The following is another interesting take on Paulson's shenanigans from a thread over at Common Dreams:
Paulson’s Great Depression:
It is difficult to believe that Paulson is not intentionally destroying the world economy, since his company, Goldman Sachs has been so intimately involved in setting the stage for this fiasco.
Goldman Sachs was involved in many sub-prime securitizations, and then was instrumental in setting up the ABX index, which Goldman then shorted to death after selling the index to its clients. By shorting the ABX index, Goldman not only made huge profits, but also eliminated all financing for real estate securities by spreading the notion that they had no resale value, because the value “indicated” by the ABX index was so low. The notion of “toxic securities” was sold to the world by Goldman and their confederates. Once new real estate lending was substantially restricted, a broad decline in real estate prices was a certainty, and recently adopted “mark-to-market” accounting rules forced lenders to report balance sheet losses even for loans that were current.
Goldman also helped develop and sell complex securities, that have magnified the extent of the damage done. Collateralized debt obligations and credit default swaps can magnify any actual loss, since there are many more credit default swaps sold than actual loans made. A $1 actual loan loss can become $10 or more of losses to one side of the swap transaction, and $10 or more of gain to the other side of the transaction.
Paulson has made the financial crisis much worse by his publicly stated intention to “punish” some companies. While Bear Stearns was “bailed out”, Lehman was allowed to fail. Fannie and Freddie were “rescued” in a way that arbitrarily removed $10 to $15 billion of capital from banks that had invested in the preferred stock, which then reduced those banks’ lending capacity by $100 billion, making the “credit crisis” much more severe than it was before the “rescue”. Instead of stopping a run on Washington Mutual by providing cash loans, Washington Mutual was unnecessarily liquidated, to demonstrate the urgency to authorize $700 billion to Paulson’s Treasury.
Of course because of credit default swaps sold around the world, financial institutions’ losses on the Washington Mutual liquidation are vastly larger than the cost of keeping Washington Mutual open as an independent entity.
Now we come to the $700 billion. If this is used SOLELY to purchase whole loans, then the institutions now holding those loans do not experience losses that get magnified by credit default securities, and the government is in a position to rework the loans with affordable payment terms, so that people keep their homes, and the government recovers its entire investment. If this money is used to purchase “downstream securities”, such as securitization interests, CDOs, and credit default swaps, then vastly more money is required, and homeowners still lose their homes.
Why would Paulson seek the authority to buy “downstream securities”? Could it be that Goldman and its confederates hold these securities, and make vastly more money at taxpayer expense by selling these securities than by allowing people to remain in their homes, eliminating the defaults that make these credit default swaps so valuable to one side of the contract, and so costly to the other side of the contract, the US taxpayer, if Paulson gets his way.
Let's work to kill this damn bill.
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