Hank Paulson: Financial Reforms Are 'Required'

It was former Treasury secretary Henry "Hank" Paulson's turn in front of the Financial Crisis Inquiry Commission yesterdayn-- and, boy, does this guy sound like the voice of reason we've all been looking for.

His testimony was compelling, on-point, and chock-full of tremendous insight. Some snippets:
  • "Reforms are unquestionably required'
  • "Better disclosure is necessary."
  • "The regulatory system is archaic and outmoded."
  • "Credit Rating Agencies were a dangerous crutch."
  • "Liquidity is important."

Gee, where was this guy when we needed him? Oh yeah, he was right in the thick of it.
Smooth and politically correct and sm vernacular to be feeding Congress -- one shouldn't expect anything less from someone as savvy as Mr. Paulson. He has quite the recent resume, too: CEO of Goldman Sachs from 1998 to 2006 and Treasury secretary from 2006 to 2009. One doesn't stumble into such prestigious positions, he must have earned them....

Well, let's look a layer or three deeper, because this guy has a history of acting in one regard then literally debunking himself and those actions. Compare what Hank Paulson said today, with his statements and actions over the past 6 or so years, which include:
  • Spring 2007: Secretary Paulson told an audience at the Shanghai Futures Exchange that "an open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention."
  • August 2007: Secretary Paulson explained that U.S. subprime mortgage fallout remained largely contained due to the strongest global economy in decades.
  • July 20, 2008: After the failure of IndyMac Bank, Paulson reassured the public by saying, "it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."
  • August 10, 2008: Secretary Paulson told NBC's "Meet the Press" that he had no plans to inject any capital into Fannie Mae or Freddie Mac. On September 7, 2008, both Fannie Mae and Freddie Mac went into conservatorship.
Paulson was instrumental in bailing out A.I.G., the insurance company that underwrote many of the credit default swaps that effectively enabled the shorting of the collateralized debt obligations, the likes of which are the focus of the SEC's suit against Goldman and from which Goldman directly benefited ... the same Goldman that Hank Paulson ran for 8 years.

Furthermore, in 2004, many of the major Wall Street investment firms (including the prestigious and influential Goldman Sachs, headed by Paulson at the time) convinced the SEC to release them from the Net Capital Rule. The Net Capital Rule, established in 1975, effectively required investment firms to maintain a relative level of liquidity to insure payment obligations to its customers.

By abolishing this rule for the five largest investment firms on the street (with Paulson's heavy influence), the SEC enabled many of the shenanigans it and Congress are now frantically trying to regulate. They successfully lobbied to throw liquidity requirements out the window and permitted the ridiculous leveraging that caused a collapse in three of the five firms that were allowed out of the net capital rule.

Today, Paulson endorses the financial reform legislation that would require regulators to require higher capital and liquidity for financial institutions. Nice track record, Hank ... way to cover your a$$.
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