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Life Turns Ugly for Hank Paulson
While Treasury Secretary Henry Paulson tries to get the home loan industry to clean up the mortgage mess, politicians are piling on.
In some cases, they are tackling the former Goldman Sachs chairman personally. What was recently strictly financial is quickly turning political.
“In the normal case, this is the way markets work,” Paulson told reporters, defending President George Bush’s plan to offer five years of relief to some borrowers.
“There are workouts and there are modifications when homeowners have trouble making their payments. So all this is, is the private sector coming together... to do what they can to avoid foreclosures that are not in anyone's interest,” Paulson said.
Nevertheless, the actual plan - which would freeze rates for borrowers with lower credit scores, while forcing “good” borrowers to pay, even to pay higher rates - came under fire even before it was made public.
Democratic House Financial Services Committee Chairman Barney Frank (Mass.) immediately questioned the wisdom of penalizing borrowers with higher FICO credit scores, saying that credit scare was not a good measure of income or ability to pay.
He’s not alone. Democratic presidential candidates Hillary Clinton and Chris Dodd are airing arguments that there is a price to be paid - and not just on Main Street.
“Some people might say Wall Street only helped to distribute risk. Well, I believe Wall Street shifted risk away from people who knew what was going on to people who did not,” Clinton said in a speech delivered at the Nasdaq Market Site in New York.
No one should be surprised that candidate Clinton would question the role of the financial sector and the Bush administration.
What might be surprising is that conservative economist and commentator Ben Stein directly questions Goldman’s role.
Clinton’s speech echoed some of the comments Stein made in a New York Times column the day before. Stein questioned if Goldman Sachs in particular bears some of the blame since they were among the largest sellers of subprime debt instruments.
Other Wall Street firms were big sellers of these products. But what makes Goldman so responsible, in Stein’s opinion, is that they were also the largest short sellers of these products on the Street.
As Goldman was busy explaining the virtues of subprime investing to some buyers, believed the value of those same instruments would drop.
At the time Goldman was doing all this, Paulson led the firm. That has Dodd promising, if vaguely, to investigate Paulson himself.
"It is in the best interest of resolving this crisis if Secretary Paulson, who was leading Goldman at the time in question. Failure to do so may be cause for a more formal investigation," said Dodd.
While politicians will continue to discuss and debate how much Wall Street is to blame, Stein perfectly summarized the role of Goldman, and every other investment house, in this and any other crisis.
"The people there are not statesmen. They are salesmen," Stein wrote.