Bailing Out Henry Paulson - and Wall Street Too

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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When Henry Paulson became Treasury Secretary, his net worth was estimated at $700 million. As the former CEO of Goldman Sachs, much of his fortune is in Goldman Sachs securities and depends on the continued health of the company. If Goldman Sachs went under, Paulson would go from being one of the richest men in the United States, to someone with little wealth. By Wednesday, September 17th, Goldman stock had fallen into the 80s (the high was well over 200) and the stock looked like it might be starting the same death spiral that Lehman and Bear Strearns followed. Paulson's net worth was plummeting. Coincidentally, that was the day the Paulson realised that there was a need for an urgent and massive Wall Street bailout that had to be financed by U.S. taxpayers.

The details of the rescue plan dreamed up by him read like the powers granted to a Banana Republic dictator. Like the dictator, all powers are essentially granted to him and they are not subject to judicial review. He will have the right to loot the treasury at his discretion. The rule of law that has been known in the United States since its inception, is to be jettisoned. The reason - it's an emergency, the same excuse used throughout history to justify totalitarian government actions.

Under the proposal, Paulson will be able to purchase at his discretion: home loans, mortgage backed securities, commercial real estate loans and any security linked to them. In consultation with the Fed chair, the Treasury Secretary also would be able to purchase any other asset deemed necessary to stabilize the financial markets. Foreign banks and brokers who do business in the United States are eligible to to get in on the bailout bonanza as well. The cost for this Wall Street slush fund is currently $700 billion. The National Debt Ceiling will be raised by that amount, less than two months after it was raised by $800 billion for the Fannie Mae and Freddie Mac bailouts. The budget deficit next year will be well over one trillion dollars. President Bush nicely summed up official Washington's reaction to this taxpayer gouging by stating that he was "unconcerned that the price tag of the package may seem high".

So far in the credit crisis the Fed and Treasury have already directly pumped $800 billion into financial company bailouts and the situation has only gotten worse. They have continually failed to realize the extent of the problem and their efforts to solve it have been ineffectual . Now they are telling us that we should give them an additional $700 billion to work with and then they will once and for all be able to take care of an estimated $13 trillion in troubled financial instruments. If this situation seems to be a bunch of government failures bailing out a bunch of Wall Street failures, that's because it is. There is no future for an economy that engages in this behavior.

NEXT: Pump Up the Market, Pump Up Inflation

Daryl Montgomery
Organizer, New York Investing meetup

http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.