Competition is quickly heating up for the right to tap in to the $700 billion Congress approved to put a lid on the boiling financial crisis.
Let’s see. We could spend it to buy up bad mortgage-backed securities and bail out financial deadbeats that are deemed too big to fail (the original plan).
Or we could buy individual mortgages that homeowners can’t pay (John McCain’s plan), or buy direct ownership in banks (Treasury Secretary Henry Paulson’s latest inspiration), or buy up corporate debt, or bail out struggling states, or aid broke municipalities …
That list will grow as interest groups catch on that there’s a giant pot of taxpayer money available to those who position themselves correctly.
That’s why it is critically important who the next president appoints to preside over the spending of the taxpayers’ treasure.
Currently in charge of distributing the bailout money is Secretary Paulson and his Goldman Sachs crew, leading advocates of the free-market “regulation lite” philosophy in vogue during the run-up to the worst financial crisis in decades.
Remember that it was Paulson, as chairman of Goldman Sachs, and four other investment banking heads who quietly and successfully campaigned in April 2004 for a relaxation of regulatory limits on debt ratios at Wall Street firms.
It was a risky bet to open the door for wild leveraging. Paulson wanted to make it. He lost. We all lost.
Now as treasury secretary he’s the one the country looks to for wisdom on how to spend the $700 billion rescue fund. His choice to administer that task is not encouraging.
To head the newly formed rescue agency, called the Office of Financial Stability, Paulson has tapped Neel Kashkari, a 35-year-old protégé. Kashkari used to be an aerospace engineer until he decided to switch careers, go off to business school — he graduated in 2002 — and become a Wall Street investment banker at Goldman Sachs. Smart guy. A quick study.
Last month, Kashkari described himself at an American Enterprise Institute Conference as a “free-market Republican,” Time.com reports. That stance obviously passed muster with Paulson.
Kashkari joined the Treasury Department in 2006, when President Bush named Paulson as his Secretary of the Treasury. He has worked closely with Paulson ever since.
As head of OFS, Kashkari will likely be in charge of purchasing piles and piles of bad assets from overextended Wall Street firms. And he’ll pick the financial experts assigned to placing values on all those dubious assets.
Cutting a good deal for taxpayers will be a very tough task. For starters, there are tens of thousands of bad assets and most are complex. Plus, virtually all the best valuation experts have conflicts of interest.
Kashkari doesn’t have time to split hairs. He has to act really fast in buying up assets because billions of dollars need to be infused into the system quickly … or else. And most likely his job is just temporary — the new president may well replace him when he takes office in January.
Is Kashkari, a green free-market guy, suited to resist powerful financial insiders looking for taxpayer-financed deals? Will he stand tall against favoritism and cronyism?
When the new president takes control of what’s left of the $700 billion fund, he needs to look beyond Goldman Sachs and turn the page on the economic philosophy that placed the country in such a deep hole.
