just seem so out of whack and out of tune with what's going on with the public," he added.

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Paulson says 25% unemployment without AIG bailout

The bailout of Wall Street was necessary but that overlooks the problems with the implementation. As they say, the devil is in the details. Paulson and Geithner gave away everything and missed the perfect opportunity to demand accountability across Wall Street when they dumped trillions into the Wall Street coffers. Giving money without strings is the issue. If anyone would know this, it would be Paulson. Surely he never gave away money like that when he was running Goldman. A Wall Street insider who has his own mound of cash from deals knows that the time to ask for demands is during the transaction and not after when it's signed. Claiming otherwise only reinforces his arrogant attitude because people are not that stupid.

Bailing out Wall Street is only an issue today because it was so poorly handled. Paulson's "25% unemployment" is a diversion from the real issue which continues to infuriate everyone. Well, almost everyone. Paulson's response underlines why people dislike and distrust him.

"If the system had collapsed millions more in savings would have been lost," said Paulson, who was Treasury Secretary at the time of the bailout, at a hearing. "Industrial companies of all size would not have been able to raise funding and they would not have been able to pay employees, this would have rippled through the economy."

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Paulson was right to play hardball with BofA

The mistake that he (and Geithner) made was caving once the cash was handed over to do the deal. Both failed to go the distance. There is nothing wrong at all with getting tough with CEOs including threatening them with losing their jobs during such times. The US taxpayer had enough of an investment in the banks to demand change so it's a non-issue. Shareholders deserve the right to make demands and money talks. The same applied for GM when Obama sacked Wagoner though for some reason, Obama does not want to let regular shareholders have this right. One of these days the Obama administration is going to have to come around to giving shareholders a true voice in the process.

Former U.S. Treasury Secretary Henry Paulson said that he acted appropriately in warning Bank of AmericaChief Executive Kenneth Lewis that top executives could be ousted if they walked away from a merger with Merrill Lynch.

While Paulson acknowledged in testimony prepared for delivery to a congressional panel on Thursday that he told Lewis the Federal Reserve could oust the bank's management and board if it walked away from the deal, he said Fed Chairman Ben Bernanke never instructed him to indicate to Lewis any actions the Fed might take.

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Paulson didn't understand complex securities

And why would he? So what if that's what plumped up his fat bonus money while at Goldman Sachs. Heck, I doubt anyone on his team ever could have figured out this market either. Why would they even bother to have anyone around with such knowledge? The Paulson imagine repair tour may have hit a roadblock. The Atlantic:

I'd like to offer a bit of analysis, but all I've got is bewilderment. The reason I find the revolving door between Wall St. and Washington somewhat acceptable is that I think it's important that those who govern Wall Street understand it. But Paulson, by his own admission, didn't really. Think about this: A guy whose $46 million compensation package was made possible by leaving during Goldman's mortgage-security boom "was not paying much attention" to the mortgage-security boom! I don't know if Paulson is fibbing, or if mortgage-securities were such a specialized and esoteric money machine that basically nobody understood what was going on, but either way, this seems devastating.

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WSJ report: Bank of America CEO told to be quiet about Merrill Lynch

If this story is true it is very disturbing and raises many questions about Henry Paulson and Ben Bernanke, again. The other problem that this story raises is where has Congress been? As much as I think Andrew Cuomo is fantastic and exactly who we need to move this mess along it's hard to imagine where Congress has been. What are they doing? Are they so deeply tied to Wall Street that they can only put together made-for-nightly-news TV clips with snappy questions? Those meetings in front of TV cameras are consistently a big waste of time because they rarely accomplish anything other than keep the faces of a few in the nightly news reports. Great personal PR but what about follow through that benefits the public?

Meanwhile, Cuomo is getting the goods and will make the information public later today.

The Journal said in Thursday's edition that Lewis doesn't say in the transcript that he was told specifically to remain silent about Merrill's burgeoning losses. But the paper quotes Lewis as testifying that disclosing that information "wasn't up to me," and that he was warned by Paulson and Bernanke that failing to complete Merrill's takeover would "impose a big risk to the financial system."

Citing a person familiar with the matter, the newspaper said Paulson told the NY AG's office last month that Lewis may have misread some remarks about Treasury's disclosure requirements as instead pertaining to his bank's obligations.

The government helped orchestrate the acquisition of Merrill by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under and insurer AIG received its initial government support. Both the government and Wall Street were under substantial pressure to contain the financial meltdown.

It may even be worth calling in Paulson to speak in front of the cameras one more time just to see the look on his face. Read More......

Lord Paulson's hedge fund may have made $67 million in 25 minutes

It's good to be da' king, or even a Lord.

Paulson & Co., the hedge fund run by billionaire John Paulson, may have made as much as $67 million in 25 minutes today as Lloyds Banking Group Plc lost about 5.9 billion pounds ($8.5 billion) in market value.

Lloyds fell the most in 20 years after saying HBOS Plc, the U.K. lender it took over last month, would report a 10 billion- pound pretax loss. The shares plunged as much as 43 percent in less than 25 minutes of London trading.

Paulson, who made billions from betting against the subprime mortgage market, held a Lloyds short position representing 0.79 percent of the bank, or 129.3 million shares, as of Jan. 20, according to a regulatory filing. DataExplorers.com, which tracks share borrowing from London, said 1.1 percent of the stock was on loan as of Feb. 11, the most recent data available. That’s down from as much as 8 percent six months ago and suggests Paulson held the bulk of the remaining short position.

“It wasn’t really shorted at all before this share drop,” Julian Pittam, a managing director at DataExplorers.com, said in an telephone interview from London. “There’s little upside and lots of downside in banks when there’s this much political rhetoric and volatility going on.”

Armel Leslie, a spokesman for the $30 billion New York-based hedge fund, declined to comment. There’s no indication that Paulson closed his short position, and there won’t be until a subsequent filing.

Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 on bets that subprime mortgages would plummet. Last year, his flagship fund returned 37 percent, compared with a loss of 19 percent for hedge funds on average.

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Brace yourself, but Bush may have overpaid for bailout

And yeah, maybe the Democrats could have played hardball better as well. When have Republicans not catered to big business? Who really thought Paulson wouldn't take good care of his friends on Wall Street? More from the AP:

The Bush administration overpaid tens of billions of dollars for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a new study by a government watchdog says.

The Congressional Oversight Panel, in a report released Friday, said last year's overpayments amounted to a taxpayer-financed $78 billion subsidy of the firms.

The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan, known as the Troubled Asset Relief Program. Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former Treasury Secretary Henry Paulson.

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Paulson talks, markets tank almost 700 points

My goodness, another horrible day on Wall Street. Can he just shut his mouth and stay away from a microphone until the grownups arrive? It seems like every time he says something - anything - the market drops hard. There are a lot of people out there who are counting the days until he's gone for good.

On top of that, we also are stuck with Bernanke who has managed to ignore recent history in Japan and still thinks we can rate cut our way into prosperity. Not. Going. To. Happen. There's only so much rate cutting that the Fed can or should do before it starts feeding the deflationary possibilities that are already floating around. I hope that they've identified his replacement and have that person ready to jump the second his term is up. Who knows. Maybe we will get lucky and Bernanke announce that he wants to spend more time with his family and resign. Read More......

Dutch insurer wants bailout cash to grow their business

Give me a break. What started as a necessity to keep US institutions afloat during troubled times is rapidly becoming a free for all as the corporate world filters through the legal details in order to game the system. In this instance, Aegon has already received billions from the Dutch government and now has plans to buy a US bank so they can rake in even more. What's even more annoying is that Aegon is doing this not because they are experiencing financial problems but because they want to expand. So US taxpayers have the honor of funding Aegon's business growth strategy.

Congress really needs to put the brakes on here and redefine the rescue plan. If we leave it up to Paulson, Wall Street will be wading through billions in bonuses and business will be expanding into the "too big to fail" category on the taxpayers dollar. There is a complete lack of control over this process and before Bailout II moves, Bailout I needs to prove that it is targeting the initial goal of preventing massive failure and not funding normal business growth. Read More......

Treasury rejects credit card debt, only Wall Street debt matters

As much as I am against credit card debt, I'm fed up with the double standards of Paulson and Bush. There are plenty of Americans who pushed debt onto credit cards because they were struggling to keep up and put food on the table or heat their homes. In the eyes of the Republicans, tough luck. For Wall Street millionaires Paulson can't do enough to help them out including his sneaky tax breaks that have been part of the GOP agenda for decades. I'm still waiting to see blood ooze out of the pores of Wall Street superstars and quite frankly, I don't see it ever happening. They're total failures yet people like Paulson can't stop coddling them and stepping on everyone else to make sure their bank accounts are properly balanced and bonuses arrive on time.

Federal bank regulators have rejected a request by banks and consumer advocates for a program to let lenders forgive huge portions of credit card debt.

The Office of the Comptroller of the Currency rejected the request for a special program that would allow as much as 40 percent of credit card debt to be forgiven for consumers who don't qualify for existing repayment plans.

An unusual alliance of financial industry interests and consumer advocates, represented by the Financial Services Roundtable and the Consumer Federation of America, made the request to the Treasury Department agency on Oct. 29. It demonstrated the urgency of the situation in a deepening economic crisis: consumers — even those with strong credit records — defaulting at high levels on their credit cards, while banks battered by the credit crisis bleed tens of billions from the losses.

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Paulson discretely eliminated bank taxes - banks to save billions

Who needs Congress when you have Henry Paulson there to save Wall Street at every corner? Every time I heard a Wall Street pundit tell everyone how fantastic Paulson was and how lucky we would all be if only he could be begged into staying, I wanted to be sick. The sooner he's gone, the better. It's in our national best interest to have a productive Wall Street but there are limits, not that Paulson or the GOP would know. Does the GOP always have to be so one-sided about everything? When they look back at why the US voted them out they can look at sneaky moves such as this as a typical case study in why the country was fed up with their attitude.

The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.

The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.

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52% of bailout to banks being paid in dividends to shareholders

This needs to be eliminated immediately. It's unacceptable to let banks pay shareholders dividends while they are being propped up on life support via taxpayer money. The "Treasury" people (hmmm, who could that be?) who are allowing this are trying the old spin, that if banks are unable to hand out dividends they would not participate in the plan to bail them out. Ummm, huh? Let's review, yet again, who is in control here. It's not the banks, it is the US government. Why is there so much fear about having a come to Jesus with the banks?

Critics, including economists and members of Congress, question why banks should get government money if they already have enough money to pay dividends -- or conversely, why banks that need government money are still spending so much on dividends.

"The whole purpose of the program is to increase lending and inject capital into Main Street. If the money is used for dividends, it defeats the purpose of the program," said Sen. Charles E. Schumer (D-N.Y.), who has called for the government to require a suspension of dividend payments.

The Treasury plans to invest up to $250 billion in a wide swath of U.S. banks in return for ownership stakes, which the government will relinquish when it is repaid.

Among other restrictions, participating institutions cannot increase dividend payments without government permission. They also are barred from repurchasing stock, which increases the value of outstanding shares.

The 33 banks signed up so far plan to pay shareholders about $7 billion this quarter. Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52 percent of the Treasury's investment over the initial three-year term.

Wow. 52% of the bailout for dividends. What was Paulson thinking? Read More......

Paulson not sure $250 billion bailout is worth executive pay limits

Now wait a minute. This is a pretty important point here and Lord Paulson is completely wrong. Paulson appears to be suggesting that Wall Street did everyone a favor by graciously accepting taxpayer money, so no, there's no link between the $250 billion and executive compensation. Maybe Congress can quit their ridiculous TV stunts that Waxman loves so much and instead address issues like this and assert their damned authority. (I say this as a person who likes Waxman, but hate the made-for-TV dramas. I don't think I'm alone in this sentiment either.) Congress needs to quit acting like a secondary player in this and step up, now. Also, if I hear one more Wall Street pundit tell me about how neutral Paulson has been when the evidence says the contrary, I'm going to scream.

Treasury officials have argued privately that banks aided this way should be exempt from the toughest executive pay restrictions in the rescue legislation passed by Congress.

Some lawmakers disagree.

"Restrictions on executive compensation will ensure that taxpayer money is not wasted enriching the same people whose poor decision-making created this crisis," Sen. Charles E. Schumer (D-N.Y.) wrote to Treasury Secretary Henry M. Paulson Jr. yesterday. "It is imperative that these restrictions, including limitations on the incentives for executives to take excessive risks and the elimination of golden parachutes, should apply to any capital injection program."

Exempting the banks in the program is "not in the spirit of the thing," said Rep. Spencer Bachus, (R-Ala.), ranking member of the Financial Services Committee.

Here we go...two Senators from opposite sides agree. Great. Let's see some action then. Read More......

Europe, Australia inject money into banks, markets surge

I was quite surprised this morning *not* to have read about Paulson injecting billions into the US banks and semi-nationalizing them. Waiting, as had initially been suggested, makes no sense because time is the enemy in this situation. The longer the process is delayed, the more loans back up and business stagnates. As this article states, the cash is helping today (Europe up 6% out of the gate) but it will not stop the recession. This is a necessary action but we still have more problems to come. The housing problem will continue and corporate earnings are bound to be soft for the next few quarters and beyond. Read More......

Paulson finally agrees to invest and buy into US banks

Waiting until the end of October made no sense at all. Do it now and stop the bleeding, or at least lessen it. Buy preferred positions in the banks so when the economy settles and turns around, taxpayers have something to show for their sacrifice.

In remarks to the media just concluded, Treasury Secretary Hank Paulson said the federal government will use the authority it has been granted by the $700 billion Wall Street bailout/rescue law to buy actual stakes in U.S. banks, in addition to merely buying troubled assets off their books.

The move is notable because it will give the federal government and, by extension, U.S. taxpayers, an actual ownership position in banks, effectively nationalizing them to a degree.

Under the original bailout/rescue plan, taxpayers would be only temporary owners of the troubled assets, which will be sold back into the private sector. And, indeed, the newly announced ownership stake may be temporary, as well.

"We can use taxpayer money more effectively, more efficiently, it will go farther, they will get more for their dollars and more protection if we develop a standardized program" for buying equity stakes, Paulson said.

Paulson was asked if Treasury will spend more money buying the troubled assets or buying equity stakes.

"I'm not willing to say anything today relative to the size of the two efforts," he said.

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Schwarzenegger seeks $7 billion from Paulson due to credit crisis

Once again showing that this crisis is well beyond just Wall Street. Business, individuals and even states are not receiving loans because the credit system has dried up. Even here in France, which has a radically different banking system and is less impacted by Libor rates, many businesses are unable to get loans these days. We are going to have to make some big changes to the system in the very near future and letting bank executives cash in on bogus paper being bought and sold has to be scrapped. Congress still needs to revisit the Wall Street execs who walked away with hundreds of millions and hold them accountable for this widespread disaster.

California Gov. Arnold Schwarzenegger, alarmed by the ongoing national financial crisis, warned Treasury Secretary Henry M. Paulson on Thursday that the state might need an emergency loan of as much as $7 billion from the federal government within weeks.

The warning comes as California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent.

The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch. If the state is unable to access the cash, administration officials say, payments to schools and other government entities could quickly be suspended and state employees could be laid off.

Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.

California finance experts say they know of no time in recent history when the state has sought an emergency loan of this magnitude from the federal government. The only other such rescue was in 1975, they said, when the federal government lent New York City money to avoid bankruptcy.

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Goldman Sachs average pay was $521,000 in 2005

And yes, that figures dates back to a report in early 2006 when Henry Paulson was still there running the show and making a comfy $38 million. It was a lifestyle that was never based on reality but now that the bill has arrived, taxpayers will get a splash of cold water reality in the face.

Last year, Goldman Sachs paid out $11.7bn (£6.7bn) to its 22,425 employees - around 3,000 of whom are in London.

Hank Paulson, the chairman and chief executive, was paid $38m in salary, shares and options - a 21 per cent increase on 2004. An average figure per staff member of $521,000 bursts through a barrier not even breached during the dot-com boom in 1999 and 2000.

This is a 12 per cent increase on the $466,000 average disclosed for 2004. It is twice the level of average pay at rivals Merrill Lynch and Morgan Stanley.

Wall Street banks are paying out a record $21.5bn in bonuses for 2005, according to New York State figures. That dwarfs 2004's $18.6bn and tops the previous record of $19.5bn in 2000. The average bonus in 2005 was $125,500 - some $25,000 more than in 2000.

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Bush administration thinks US taxpayers should bail out foreign banks too

Wow. I can't wait to hear how excited middle class communities in the heartland of America are to fund institutions such as Phil Gramm's elite Swiss bank UBS or a British bank that sends out its CEO who sounds like royalty and probably is. I don't recall my neighbors in Ohio caring much for the East Coast types so giving cash to support foreign workers who make more in a year than many in a lifetime sounds like a hard sell. Read More......