The Thinking Man's Fridge

My post below outlines why I think the Paulson Plan is an outright terrible idea. But just when you thought the idea to dump US$700b into the failing banks in the United States couldn’t get any worse… it has.

Recent insight from an interview by Rep Brad Sherman provides some further clarity on the plan:

"It (the bill) provides hundreds of billions of dollars of bailouts to foreign investors… The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. It had a provision to say if it wasn't owned by an American… the Treasury can't buy it. It was rejected.

“The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset… that it can't be sold to the Treasury. Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it and the bill has been carefully written to make sure it can happen."

Hmmm. This helps to explain why, for nearly a year, investors and foreign banks have been buying up billions of dollars worth of debt from US banks. They’ve been able to buy up huge amounts of debt, at bargain basement prices, with the intention of selling it back to the United States Treasury, to be dumped on the tax-paying American public.

Now, here’s the real kicker…

On September 29, the Bloomberg News reported that "the Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression. The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide”.

What’s that? The Federal Reserve has ALREADY dumped close to US$650 billion into the failing banks to prop them up, and it HAS NOT WORKED. Why then, is Henry “no Plan B” Paulson’s suggestion to dump another US$700 billion of taxpayer money into the problem going to make any difference, particularly when most economists estimate the true damage to be between US$3-5 trillion?

Wouldn’t the tax-payer money be better spent on education, health care and infrastructure? What are the odds that Goldman Sachs (the bank where Paulson worked since 1974, and who paid him an estimated US$35 million in 1995 alone as the CEO) gets a good seat at the table when it comes to dividing up the US$700 billion amongst the banks?