Treasury Secretary Hank Paulson emerged from his bunker in the epicenter of the financial crisis today to give us an update on his recent efforts to keep the U.S. economy afloat.
In an upbeat Op-Ed piece in The New York Times, Paulson reported that he has successfully ”deployed a $250 billion capital injection” and stabilized the financial system.
The $250 billion that Paulson ”deployed” came from the emergency $700 billion appropriation that Congress passed on Oct. 3 in a measure it called the Troubled Asset Relief Program (TARP). The bailout bill was given this name because Paulson told Congress he was going to use the $700 billion to buy up all of the bad loans the banks made in their headlong binge to inflate the housing bubble.
Hank now confesses that none of this money was used to purchase bad loans. He says it suddenly occurred to him a few days after the TARP bill was passed that ”the severity and magnitude” of the financial crisis necessitated an immediate injection of capital into the coffers of major banks — sort of like those huge needles of adrenaline that are jammed into the chests of heart attack victims on your favorite ER soap opera.
Hank neglected to mention that the idea for this massive injection of capital actually came from the British prime minister, Gordon Brown. Brown used to be Britain’s Chancellor of the Exchequer (finance minister), so apparently he has a clearer concept regarding the workings of the banking industry than Paulson, a former Wall Street titan who used to run Goldman Sachs before cashing in to the tune of $500 million.
Brown tapped Paulson on the shoulder last month and informed him that if the U.S. treasury chief went ahead with his asset-purchase scheme, the entire global financial system would quickly collapse while he was busy buying bad paper. He politely suggested that the U.S. follow Britain’s example and inject a massive amount of capital directly into the ailing banks, and then require them to start lending these funds to borrowers.
Hank also neglected to tell us in his Op-Ed report exactly which financial institutions received the $250 billion worth of ”injections” from Washington and what they did with these funds. He hinted that most had used the moolah to adjust their lopsided balance sheets.
According to numerous reports, the banks that received Paulson’s injections have been busy buying up other banks and paying dividends and bonuses. What they are not doing is making new loans. So it appears that Hank took the first bit of advice from Mr. Brown, but skipped the part about requiring the banks to use the federal funds to jump-start the economy. Oops.
After congratulating himself for this ”decisive action,” Paulson informed us that in order to give the new president the ”flexibility” he needs to address the continuing fiscal crisis, the outgoing treasury secretary will make no additional injections from what remains of the $700 billion bailout fund.
Sounds like somebody — let’s hazard a guess and say it was a guy who lives in the vicinity of Chicago — told Hank to put down the needle and back away from the patient, slowly.
For some reason, this all reminds us of the story of the magician and the parrot.
A magician on a cruise ship does his act on a stage every night. As he does each trick, a parrot in cage behind him says: ”It’s up his left sleeve!” When he tries another trick, the parrot says: ”It’s in his left pocket!”
The magician gets fed up and goes to the captain of the ship. ”This parrot is killing me. He’s telling everybody how I’m doing the tricks. You’ve got to get rid of him,” he says.
”I’m sorry to tell you this, but you’re a mediocre magician,” the captain replies. ”Everybody loves the parrot. We’re not getting rid of the parrot.”
Two days later, the boat hits an iceberg and sinks. There are two survivors — the magician and the parrot. They float along on a wooden plank, sitting on opposite ends and glaring at each other.
For several days, nobody says a word. Then the parrot walks across the plank and pecks the magician on the shoulder. The parrot says:
”OK, I give up. What did you do with the boat?”
We know that Secretary Paulson is far too busy with his magic act to respond to every query that comes his way about the financial bailout, so we’ll limit ourselves to one:
Hey Hank, what did you do with the $250 billion?