Paulson, the Treasurer of Wall Street

Published on
by
The Progressive

Paulson, the Treasurer of Wall Street

by
Matthew Rothschild

Is there anyone out there other than Ralph Nader, Dennis Kucinich, and Bernie Sanders who wonders about the conflict of interest that Henry Paulson has been displaying lately?

It doesn't seem to bother Paulson any.

You didn't see him recusing himself from decisions that have a direct bearing on Goldman Sachs, the firm he used to run.

In fact, he just announced the he was going to ladle out $10 billion to Goldman Sachs, along with another $115 billion to six other financial institutions.

Now maybe it's necessary to stabilize the markets, I don't know. But it sure smacks of favoritism. After all, he let his old competitor Lehman Brothers go down the tubes.

And beyond the appearance of favoritism to Goldman Sachs, there's his indisputable favoritism to Wall Street in general.

He and us are bailing out Wall Street, and we're barely getting anything in return.

Though we're buying a financial stake, Paulson is not demanding a change in management, much less a say.

He's not requiring the banks to halt foreclosures, or to freeze interest rates on subprime mortgages.

And he's not requiring them to stop dealing in the derivatives and credit default swaps that caused the crisis in the first place, even though Senator Charles Schumer of New York urged him on Monday to ensure that the banks engage in "safe and sustainable, rather than exotic, financial activities."

The only thing Paulson insisted on was a limit on executive pay and golden parachutes. This cheap demand, originating from Democrats, played to the understandable resentment the American public has toward the multimillionaires on Wall Street. But trimming their pay hardly gets at anything systemic.

The banks came hat in hand on Monday and agreed to this infusion of public money. And why not? The barons of Wall Street weren't forced to give up anything big in exchange.

As Steven Pearlstein notes in the Washington Post, while oddly praising Paulson, the least the bankers could have done was show some gratitude.

"After getting their closed-door briefing yesterday from Paulson on the government's latest initiatives, Wall Street's finest literally ran from the Treasury to their waiting limousines, bypassing a media scrum eager to convey any scrap of wisdom or insight," Pearlstein writes. "The Wall Street crowd yesterday looked particularly guilty, unable even to conjure up a soothing word to a nation fretting over its shrunken 401(k)s, or a simple thank you to taxpayers for having saved their bacon. Their silence and invisibility throughout this crisis attests to the moral and political bankruptcy of a financial elite that is the perfect match for the financial bankruptcy they have now visited upon their investors, their creditors and their customers."

Paulson's bias toward Wall Street has been clear all along. Early on, he assured us that the financial system was sound, and that the banks could handle everything on their own. He did nothing to address the bubble, or the ludicrously unregulated derivatives and swaps.

Then, when the collapse came, he resisted public investment in the banks, even though Fed Chairman Ben Bernanke proposed it. Instead, he rammed the bailout through Congress on the supposition that buying up the banks' paper (again, in exchange for nothing) would suffice.

It didn't suffice. So the United States ended up trailing Britain in responding forcefully to the crisis, as Paul Krugman has noted.

But unlike Britain and other European countries, the United States is not gaining a majority stake or even a voice in the management of these financial institutions that we, as taxpayers, are rescuing from ruin.

This is partly because of an irrational ideological aversion to anything that smacks of socialism here.

"The government's role will be limited and temporary, " Bush said Tuesday, "These measures are not intended to take over the free market, but to preserve it."

But the bad deal for the American people is also partly because the man designing the deal, Henry Paulson, acts as the Treasurer of Wall Street, not the United States.

Matthew Rothschild is the editor of The Progressive magazine.

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