Hank Paulson: Blame Crisis on FHA/GSEs

Hank Paulson, the criminally inept Treasury Secretary who shoveled trillions of taxpayer dollars to insolvent banks, facilitated the grand theft of some near $20 billion dollars from AIG by Goldman Sachs (where he was previously CEO), is attempting to change the narrative of the credit crisis and collapse.

In today’s Washington Post piece, Paulson ignores facts, rewrites history, and fabricates causes of the economic collapse:

“A significant root cause of the crisis was the combined weight of government policies promoting homeownership; these are apparent in the housing GSEs, the Federal Housing Administration (FHA), the Federal Home Loan Banks, the federal tax deduction for mortgage interest and various state programs. Homeownership was overstimulated to the point that it was unsustainable and dangerous to the broader economy.”

Let us point out a small problem with Paulson’s rewrite: Throughout the 20th century, interest rates were kept in a realistic range, at least relative to economic growth, by bond traders and the Fed.

At the same time, bank lending standards were based upon historically well founded measures: The borrowers ability to service the debt. Factors that impacted this involved such quaint notions as income, employment history, credit score, other debt obligations, and assets. Further, home loans were based on specific Loan to Value — LTV — meaning that a substantial down payment was actually required. And last, legitimate appraisals were performed at the behest of banks that actually kept these loans on their books for 10 or 20 years — not 30 days.

None of this finds its way into Paulson’s assessment of the causal factors.

How about Alan Greenspan? That is a major systemic risk at the root of the crisis. Greenpan’s tenure as Fed chair was one of irresponsibility and recklessness. His Federal Reserve’s generational low rates set the housing spiral into motion originally. Somehow, Paulson did not see fit to so much as mention Greenspan or the Federal Reserve at all.

Despite repeated warnings by some Fed members, Greenspan directed the Fed to commit nonfeasance — to fail to fulfill its obligation as regulator of lenders. They allowed a proliferation of irresponsible, non-bank subprime mortgage underwriters, who abdicated any and all lending standards. If you really want to find the root causes of the crisis, you begin there. Just don’t look for any mention of subprime lending in Paulson’s commentary. Just as astonishingly, Paulson fails to so much as mention the Federal Reserve’s ultra low rates.

Other things somehow missing from the Paulson commentary? How about the word “derivatives?” Perhaps that might have been a factor? Misaligned Wall Street compensation? Excess Leverage of investment houses? The Repeal of Glass Steagall? The Federal Pre-emption of state lending rules? 

Don’t bother looking for any of these either . . . they were not deigned worthy by the former Gioldman Sachs CEO, and are thus omitted from his discussion as well.

Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs. How did THAT happen? Indeed, the boom and bust in the US was smaller than that of many other nations. And the FHA/GSE role in that? Perhaps the former Treasury Secretary can explain the root causes of that.

Paulson oversaw the greatest transfer of wealth in the history of mankind — from taxpayers to insolvent banks and their bondholders. His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy.

If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing, Instead, it is merely pathetic.

Paulson’s book on the crisis is “On the Brink.” It should be titled “Too Much to Drink.”


Housing policy must be set on sustainable basis
Hank Paulson
Washington Post, July 30, 2010

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