Ben Bernanke

Goldman Sachs Did An Excellent Job of Bailing Out Goldman Sachs

AIG, Bear Stearns, Ben Bernanke, Citi, Credit Default Swaps, Federal Reserve, Goldman Sachs, Henry Paulson, Short Selling, TARP, Tim Geithner, Treasury

THE NEW YORK TIMES

August 9, 2009
hp3
Paulson’s Calls to Goldman Tested Ethics
By GRETCHEN MORGENSON and DON VAN NATTA Jr.

Before he became President George W. Bush’s Treasury secretary in 2006, Henry M. Paulson Jr. agreed to hold himself to a higher ethical standard than his predecessors. He not only sold all his holdings in Goldman Sachs, the investment bank he had run, but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.

But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm. Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman.

“Is it possible that there’s so much conflict of interest here that all you folks don’t even realize that you’re helping people that you’re associated with?” Representative Cliff Stearns, Republican of Florida, asked Mr. Paulson at the July 16 hearing.

“I operated very consistently within the ethic guidelines I had as secretary of the Treasury,” Mr. Paulson responded, adding that he asked for an ethics waiver for his interactions with his old firm “when it became clear that we had some very significant issues with Goldman Sachs.”

Mr. Paulson did not say when he received a waiver, but copies of two waivers he received — from the White House counsel’s office and the Treasury Department — show they were issued on the afternoon of Sept. 17, 2008.

That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group, which used the money to pay off Goldman and other big banks that were financially threatened by A.I.G.’s potential collapse.

It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.

While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request.

During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.

On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.

Michele Davis, a spokeswoman for Mr. Paulson, said that the former Treasury secretary was busy writing his memoirs and that his publisher had barred him from granting interviews until his manuscript was done. She pointed out that the ethics agreement Mr. Paulson agreed to when he joined the Treasury did not prevent him from talking to Goldman executives like Mr. Blankfein in order to keep abreast of market developments.

Ms. Davis also said that Federal Reserve officials, not Mr. Paulson, played the lead role in shaping and financing the A.I.G. bailout.

But Mr. Paulson was closely involved in decisions to rescue A.I.G., according to two senior government officials who requested anonymity because the negotiations were supposed to be confidential.

And government ethics specialists say that the timing of Mr. Paulson’s waivers, and the circumstances surrounding it, are troubling.

“I think that when you have a person in a high government position who has been with one of the major financial institutions, things like this have to happen more publicly and they have to happen more in the normal course of business rather than privately, quietly and on the fly,” said Peter Bienstock, the former executive director of the New York State Commission on Government Integrity and a partner at the law firm of Cohen Hennessey Bienstock & Rabin.

He went on: “If it can happen on a phone call and can happen without public scrutiny, it destroys the standard because then anything can happen in that fashion and any waiver can happen.”

Inevitable Questions

Concerns about potential conflicts of interest were perhaps inevitable during this financial crisis, the worst since the Great Depression. In the weeks before Mr. Paulson obtained the waivers, Treasury lawyers raised questions about whether he had conflicts of interest, a senior government official said.

Indeed, Mr. Paulson helped decide the fates of a variety of financial companies, including two longtime Goldman rivals, Bear Stearns and Lehman Brothers, before his ethics waivers were granted. Ad hoc actions taken by Mr. Paulson and officials at the Federal Reserve, like letting Lehman fail and compensating A.I.G.’s trading partners, continue to confound some market participants and members of Congress.

“I think it’s clear he had a conflict of interest,” Mr. Stearns, the congressman, said in an interview. “He was covering himself with this waiver because he knew he had a conflict of interest with his telephone calls and with his actions. Even though he had no money in Goldman, he had a vested interest in Goldman’s success, in terms of his own reputation and historical perspective.”

Adding to questions about Mr. Paulson’s role, critics say, is the fact that Goldman Sachs was among a group of banks that received substantial government assistance during the turmoil. Goldman not only received $13 billion in taxpayer money as a result of the A.I.G. bailout, but also was given permission at the height of the crisis to convert from an investment firm to a national bank, giving it easier access to federal financing in the event it came under greater financial pressure.

Goldman also won federal debt guarantees and received $10 billion under the Troubled Asset Relief Program. It benefited further when the Securities and Exchange Commission suddenly changed its rules governing stock trading, barring investors from being able to bet against Goldman’s shares by selling them short.

Now that the company’s crisis has passed, Goldman has rebounded more markedly than its rivals. It has paid back the $10 billion in government assistance, with interest, and exited the federal debt guarantee program. It recently reported second-quarter profit of $3.44 billion, putting its employees on track to earn record bonuses this year: about $700,000 each, on average.

Ms. Davis, the spokeswoman for Mr. Paulson, said Goldman never received special treatment from the Treasury. Mr. Paulson’s calendars do not disclose any details about his conversations with Mr. Blankfein, and Ms. Davis said Mr. Paulson always maintained a proper regulatory distance from his old firm.

A spokesman for Goldman, Lucas van Praag, said: “Lloyd Blankfein, like the C.E.O.’s of other major financial institutions, received calls from, and made calls to, Treasury to provide a market perspective on conditions and events as they were unfolding. Given what was happening in the world, it would have been shocking if such conversations hadn’t taken place.”

Although federal officials were concerned that Goldman Sachs might collapse that week, Mr. van Praag said the only topics of discussion between Mr. Blankfein and Mr. Paulson at the time involved Lehman Brothers’ troubled London operations and “disarray in the money markets.” Mr. van Praag said Goldman was fully insulated from financial fallout related to a possible A.I.G. collapse in mid-September of last year.

However, Mr. Paulson believed he needed to request the ethics waivers during that tumultuous week, after regulators had become concerned that the same crisis of confidence that felled Bear Stearns and Lehman might spread to the remaining investment banks, including Goldman Sachs.

At a conference call scheduled for 3 p.m. on Sept. 17, 2008, Fed officials intended to discuss the financial soundness of Goldman Sachs, Merrill Lynch and Morgan Stanley, and they had asked Mr. Paulson to participate, according to Mr. Paulson’s calendars and his spokeswoman.

That was the first time during the crisis that Mr. Paulson’s involvement required a waiver, Ms. Davis said. The waiver was requested that morning and granted orally that afternoon, just before the 3 p.m. conference call.

A few minutes later, in an e-mail message to Mr. Paulson, Bernard J. Knight Jr., assistant general counsel at the Treasury, outlined the agency’s rationale for granting the waiver.

“I have determined that the magnitude of the government’s interest in your participation in matters that might affect or involve Goldman Sachs clearly outweighs the concern that your participation may cause a reasonable person to question the integrity of the government’s programs and operations,” Mr. Knight wrote.

Goldman’s Windfall

For investors in the United States and around the world, the days after the A.I.G. rescue were perilous and uncertain; the Dow Jones industrial average fell 4 percent on Sept. 17 as credit markets froze and investors absorbed the implications of the insurance giant’s collapse. That day, Mr. Paulson and his colleagues at the Federal Reserve were scrambling to contain the damage and shore up investor confidence.

But Mr. Paulson has disavowed any involvement in the decision to use taxpayer funds to make Goldman and A.I.G.’s trading partners whole. In his July testimony to the House, he said: “I want you to know that I had no role whatsoever in any of the Fed’s decision regarding payments to any of A.I.G.’s creditors or counterparties.”

Ms. Davis reiterated this, saying that Mr. Paulson’s involvement in the A.I.G. bailout was meant to forestall a collapse of the entire financial system and not to rescue any individual firms exposed to A.I.G., like Goldman. However, she said, federal officials were worried that both Goldman and Morgan Stanley were in danger themselves of failing later in the week and it was in that context that Mr. Paulson received a waiver.

“The waiver was in anticipation of a need to rescue Goldman Sachs,” Ms. Davis said, “not to bail out A.I.G.”

Treasury Department lawyers said a waiver for Mr. Paulson regarding A.I.G. was not necessary, Ms. Davis said, because the A.I.G. rescue was conducted by the Federal Reserve. The Treasury had no power to rescue A.I.G., she said. Only the Fed could make such a loan.

But according to two senior government officials involved in the discussions about an A.I.G. bailout and several other people who attended those meetings and requested anonymity because of confidentiality agreements, the government’s decision to rescue A.I.G was made collectively by Mr. Paulson, officials from the Federal Reserve and other financial regulators in meetings at the New York Fed over the weekend of Sept. 13-14, 2008.

These people said Mr. Paulson played a major role in the A.I.G. rescue discussions over that weekend and that it was well known among the participants that a loan to A.I.G. would be used to pay Goldman and the insurer’s other trading partners.

Over that weekend, according to a former senior government official involved in the discussions, Mr. Paulson said that he had been warned by lawyers for the Treasury Department not to contact Goldman executives directly. But he said Mr. Paulson told him he had disregarded the advice because the “crisis” required action.

Ms. Davis said: “Hank doesn’t recall saying that. Staff had advised that he interact one on one with Goldman as little as possible, not because it would be a violation but for appearances, recognizing someone would likely attempt to read too much into it.”

On Sept. 16, 2008, the day that the government agreed to inject billions into A.I.G., Mr. Paulson personally called Robert B. Willumstad, A.I.G.’s chief executive, and dismissed him. Mr. Paulson’s involvement in the decision to rescue A.I.G. is also supported by an e-mail message sent by Scott G. Alvarez, general counsel at the Federal Reserve Board, to Robert Hoyt, a Treasury legal counsel, that same day.

The subject of the message, acquired under the Freedom of Information Act, is “AIG Letter,” and it contains a reference to a document called “AIG.Paulson.Letter.draft2.09.16.2008.doc.” The letter itself was not released.

Ms. Davis said this letter was intended to confirm that the Treasury and Mr. Paulson supported the loan to A.I.G. and that its officials recognized that any Fed losses would be absorbed by taxpayers. She said the existence of the letter did not confirm that Mr. Paulson was extensively involved in discussions about an A.I.G. bailout.

Since last September, the government’s commitment to A.I.G. has swelled to $173 billion. A recent report from the Government Accountability Office questioned whether taxpayers would ever be repaid the money loaned to what was once the world’s largest insurance company.

Constant Contact

In the ethics agreement that Mr. Paulson signed in 2006, he wrote: “I believe that these steps will ensure that I avoid even the appearance of a conflict of interest in the performance of my duties as Secretary of the Treasury.”

While that agreement barred him from dealing on specific matters involving Goldman, he spoke with Mr. Blankfein at other pivotal moments in the crisis before receiving waivers.

Mr. Paulson’s schedules from 2007 and 2008 show that he spoke with Mr. Blankfein, who was his successor as Goldman’s chief, 26 times before receiving a waiver.

On the morning of Sept. 16, 2008, the day the A.I.G. rescue was announced, Mr. Paulson’s calendars show that he took a call from Mr. Blankfein at 9:40 a.m. Mr. Paulson received the ethics waiver regarding contacts with Goldman between 2:30 and 3 the next afternoon. According to his calendar, he called Mr. Blankfein five times that day. The first call was placed at 9:10 a.m.; the second at 12:15 p.m.; and there were two more calls later that day. That evening, after taking a call from President Bush, Mr. Paulson called Mr. Blankfein again.

When the Treasury secretary reached his office the next day, on Sept. 18, his first call, at 6:55 a.m., went to Mr. Blankfein. That was followed by a call from Mr. Blankfein. All told, from Sept. 16 to Sept. 21, 2008, Mr. Paulson and Mr. Blankfein spoke 24 times.

At the height of the financial crisis, Mr. Paulson spoke far more often with Mr. Blankfein than any other executive, according to entries in his calendars.

The calls between Mr. Paulson and Mr. Blankfein, especially those surrounding the A.I.G. bailout, are disturbing to Samuel L. Hayes, a professor emeritus at Harvard Business School and a consultant in the past for government agencies, including the Treasury Department.

“We don’t know what they talked about,” Mr. Hayes said. “Obviously there was an enormous amount at stake for Goldman in whether or not the A.I.G. contracts would be made whole. So I think the burden is now on Mr. Paulson to demonstrate that there was no exchange of information one way or the other that influenced the ultimate decision of the government to essentially provide a blank check for A.I.G.’s contracts.”

In a letter accompanying the government’s production of Mr. Paulson’s calendar under the Freedom of Information Act request, Kevin M. Downey, a lawyer for Mr. Paulson, raised questions about how comprehensive the schedules were. He noted, for example, that the calendars did not reflect the Treasury secretary’s attendance at several public events. Mr. Downey did not return phone calls or e-mail messages seeking further comment.

Moreover, because the schedules include only phone calls made through Mr. Paulson’s office at Treasury, they provide only a partial picture of his communications. They do not reflect calls he made on his cellphone or from his home telephone.

According to the schedules, Mr. Paulson’s contacts with Mr. Blankfein began even before the height of the crisis last fall. During August 2007, for example, when the market for asset-backed commercial paper was seizing up, Mr. Paulson spoke with Mr. Blankfein 13 times. Mr. Paulson placed 12 of those calls.

By contrast, Mr. Paulson spoke six times that August with Richard S. Fuld Jr. of Lehman, four times with Jamie Dimon of JPMorgan Chase and only twice with John Thain of Merrill Lynch.

Senate Turns Aside New Attempt to Scrutinize Fed

Ben Bernanke, Federal Reserve, Goldman Sachs, Hank Paulson, Politics

bailoutREUTERS

Mon Jul 6, 2009 5:59pm EDT

WASHINGTON (Reuters) – The U.S. Federal Reserve, facing growing pressure as it tries to heal the ailing economy, dodged a bullet on Monday when the U.S. Senate cast aside a new effort to increase scrutiny of the central bank.

On procedural grounds, the Senate blocked a bid to permit the U.S. comptroller general, who heads the investigative arm of Congress known as the Government Accountability Office, to audit the Federal Reserve system and issue a report.

Republican Senator Jim DeMint, who has been pushing for greater transparency at the Fed, failed to get the provision attached to the must-pass annual spending bill that includes funding for the GAO for the upcoming 2010 fiscal year.

The audit would have included details about the Fed’s discount window operations, funding facilities, open market operations and agreements with foreign central banks and governments, DeMint said on the Senate floor.

“The Federal Reserve will create and disburse trillions of dollars in response to our current financial crisis,” DeMint said. “Americans across the nation, regardless of their opinion on the bailout, want to know where the money has gone.

“Allowing the Fed to operate our nation’s monetary system in almost complete secrecy leads to abuse, inflation and a lower quality of life,” he said.

Democrats who control the Senate blocked the South Carolina Republican’s amendment on the grounds that it violated rules prohibiting legislation attached to spending bills.

Fed officials were not immediately available to comment.

The move comes as some lawmakers have increasingly become wary of the Fed’s actions, particularly for its handling of the real estate market and the meltdown of major financial institutions like investment bank Bear Stearns and insurance giant American International Group.

A non-binding provision in the fiscal 2010 budget blueprint Congress approved in April called on the Fed to provide more information about collateral posted against Bear Stearns and AIG loans.

That measure also sought a study evaluating the appropriate number and costs of the regional Fed banks.

The U.S. central bank has a seven-member board in Washington whose members are nominated by the president and confirmed by the Senate. It also has 12 regional banks whose presidents are appointed by banks and other businesses in their local districts, with the consent of the Washington board.

(Reporting by Jeremy Pelofsky and Alister Bull, editing by Dan Grebler)

U.S. Lawmakers Smell Something Fishy in Bank of America / Merrill Deal

bailout, Banking Crisis, BankOf America, Ben Bernanke, Goldman Sachs, Henry Paulson, Merrill Lynch, TARP, Tim Geithner

bo21U.S. lawmakers seek BofA-Merrill probe

R E U T E R S

Fri Apr 24, 2009
By Kim Dixon and Rachelle Younglai

WASHINGTON (Reuters) – Momentum is building among U.S. lawmakers to investigate Bank of America’s (BAC.N: Quote, Profile, Research, Stock Buzz) purchase of Merrill Lynch, amid allegations that federal officials gave the bank’s chief executive an ultimatum to complete the deal with the troubled investment house.

A senior Republican Senator joined House Democrats on Friday in seeking more details after New York’s attorney general said CEO Kenneth Lewis had testified he was pressured by former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to do the merger, or lose his job.

“That was very disturbing,” Senator Richard Shelby, the ranking Republican on the Banking Committee, told the Reuters Global Financial Regulation Summit in Washington on Friday.

“I don’t know if there is securities fraud in there or what,” said Shelby, from Alabama.

Meanwhile, lawmakers in the House of Representatives expanded their probe by demanding all internal communications from the Federal Reserve and the U.S. Treasury Department touching on the deal.

New York Attorney General Andrew Cuomo said on Thursday that Lewis testified that Paulson and Bernanke also pressured him to keep quiet about losses at the troubled Merrill Lynch, which rose to $12 billion from $9 billion in a matter of days.

This account has been disputed by representatives for Bernanke and Paulson but raises questions about whether federal officials encouraged Lewis to keep important information from investors.

Bank of America ultimately got additional federal bailout money to absorb Merrill.

Shelby said he wants the Senate Banking Committee to hold a hearing on the merger.

A spokeswoman for Senate Banking Committee Chairman Christopher Dodd said he was deeply concerned about the allegations and had talked on Friday with Cuomo. “He will decide on next steps soon,” she said.

Representative Ed Towns, chairman of the House Oversight and Government Reform Committee, and domestic policy subcommittee chairman Dennis Kucinich, sent letters dated April 23 to the Fed and Treasury demanding the internal documents, with a request for responses by May 4.

“The implications of Mr. Lewis’ testimony, if accurate, are extremely serious,” said Towns and Kucinich.

The Securities and Exchange Commission has already said it is reviewing the disclosures surrounding the merger.

Publicly-traded companies are supposed to widely publicize so-called material information — information an investor needs to decide whether to buy or sell a stock.

“Bank of America and Ken Lewis are, in my mind, in deep trouble,” said James Cox, a securities professor at Duke Law School. “Both under state law and federal law disclosure standards there was clear duty to correct earlier statements regarding the viability and wisdom of the acquisition of Merrill Lynch.”

The potential liability of Paulson and Bernanke is a more murky area, according to former SEC chairman Harvey Pitt, who served under former President George W. Bush.

Securities law absolves government officials from liability in acts performed as part of official duties, he said.

“If Paulson and Bernanke coerced B of A to violate the securities laws out of concern for the economy, they can’t be liable and I think it would be hard to hold B of A liable,” Pitt said in an email.

“Nevertheless, you can’t violate the duties you owe shareholders merely because someone in the government asks you to do so,” said Pitt.

(For summit blog: blogs.reuters.com/summits/)

(Reporting by Kim Dixon and Rachelle Younglai; Editing by Tim Dobbyn)

George Soros Calls G20: "Make or Break"

AIG, Barack Obama, Ben Bernanke, CDS, Europe, Fed, G20, George Soros, IMF, Larry Summers, Special Drawing Rights, Tim Geithner, Treasury, UK, World Financial Crisis
BBC NEWS
By Joe Lynam

071113_p00_soros

Billionaire investor Gorge Soros has said the G20 summit will be a “make or break” event for the world’s economy.

In a BBC interview, Mr Soros said the international financial system had collapsed because it was flawed and it had to be restructured.

Mr Soros say it may be the last chance to prevent a full-scale depression.

He said the G20 meeting had to come up with concrete solutions to help the developing world in particular, which had been been worst hit.

‘Depression’

Mr Soros warned that any attempt to pull economies out of recession had to be done co-operatively.

He said: “The G20 meeting is make or break because unless they do something for developing world there will be serious collapse in that part of the world.

“I’m using phrase depression because unless we take the right measures we’re liable to end up there.

If countries start doing it [engineering a new financial world order] bilaterally instead of multilaterally, the system will fall apart and we’ll end up in depression.”

He also said the rebuilding meant the previous economic system had to be scrapped.

“ The International financial system has collapsed and cannot be restored in its current form ”
George Soros

“I don’t think we’ll ever be back to where we came from. It should be recognised that the last 25 years were an aberration and we cannot go back there. We have to reconstruct the financial system from its foundations up.”

Mr Soros said regulators and the financial sector shared the blame for the meltdown, as they “participated in this crazy boom built on false premises on the belief that markets are self-regulating and should be left alone”.

Mr Soros also warned the UK economy was in a deep recession “which is going to be a lasting one”.

He added: “The International financial system has collapsed and cannot be restored in its current form. It will have to be restructured because it was flawed and collapsed under its own weight.”

In May last year, Mr Soros was interviewed by the BBC’s business editor Robert Peston and said he was worried about the US and UK’s ability to deal with the downturn because of their reliance on credit.

Mr Soros urged wealthy nations to give their allocations of the IMF’s internal currency, called Special Drawing Rights, to poorer ones because developing countries were not in a position to bail out their own failing banks.

George Soros famously made his name – and $1bn – when he bet that sterling would have to withdraw from the European Exchange Rate Mechanism in 1992. He’s also said to have accurately predicted and profited from the Asian financial crisis in 1997.

The 78-year-old Hungarian is one of the largest aid donors in Africa, having donated around $6bn to his favourite causes.

National Dept Hits 11 Trillion; Sucker

11 Trillion, Barack Obama. Tim Geithner, Ben Bernanke, China, GDP, National Dept, Treasury Department

CBS NEWS

45088178The Federal Government’s flood of red ink hit another high-water mark as the Treasury Department quietly reported today that the National Debt hit $11-trillion for the first time ever.

To be exact, the Debt now stands at $11,033,157,578,669.78. Divide it by the U.S. population and it comes up to over $36,000 in debt for every man, woman and child among us.

And the government is running up mountains of debt with increasing speed. It took just over 5 ½ months for Uncle Sam to go another trillion dollars deeper in debt since hitting $10-trillion last September 30th. It’s the fastest jump in U.S. history.

The hundreds of billions of dollars being spent as part of the federal bailout of the financial markets is a leading factor in the rapid increase. Over $400-billion in debt has been accrued in the 57 days since President Obama took office.

And the federal budget he unveiled last month projects even faster increases in the National Debt. It’ll hit $12.7-trillion by the end of the fiscal year on September 30th. The Administration’s four year estimate shows that by the end of September 2012, the Debt will have soared to $16.2-trillion – which amounts to nearly 100% of the projected Gross Domestic Product that year.

The U.S. is running up so much debt so quickly, some investors are worried. Over the weekend, Chinese Premier Wen Jiabao, who says his country has about a trillion dollars invested in U.S. Treasury notes, said he wanted a guarantee.

President Obama said Wen’s got nothing to worry about.

“Not just the Chinese government, but every investor, can have absolute confidence in the soundness of investments in the United States,” he said on Saturday.

That’s because the U.S. government’s power to tax stands behind all of its debt. If Uncle Sam ever needs a bailout, then as now, taxpayers get nailed.

It took the U.S. government 191 years – from 1791 until 1982 – to run up its first trillion dollars in debt. The second and third trillions got on the scoreboard much more quickly – each in just four years.

By the time George W. Bush was inaugurated in 2001, the National Debt stood at $5.7-trillion. He ran up more debt faster than nearly all of his predecessors combined: just under $4.9-trillion.

The National Debt stood at $10.6-trillon on the day Barack Obama took office. But if his budget projections are accurate, he’ll run up nearly as much government debt in four years as President Bush did in eight.

Former AIG Head Hank Greenberg on CNBC With Maria Bartiromo

AIG, Bear Stearns, Ben Bernanke, Citibank, CNBC, Cramer+Stewart, Credit Default Swaps, Deep Capture, Derivatives, Dick Fuld, Gradient Analytics, Hedge Funds, Henry Paulson, Jim Cramer, Jon Stewart, Lehman Brothers, Maria Bartiromo, Mortgage Crisis, Overstock, Patrick Byrne

Former AIG Head Hank Greenberg on CNBC With Maria Bartiromo

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Rick Santelli Subtly Schooled By Dylan Ratigan

AIG, Bear Stearns, Ben Bernanke, Citibank, CNBC, Cramer+Stewart, Credit Default Swaps, Deep Capture, Derivatives, Dick Fuld, Gradient Analytics, Hedge Funds, Henry Paulson, Jim Cramer, Jon Stewart, Lehman Brothers, Maria Bartiromo, Mortgage Crisis, Overstock, Patrick Byrne

Rick Santelli Subtly Schooled By Dylan Ratigan

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The Madness of Jim Cramer – Day After Pathetic Evisceration by "Comedian"

AIG, Bear Stearns, Ben Bernanke, Citibank, CNBC, Cramer+Stewart, Credit Default Swaps, Deep Capture, Derivatives, Dick Fuld, Gradient Analytics, Hedge Funds, Henry Paulson, Jim Cramer, Jon Stewart, Lehman Brothers, Maria Bartiromo, Mortgage Crisis, Overstock, Patrick Byrne

The Madness of Jim Cramer – Day After Pathetic Evisceration by “Comedian”

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Dick Cheney is a man of principles. Disastrous principles

Alan Greenspan, Ben Bernanke, Bin Laden, Cheney Energy Task Force, Condoleezza Rice, Dick Cheney, Donald Rumsfeld, George W. Bush, Gerald Ford, Iraq, John Snow, Karl Rove, Larry Lindsey, Molly Tully, National Economic Council, Office of Homeland Security, Paul O'Neill, Saddam Hussein, Scooter Libby, Torture, U.N., Wyoming

VICE GRIP

THE WASHINGTON MONTHLY :: FEB/MARCH 2003

JOSHUA MICAH MARSHALL

inaug31

Early last December, Vice President Dick Cheney was dispatched to inform his old friend, Treasury Secretary Paul O’Neill, that he was being let go. O’Neill, the president’s advisers felt, had made too many missteps, given too much bad advice, uttered too many gaffes. He had become a liability to the administration. As Cheney himself once said in a different context, it was time for him to go. It couldn’t have been a fun conversation–especially since it was Cheney who had picked O’Neill two years earlier.
O’Neill stormed off to Pittsburgh and within days the White House had announced his replacement. Yet the new treasury secretary nominee turned out not to be much of an improvement. Like O’Neill, John Snow was a veteran of the Ford administration who ran an old-economy titan (the railroad firm CSX) and seemed to lack the global market financial experience demanded of modern day treasury secretaries. Like other Bush appointees, Snow came from a business that traded heavily on the Washington influence game. And–again typical of the president and his men–the size of Snow’s compensation package seemed inversely proportional to the returns he made for his shareholders. Of the three new members of the president’s economic team nominated in early December, Snow was the only one to get almost universally poor reviews. He was also Dick Cheney’s pick.

Week after week, one need only read the front page of The Washington Post to find similar Cheney lapses. Indeed, just a few days after Cheney hand-picked Snow, Newsweek magazine featured a glowing profile of National Security Adviser Condoleezza Rice that began with an anecdote detailing her deft efforts to clean up another Cheney mess. In a July speech, the vice president had argued that weapons inspections in Iraq were useless and shouldn’t even be tried. That speech nearly upended the administration’s careful late-summer repositioning in favor of a new United Nations-backed inspections program. As the article explained, Rice–the relatively junior member of the president’s inner circle of foreign policy advisers–had to take the vice president aside and walk him through how to repair the damage he’d done, with a new statement implicitly retracting his earlier gaffe. Such mistakes–on energy policy, homeland security, corporate reform–abound. Indeed, on almost any issue, it’s usually a sure bet that if Cheney has lined up on one side, the opposite course will turn out to be the wiser.

Yet somehow, in Washington’s collective mind, Cheney’s numerous stumbles and missteps have not displaced the reputation he enjoys as a sober, reliable, skilled inside player. Even the Newsweek article, so eager to convey Rice’s competence, seemed never to explicitly note the obvious subtext: Cheney’s evident incompetence. If there were any justice or logic in this administration as to who should or shouldn’t keep their job, there’d be another high-ranking official in line for one of those awkward conversations: Dick Cheney.

Overruling Dick

Consider the evidence. Last year, Cheney’s White House energy task force produced an all-drilling-and-no-conservation plan that failed not just on policy grounds but as a political matter as well, saddling the administration with a year-long public relations headache after Cheney insisted on running his outfit with a near-Nixonian level of secrecy. (To this day, Cheney and his aides have refused to provide the names of most of those industry executives who “advised” him on the task force’s recommendations, though a federal judge has now rejected the Government Accounting Office’s effort to make them do so.) During the spring of 2001, rather than back congressional efforts to implement the findings of the Hart-Rudman commission that called for forceful action to combat terrorism (including the creation of a department of homeland security), Cheney opted to spearhead his own group–not because he disagreed with the commission’s proposals, but to put the administration’s stamp on whatever anti-terrorism reforms did get adopted. Cheney’s security task force did nothing for four months, lurching into action only after terrorists actually attacked America on September 11. In the months that followed, Cheney was one of several key advisers arguing that the White House should keep Tom Ridge’s Office of Homeland Security within the White House rather than upgrade it to a cabinet department and thus open it to congressional scrutiny. Cheney’s obstinacy ensured that the administration’s efforts were stuck in neutral for nearly eight months.

Cheney has not fared much better in the diplomatic arena. Last March, he went on a tour of Middle Eastern capitals to line up America’s allies for our war against Saddam. He returned a week later with the Arabs lining up behind Saddam and against us–a major embarrassment for the White House. Much of the success of the administration’s Iraq policy came only after it abandoned the strategy of unilateral action against Saddam, the strategy Cheney championed, to one of supporting a U.N. inspections regime–a necessary and successful course correction that Cheney resisted and almost halted. Indeed, broadly speaking, the evolution of White House Iraq policy might be described fairly as a slow process of overruling Dick Cheney.

And there’s more. Remember those corporate scandals that came close to crippling Bush? Last summer, White House advisers were pondering whether to back the sort of tough corporate accountability measures that Democrats and the press were demanding. The president was scheduled to deliver a big speech on Wall Street in early July. His advisers were divided. Some argued that strong reforms were at the least a political necessity. But Cheney, along with National Economic Council chair Larry Lindsey, opposed the idea, arguing that new restrictions on corporations would further weaken the economy. The president took Cheney’s advice, and gave a speech on Wall Street that recommended only mild and unspecific reforms. “He mentioned a lot of things in the speech that the Securities and Exchange Commission already does,” one non-plussed Wall Streeter told The Washington Post with a yawn. The day after the president’s speech, the Dow shed 282 points, the biggest single-day drop since the post-terrorist tailspin of Sept. 20. Within days the president was backpedaling and supporting what Cheney had said he shouldn’t. Lindsey got the boot later in the year. Cheney is still in the West Wing shaping economic policy.

Cartel Capitalists

Much of the reason Cheney so often calls things wrong–even on those business issues that would seem his area of expertise–can be traced to the culture in which he’s spent most of his professional life. Despite his CEO credentials and government experience, Dick Cheney has been surprisingly insulated from the political and financial marketplace. He began his career as a Nixon-administration functionary under Donald Rumsfeld. Later, he joined the Ford administration as a deputy assistant to the president before becoming White House chief of staff. From there he moved into elective office, but to the ultra-safe House seat from Wyoming, a post only slightly less shielded from the tides of American politics than were his posts in the Ford administration.

Cheney resigned his House seat in 1989 and moved back to the executive branch where he belonged, serving–with distinction–as defense secretary under the first President Bush. From there he moved to the corporate suite at Halliburton, where he eventually earned tens of millions of dollars. But Halliburton is a peculiar kind of enterprise. It doesn’t market shoes or design software. Rather, its business–providing various products and services to the oil industry and the military–is based on securing lucrative contracts and concessions from a handful of big customers, primarily energy companies and the U.S. and foreign governments. Success in that business comes not by understanding and meeting the demands of millions of finicky customers, but by cementing relationships with and winning the support of a handful of powerful decision-makers.

Indeed, that’s why Halliburton came to Cheney in the first place. His ties with the Bush family, his post-Gulf War friendships with Arab emirs, and the Rolodex he’d compiled from a quarter century in Washington made him a perfect rainmaker. And though he did rather poorly on the management side–he shepherded Halliburton’s disastrous merger with Dresser Industries, which saddled the new company with massive asbestos liabilities–he handled the schmoozing part of the enterprise well.

Cheney is conservative, of course, but beneath his conservatism is something more important: a mindset rooted in his peculiar corporate-Washington-insider class. It is a world of men–very few women–who have been at the apex of both business and government, and who feel that they are unique in their mastery of both. Consequently, they have an extreme assurance in their own judgment about what is best for the country and how to achieve it. They see themselves as men of action. But their style of action is shaped by the government bureaucracies and cartel-like industries in which they have operated. In these institutions, a handful of top officials make the plans, and then the plans are carried out. Ba-da-bing. Ba-da-boom.

In such a framework all information is controlled tightly by the principals, who have “maximum flexibility” to carry out the plan. Because success is measured by securing the deal rather than by, say, pleasing millions of customers, there’s no need to open up the decision-making process. To do so, in fact, is seen as governing by committee. If there are other groups (shareholders, voters, congressional committees) who agree with you, fine, you use them. But anyone who doesn’t agree gets ignored or, if need be, crushed. Muscle it through and when the results are in, people will realize we were right is the underlying attitude.

The danger of this mindset is obvious. No single group of people has a monopoly on the truth. Whether it be plumbers, homemakers, or lobbyist bureaucrats, any group will inevitably see the world through its own narrow, mostly self-interested, prism. But few groups are so accustomed to self-dealing and self-aggrandizement as the cartel-capitalist class. And few are more used to equating their own self-interest with the interests of the country as a whole.

Not since the Whiz Kids of the Kennedy-Johnson years has Washington been led by men of such insular self-assurance. Their hierarchical, old economy style of management couldn’t be more different from the loose, non-hierarchical style of, say, high-tech corpor-ations or the Clinton White House, with all their open debate, concern with the interests of “stake-holders,” manic focus on pleasing customers (or voters), and constant reassessment of plans and principles. The latter style, while often sloppy and seemingly juvenile, tends to produce pretty smart policy. The former style, while appearing so adult and competent, often produces stupid policy.

Over time, people in the White House have certainly had to deal with enough examples of Cheney’s poor judgment. It’s fallen to the White House’s political arm, led by the poll-conscious Karl Rove, to rein in or overrule him. Yet the vice president has apparently lost little stature within the White House. That may be because his get-it-done-and-ignore-the-nay-sayers attitude is one that others in the administration share. Cheney stands up for the cartel-capitalist principles they admire. He is right, in a sense, even when he’s wrong.

Why, though, has the press failed to grasp Cheney’s ineptitude? The answer seems to lie in the power of political assumptions. The historian of science Thomas Kuhn famously observed that scientific theories or “paradigms”–Newtonian physics, for instance–could accommodate vast amounts of contradictory evidence while still maintaining a grip on intelligent people’s minds. Such theories tend to give way not incrementally, as new and conflicting data slowly accumulates, but in sudden crashes, when a better theory comes along that explains the anomalous facts. Washington conventional wisdom works in a similar way. It doesn’t take long for a given politician to get pegged with his or her own brief story line. And those facts and stories that get attention tend to be those that conform to the established narrative. In much the same way, Cheney’s reputation as the steady hand at the helm of the Bush administration–the CEO to Bush’s chairman–is so potent as to blind Beltway commentators to the examples of vice presidential incompetence accumulating, literally, under their noses. Though far less egregious, Cheney’s bad judgment is akin to Trent Lott’s ugly history on race: Everyone sort of knew it was there, only no one ever really took notice until it was pointed out in a way that was difficult to ignore. Cheney is lucky; as vice president, he can’t be fired. But his terrible judgment will, at some point, become impossible even for the Beltway crowd not to see.

Joshua Micah Marshall, author of the Talking Points Memo, is a Washington Monthly contributing writer.