Thursday, October 9, 2008

Hank Paulson is fatally conflicted. He should go.

US Dollar Doomed as Credit Crisis Turning into a Currency Crisis

A currency trader friend of mine once tried to cut me off with a quip "I trade currencies, what has the credit crunch got to do with me?". I hope he is reading this article. After viewing the debacle caused by Lehman's failure, Paulson and Bernanke decided it was too risky to let another derivatives-laden firm go under. This time it wasn't even a bank they felt compelled to bail out. AIG was rescued due to its large size and involvement in all kinds of international markets, with the bulk of its business in reinsurance (insuring other insurers). Not surprisingly, the $85 billion loan to AIG prevented a $20 billion loss to Paulson's old firm, Goldman Sachs.

Posted by lvmreader @ 02:20 AM (460 views)
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One thought on “Hank Paulson is fatally conflicted. He should go.

  • In all fairness, whilst he may be conflicted, he is probably the best-informed person in the world to manage the “unwind”. His old firm, Goldman Sachs, cleaned up on subprime. My betting is that he saw what was coming and went to the Treasury on the basis that nobody else seemed to understand the consequences. Even now there’s only really few people who understand why the subprime debacle became a world-wide credit crunch, in terms of what actuallly caused it and how it would pan out. There’s plenty of people who can describe what happened, but very few people (outside this hallowed website) actually expected any of this.

    Who knows, maybe Hank came overrun with moral guilt, or even just fear at what was going to happen to the USA. I’m not sure why else he would have walked away from a position that paid 8- or 9-figure bonuses. Just look at what his successor, Blankfein, got paid.

    True, the conflict is self-evident, but I can’t name another figure in the financial world, apart from maybe Robert Rubin (also ex-GS), who could truly navigate this mess.

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