The financial lunacy continues this morning. Despite growing calls from a chorus of economic thought leaders, President Obama and his minions of malfeasance and denial (Tim Geithner and Lawrence Summers) remain steadfast in their support of propping up our 4 largest zombie banks, Citi, Bank of America, JP Morgan and Wells Fargo.
Let's take a moment to review the action. The once great now reprobate Alan Greenspan says nationalize. Nobel Laureate Paul Krugman correctly defines the current bailout paradigm as lemon socialsm where the banks get the upside and taxpayers the shaft. Joseph Stiglitz, George Soros, Nassim Taleb and Nouriel Roubini all agree. And the cleverly anonymous CR of Calculated Risk understands that if it's partially a semantics battle, then just change the words, and has offered 'pre-privatization' to our fiscal lexicon.
A note: some readers have reacted to our extensive weekend coverage of the mortgage bailout and our harsh words for the concept of helping certain individuals, with an attack that we are wrongfully targeting homeowners and not the banks who have received and will continue to need far more in federal largesse. And to this I ask, what website have you been reading? Because it's not this one. I have attacked the failed banks and their CEOs with venom that is not found anywhere else. These guys are punks and deserve to be journalistically flailed for their misdeeds.
Stated again for the record, the problem was leverage on the part of our biggest banks. The SEC rule change in 2004 that allowed the Big 5 to dramatically increase their leverage is the single most important event in the entire sordid story. Were it not for this change and subsequent leverage hike from 12:1 to 40:1, our current crisis would not be so chaotic or expensive.
And it still galls me to this day that the person leading the argument that morning in front of the SEC is none other than former Treasury Secretary Henry 'Hank' Paulson. I will ask again: when will a journalist with a large audience make it a goal to expose this man and what he has done to imperil your children's future? He personally helped to pass the rule change that led to this crisis, then he led the effort to solve it by giving $700 billion of borrowed money from your kids to failed banks including his former employer Goldman Sachs, from whom he received $600 million in severance when he headed to Washington.
Another irony seems apparent: Paulson and the other CEOs used the same logic in front of the SEC as they did in front of Congress in the fall of 2008. Paternal we're-smarter-than-you fear mongering. "Trust us, we know what we are doing. It is imperative that you grant us an exemption to the leverage limits so that we can compete on an equal basis with European banks, otherwise the US banking industry could be wiped out by the Europeans. "Trust us, we know what we are doing. It is imperative that you grant us $700 billion with no oversight and no questions otherwise, the US banking system will be wiped out and your ATM cards will not work."
A call to financial journalists: expose this story and the role Paulson played in creating the crisis. A Pulitzer Prize is waiting for someone.