The strength of private fundamentals 08/24/2010 2 Comment(s) As much as I hate to quote Joseph Goebbels, it appears Henry Paulson took the Reich Minister of Propaganda's following assessment as a personal challenge:
"The essential English leadership secret does not depend on particular intelligence. Rather, it depends on a remarkably stupid thick-headedness. The English follow the principle that when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous."
"Aus Churchills Lügenfabrik" ("Churchill's Lie Factory"), 12 January 1941
On July 20, 2008, just as the global economic meltdown really started to heat up, Henry Paulson joined Bob Schieffer on "Face the Nation". 40 seconds into the interview, when directly asked, "Are we in a recession?" Paulson stammers his way into dodging the question with, "We-we-we're going through a uhhhh 'challenging time' with our economy, this is a 'tough time', the three big issues we're facing right now are first the 'housing correction', which is at the 'heart of the slowdown'; secondly 'turmoil' in the capital markets; and thirdly the 'high oil prices', which are going to 'prolong' the 'slowdown' But remember, our economy's got very strong, long-term fundamentals. Solid fundamentals". Fundamentally, he's assuring us with the often awkward Do These Jeans Make Me Look Fat? response strategy.
Trust me. When confronted by manic-depressive economic conditions well beyond my sphere of control and understanding, solid fundamentals--which Paulson never dignifies with a definition--comfort me about as much as the prospect of using Preparation H. As long as I can trust the efficacy is sound and it does, indeed, carry me to the promised land, I prefer to simply trust Pfizer and avoid contemplating the manufacturing details and application process.
However, that itching sensation I felt when Henry Paulson hurled buckets of fairy dust over our collective consciousness wasn't from swollen, inflamed veins in my nether region. Rather, it was the result of dawning enlightenment, the seeds of which were sewn by Naomi Klein and her seminal tome, The Shock Doctrine: The Rise of Disaster Capitalism.
While The Shock Doctrine may have taken some clinical liberties with certain psychological parallels--though they are an intriguing notion, indeed--this book convincingly demonstrates the disturbing and often immoral depths free-market capitalism hawks--such as its pioneering University of Chicago economist, Milton Friedman--would sink to implement a particular economic model upon a resisting society. Whether through bloody, terrorizing coups, the race to economically restructure failed communist models such as Russia's or the outright economic hijacking of a country like South Africa coming out from under apartheid, fear, chaos and/or deceptive manipulation always serve as indispensable tools to shock a nation into forfeiting what they may value in exchange for the promise of security and stability.
Armed with this adolescent understanding of the Chicago School of Economics, and Klein's assertion that Milton Friedman and his disciples fought to privatize national assets and nationalize liabilities, what started as a niggly itch became a fully blown-out O ring when I saw news reports such as this Bloomberg segment.
What is happening here?! Did I just see things clearly?! If I understand it correctly, years of deregulatory pressure led by major Wall Street investment houses, including Goldman Sachs--headed then by (you guessed it) Henry Paulson--resulted in a situation where the SEC agreed to lift the net capital rule, a requirement that ensures an investment house holds sufficient capital to limit their ability to leverage and take on excessive risk. And we now understand this to be a major contributor to the systemic failures within the global financial firms still playing out in 2010.
So, when times were grand while Wall Street firms built the largest financial house of cards in human history, they reaped unprecedented profits. However, their reckless activities during the drunken leveraging orgy ultimately led to trillions of dollars in losses on their tab . . . which was conveniently picked up by tax payers around the world. How did they do this, you ask? Just days after the whole "solid fundamentals" campaign, Paulson and many others in the Bush Administration changed their strategy; rather than soothe investors to calm markets, they shocked the system with a well orchestrated, terrifying, The End is Nigh, Give Us $700 Billion Or We're All Going Back To Foraging For Food In The Forest Wearing Animal Skins In A Purely Analog World campaign.
11 months later
It was July 2009, and the genie was out of the bottle. TARP was in full swing so AIG could be saved, ensuring Goldman Sachs received 100 cents on the dollar for their complex derivatives deals, the highly promised transparency claim proved to be an outrageous lie and Henry Paulson was no longer US Treasury Secretary, but he was still making appearances to answer tough questions before the US Congress. With a Dartmouth BA and Harvard MBA, and now a fellow at Johns Hopkins University's School of Advanced International Studies, I know Paulson is a smart man, far smarter than me. But when caught in a fundamentally flawed, opaque, federally assisted financial heist, a congressman from his home state of Florida can reduce Paulson into an indignant, stammering idiot.
Now in the second half of 2010, two years since the "too big to fail" bailouts, we're teetering on the precipice of a double dip recession. While I'm confident many executive "plants" from industry exist in US government posts for the sole purpose of ensuring their sponsors' bidding, at some point the bills will come due and I don't see how we can continue to print money as an exit strategy. Sure, the most politically connected will probably survive, but how much can be left for the rest of us?
So with these cheery issues in my head as I try to get some much needed sleep, I thought it would be fitting to sign off by quoting Tugg Speedman [as Simple Jack] in honor of Henry Paulson's performance before Rep. Cliff Stearns (R-Florida):
"Goodbye mama, now you can have ice cream in heavan! I'll see you again tonight when I go to bed in my head movies. But this head movie makes my eyes rain!"
Causes Tom Wagner Supports
AMFA Foundation, Affordable Medicines For Africa-South Africa, World Vision