"Greed, for Lack of a Better Word, is Good!"

It is as if yesteryear played musical chairs with yesterday. Even as the U.S.
Congress worked fervently to close a deal conceived by Secretary of the Treasury, Henry Paulson, and bolstered by the weighty imprimatur of Federal Reserve Chairman Ben Shalom Bernanke, the FBI announced it was adding 4 new firms to its Subprime Fraud Probe. Hold up, before you submit to the temptation to yawn knowingly, reckoning that there are 22 other firms previously cited in this already underway investigation, and lamenting, “What’s a few more?”

Well for starters these are not just any four companies. These are star attractions, including Fannie Mae, Freddie Mac, Lehman Brothers, and AIG…yes that AIG, the one of the $85 billion buy-out, discussed in this space last week. Of course Lehman Brothers was mentioned then too. Moreover, while Fannie & Freddie were not mentioned, that was only because they had already been headliners in their own two-part rescue. Put another way, these four Fortune 500 firms lie at ground zero of the currently proposed financial bailout.

In the 1987 blockbuster, Wall Street, directed by Oliver Stone, Gordon Gekko, otherwise known as Michael Douglas, uttered that “life as we are taught it” defying phrase, featured in the Title. At the time it was thought to symbolize the 80’s, a time of wretched excess. Who would have thought, as the first Baby Boomers turned 62, we would not only reprise those times, but do so with exponential zeal and greatly enhanced impact. Recent events soberly inform us, to paraphrase Pogo, we really have seen the enemy, and believe it or not, it was us.

A week ago, word of the proposed mega-bailout filtered out. At first, the TDP, Trillion Dollar Plan, pitched as a measure of last resort was largely thought to be a bitter, but likely necessary evil. Virtually out of the blue, President Bush sequestered key Members of Congress, along with top financial advisers, Paulson, and Bernanke. As they emerged, talk of desperate measures for equally desperate times reigned.

The American public was immediately advised that we are in the midst of a compelling financial crisis, and that the cost for the cure is uber expensive. Of course, it is fair to say, preceding business failures and buy-outs, not to mention the national mortgage morass had already tipped-off most of us to that reality. The real news here was that an actual plan, at least a strategy, was emerging, and along with it a price tag, estimated at $700 billion. Interestingly, almost any conversation about the plan included mention of the prospect, if not likelihood, the cost would end up north of a trillion dollars.

Clearly the spin masters engaged in a little creative ciphering to avoid breaking through the psychological barrier implied by even saying the word trillion. This is akin to what I refer to as the 99-retail pricing practice. That occurs, for example, when a vendor sets a price for goods or services at $19.99, rather than $20, due to the belief that buyers are averse to the “next level” increase. I believe there are even studies that support this theory.

When the President Bush, Speaker of the House, Nancy Pelosi, Treasury Secretary Paulson, and Federal Reserve Chairman Bernanke made their first appearance, it appeared, if only briefly, that there may really be traction and consensus for a for a quick and unified decision. The group appeared well on the way to resolving what former Federal Reserve Chairman, Alan Greenspan, called a “once-in-a-century crisis,” just 10 days ago. Initially, President Bush alluded to a commitment by the participants and their support staff to work through the weekend, or however long it took, to broker an agreement.

Of course, once the euphoria of the moment subsided, reality reared its ugly head. The partisan dogma that separates Democrats from Republicans intervened and at least stalled any hope for a quick final accord. There was also a outcry from vocal elements of the American public.

Many viewers tuned into the evening and nightly news to hear stories of how these corporate giants were about to be saved, while as consumers, they had, or were about to lose their homes, due to the very subprime mortgage fiasco engineered by the CEO’s of these companies. Add to that Mr. Paulson’s lobbying for the latitude to ensure that the CEO’s retained their Golden Parachutes, and his push to make the deal unalterable by federal judges, we can see a clear recipe for stalemate by politicians readying for a General Election less than 6 weeks from today. Finally, adding drama to this financial passion play, the FBI, in news headlining today’s newspapers and other media outlets, puts an even brighter spotlight on four of the key players.

One added, but under reported, dimension to this catastrophe is a potential conflict of interest by Treasury Secretary Paulson. In his previous life, Mr. Paulson was an executive at Goldman Sachs (GS), where he worked 32 years. His compensation packages from the company for 2005, and 2006 respectively were estimated at $37 million, and $16 million. At first glance, it appears Paulson’s compensation was reduced significantly in 2006. However, the reduction is almost completely offset by the fact that he worked only half the year, or less for GS, as he assumed the office of Treasury Secretary July 3, 2006. Mr. Paulson’s net worth has been estimated at over $700 million.

That fact Mr. Paulson has actively lobbied for retention of CEO Golden Parachutes, and includes GS in the group of firms eligible for the bailout, should be looked at askance. His involvement in creating the bailout plan, the positions he has taken, and his historical association with key business interests directly benefiting from the plan he crafted, cause me to be suspicious of him and his plan. It surely appears that Henry Paulson and Gordon Gekko are kindred spirits. I’m done; holla back!
Read my blog anytime by clicking the link: http://thesphinxofcharlotte.blogspot.com. A new post is published each Wednesday.


http://en.wikipedia.org/wiki/Wall_Street_(film)

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http://en.wikipedia.org/wiki/Henry_Paulson

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http://en.wikipedia.org/wiki/George_W._Bush

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http://money.cnn.com/2008/09/14/news/economy/greenspan/index.htm