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Paul Kiesel
Paul Kiesel
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Three Blind Mice: Bush, Bernanke and Paulson on the Economy

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How wrong were Bush, Bernanke and Paulson on the state of the economy over the past six months? Very wrong.

“I have great confidence in our capital markets and in our financial institutions. Our financial institutions, banks and investment banks, are strong. Our capital markets are resilient. They’re efficient. They’re flexible.” — Treasury Secretary Henry Paulson on March 16, 2008

“Our policy in this administration — laws shouldn’t bail out lenders, laws shouldn’t help speculators.” — President Bush on May 19, 2008

“There is little public policymakers can, or should, do to compensate for untenable financial decisions.” — Treasury Secretary Henry Paulson on July 8, 2008

“Our economy has continued growing, consumers are spending, business are investing, exports continue increasing and American productivity remains strong. We can have confidence in the long-term foundation of our economy [. . .] I think the system basically is sound. I truly do.” — President Bush on July 15, 2008

“I understand there’s a lot of nervousness [. . .] The economy is growing. Productivity is high. Trade’s up. People are working — it’s not as good as we’d like. And to the extent that we’ll find weakness, we’ll move.” — President Bush on July 15, 2008

“We will work our way through these financial storms [. . .] Freddie and Fannie are in no danger of failing.” — Fed Chairman Ben Bernanke on July 16, 2008

“Market intervention is a policy that’s been undertaken a few times. I think it’s something that should be done only rarely. But there may be conditions where markets are disorderly, where some temporary action might be justified [. . .] But I think the dollar in the long term depends really on the fundamentals, and it’s up to us to get fundamentals right.” — Fed Chairman Ben Bernanke on July 16, 2008

Bush, Bernanke and Paulson: How did these guys not warn the public earlier? If they truly believed in these statements on the economy, they were completely wrong. If not, then the motives for statements like these are even more insidious.

It’s not like all of these economic problems with regards to the housing market, inflation and Wall Street just started happening this year. The wheels were in motion for our current financial crisis years ago — one could even say almost a decade ago, as a Republican-led Congress pushed for deregulation and, ultimately, got their way, which has proven to be the at the root of this problem: Nobody was regulating or overseeing the type of lending and banking that was taking place.

Also, nobody is looking at the sudden shift in the Bush Administration’s economic policy. Bush, for months, had been against any type of government intervention into the “free markets.” It wasn’t until July, shortly after making inappropriate comments about the health of the economy at a private fundraiser and having it leaked onto the internet (thanks, YouTube), that Bush conceded and supported a housing bailout package. Now he’s for rewarding the people that provided these loans with misleading language — sometimes fraudulent language — that has helped spur some of the highest foreclosure rates in modern history (TILA and other mortgage fraud have been rampant throughout the course of the subprime and option ARM lending boom).

Bernanke, since becoming the Fed chairman on February 1, 2006, largely ignored the signs that the economy was turning sour, however, at his defense, Greenspan didn’t provide much help as he left his post; Greenspan himself ignored the signs and assessed the entire situation incorrectly (short term and long term — particularly with housing).

And Paulson, well, he might have the most at stake with regards to the Wall Street Bailout package. Paulson’s net worth was almost $700,000,000 before the markets started hemorrhaging over the summer. He has almost $500,000,000 tied up in the investment bank Goldman Sachs, where he was the CEO before he became the Treasury Secretary. Goldman Sachs’ biggest competitor was Lehman Brothers. Lehman Brothers filed for Chapter 11 four days before a bailout package was announced. Lehman Brothers will not benefit from this bailout package. Lehman Brothers’ assets are being broken up and sold to other investment banks like London based commercial and investment bank Barclays. Goldman Sachs no longer has Lehman Brothers to worry about. Also, Section 8 of the original bailout proposal gave Paulson the authority to disperse funds as he saw fit, and that his decisions may not be reviewed by any court of law.

Fortunately, Congress, led by strong bipartisan efforts (many Republicans were willing to work with Barney Frank, Chris Dodd, Jack Reed, and other congressional Democrats on amending the original Bush Bailout Plan, so troubled homeowners and other under represented parties benefitted from a rescue package, as well), has come to terms on a revised Wall Street Bailout plan. Now we’ll just have to wait and see if Bush, Bernanke and Paulson waited too long to make a move and who benefits most from the bailout package.