The Dirty Little Secret

[Neither the media nor the pols seem ready to touch this hot wire. But with it may lie our economic future — Naomi Klein (Shock Doctrine) is one of the few even to mention this monster. Is this why Paulson seems eager to cover his tracks with the $700 billion bailout? Mayor Bloomberg has sued for disclosure. Ed Kent]


Subject: Who Got the $2 Trillion?

$2 Trillion Handed out by Paulson and
Bernanke, But Who Got It, Nobody Knows

By Nicholas von Hoffman,
The Nation Posted on November 17, 2008,
Printed on November 17, 2008

With his latest policy switch to buying stock in banks
and other companies, Henry Paulson has more zigs and
zags to his credit than a fox trying to escape a pack
of hounds.

The fox and the hounds, of course, have a clear idea of
what they want to do and how they want to do it, which
is more than you can say of Paulson. Sums of
incalculable size are being spent or pledged by Paulson
and his playmate, Ben Bernanke, chairman of the Federal
Reserve Board, and nobody outside their organizations,
or maybe inside them either, knows who got what, how
much they got, and under what conditions they got it.

In the past couple of months Bernanke has loaned out $2
trillion to unnamed companies under eleven different
programs and all but three of them were slapped
together in the past fifteen months of financial

To repeat, we do not know who got this money or what
collateral was put up in return for the loans or what
conditions were attached to them.

The sums involved are almost three times as large as
Paulson’s $700 billion muddled bailout efforts that
Congress voted for last month. Bernanke does have the
legal authority to pass out these trillions without
Congressional authorization and without explanation,
but secrecy breeds suspicion and loss of confidence.

These officials preface every speech by talking about
“transparency,” their favorite word, at the same time
they are handing off $2 trillion and they won’t say to
whom, and leading Bloomberg News to file suit under the
Freedom of Information Act.

Paulson has made off with $50 billion to give to AIG
for the purpose of setting up a special entity by which
the company’s lousiest loans are to be kept off the
books and the unknown debtors protected. When asked
about this by the New York Times, Lynn E. Turner,
who sits on the Treasury Department’s Advisory
Committee on the Auditing Profession, complained that
“We’ve had way too many things here that nobody knows
anything about…. That’s why no one has faith in the
capital markets.”

Paulson appears to have given away, invested, loaned or
lost about $300 billion of the first $700 billion
Congress gave him. But he has lost more than money:
Nobody believes him or Bernanke anymore.

Every day another company steps forward with its hand
out — American Express, Chrysler, GE Financial — and
every day it appears Paulson and Bernanke are prepared
to accommodate these corporate mendicants.

Paulson left his job as CEO of Goldman Sachs to become
treasury secretary, and by now it may be dawning on him
that CEO-ship is no substitute for an apprenticeship in
public service that might have given him the political
skills he lacks. The same may be said of Bernanke, who
spent much of his life as a harmless Princeton
professor of economics.

Both of these men are convinced, doctrinaire
free-marketeers. They hate supervising this
intervention into American business. Paulson repeatedly
bemoans what he is doing.

Hence, both the principals are trying to devise and
carry out programs that they do not believe in. They
cannot have spent any time thinking about how
government might regulate and intervene successfully.
It’s as though one were to ask a couple of pro-life
physicians to conduct a series of abortions. Should we
be surprised they do not do it well?

With President Bush “hors de combat” and having
rendered himself a nullity, we are reduced to Paulson
and Bernanke to show us the way in this maelstrom. That
may explain why criticism of their work has been so

Two female officials, however, have conducted their
offices with distinction. Sheila Bair, chair of the
Federal Deposit Insurance Corporation, has moved heaven
and earth to get Paulson and Bernanke to embrace a
massive program to stop the housing foreclosures and
take the first step toward ending the chaos. To say
that she has had mixed success with the men is an

Less well known is Brooksley Born, who will be a major
figure when the history of this Great Debacle is
written. Born was the chair of the Commodity Futures
Trading Commission from 1996 to 1999. She foresaw the
calamity that runaway use of credit default swaps and
other derivatives would cause, and battled to impose
regulation on them. She was stopped by Alan Greenspan,
Arthur Levitt and Robert Rubin, the major economic
figures in the Clinton administration.

After a distinguished career in law, Brooksley Born has
retired to watch birds and play with her grandchildren.
Sheila Bair battles on against the dunderheads, and we
are left helpless, waiting.

Nicholas von Hoffman writes regularly for The Nation.
He is the author of thirteen books, including Citizen
Cohn, and he is a columnist for the New York Observer.
2008 The Nation All rights reserved.

“A war is just if there is no alternative, and the resort to arms is legitimate if they represent your last hope.” (Livy cited by Machiavelli)

Ed Kent 212-665-8535 (voice mail only) [blind copies]

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