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Does Wall Street own Paulson? The conspiracy theories start to emerge

Posted Sep 24th 2008 3:19PM by Bruce WatsonBruce Watson RSS Feed
Filed under: Industry, Financial Crisis


As I was looking over the Paulson plan for the fifteenth or sixteenth time (what the hell -- it's only three pages long), I was struck, yet again, by its incredible vagueness. Moreover, watching the good secretary battle Congress and hearing the statements of various Congressional lobbyists, I continue to be amazed by the degree to which Wall Street seems to be trying to defraud the American people. According to Paulson, placing caps on executive compensation (aka "golden parachutes"), subjecting the Secretary's decisions to judicial oversight, giving the government an equity stake in the companies that it helps, and setting a firm end date to the program are all "deal breakers." In other words, the Secretary is convinced that companies will refuse to accept a federal bailout if these conditions are attached.

Wow. Did I miss something? Weren't Paulson and Fed Chairman Ben Bernanke just saying that a bailout is the only thing that will save the economy from a catastrophic meltdown? Now, apparently, some financial companies have determined that a full-scale collapse of the U.S. economy is preferable to leaving a job without sufficient bonuses and separation packages. Rather than tell the heads of these companies to stick it in their ears, however, Secretary Paulson is suggesting that America's taxpayers need to cave in to their demands. This seems so amazingly shortsighted, so incredibly illogical that I began to wonder if there might not be another reason that the Secretary of the Treasury is demanding what seems to be tantamount to financial blackmail.

Howard Rodman suggested a bizarre scenario: he theorizes that Secretary Paulson left his job as CEO of Goldman Sachs in anticipation of this crisis. Hank then went to work for the Treasury in order to orchestrate a major rescue of Wall Street. Having coerced the Federal Government into buying billions of dollars of worthless securities with minimal oversight and provisions, he would subsequently return to Goldman Sachs where, presumably, he would be heavily rewarded for his good work in betraying the public trust.


Of course, this scenario is ridiculous and far-fetched. First off, the current evidence suggests that Wall Street is incapable of predicting that the sun will come up tomorrow, much less foreseeing a major meltdown two years in advance of its occurrence. Beyond that, I'm sure that there is no way that the Secretary of the Treasury could possibly be so utterly treacherous, so completely perfidious. Still, I decided to check out the oath of office that is taken by the Secretary of the Treasury, just to see if Hank has any wiggle room:

I, Henry Paulson, do solemnly swear that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.

Basically, as long as Paulson doesn't endanger the Constitution, he seems to be in the clear. On the other hand, some people are already claiming that Paulson's bailout will do just that (and they aren't all wingnuts like Lyndon LaRouche). Senator Christopher Dodd, for example, argued that the bailout puts the Constitution at risk. By exempting the Secretary, a member of the Executive branch of government, from Judicial and Congressional review, the bailout would, essentially, make him more powerful than the President and would cede him power that usually resides in Congress. According to some scholars, this directly contravenes Article I of the Constitution.

Presumably, Secretary Paulson is unaware that he may have recently attempted treason, but I'm still blown away by the scope of the powers that he requested. What, I wondered, could possibly inspire him to pursue this sort of Julius Caesar-style power grab? And then I read this piece on Bloomberg, which points out that the majority of the bailout funds would go to investment banks that have written down the value of their holdings, a category that, of course, includes Goldman Sachs. Goldman Sachs, in case you forgot, is the company that paid then-CEO Paulson somewhere in the neighborhood of $700 million in salary, stock, and bonuses.

Simon Cameron, a famed financier and politician, once defined an honest politician as "One who, when he is bought, will stay bought." By this standard, Secretary Paulson may be among the most honest men in Washington.

Tags: ben bernanke, BenBernanke, henry paulson, HenryPaulson, howard rodman, HowardRodman

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