Wednesday, November 21, 2007

Hank Paulson is Trapped

"Hank Paulson [HP], fine-tuning his rhetoric on the falling U.S. dollar, said Friday that the currency ultimately will reflect the strong U.S. economic fundamentals. ... Robert Sinche, head of currency trading at Bank of America, said ... Stronger rhetoric is one of the few tools at Washington's disposal", WSJ, 17 November.

HP "concerned that millions of homeowners aren't being helped quickly enough, is pressing the mortgage-service industry to help broad swaths of borrowers qualify for better loans instead of dealing with mortgage problems on a case-by-case basis. ... That's a shift from his previous view that the problems didn't warrant a group approach. [HP] said his outlook has evolved as he has learned more about the problem. ... [HP] faulted Congress for failing to pass several bills that could potentially provide relief for borrowers, and took aim at a Republican who is holding up a piece of legislation that would allow the Federal Housing Administration to play a greater role in the cleanup. ... [HP] ... also called the Senate's failure to pass legislation overhauling mortgage giants Fannie Mae and Freddy Mac 'very frustrating,' saying that the two government-sponsored entities need to be playing a bigger role in the housing market", WSJ, 21 November.

"Staff and nonsense", said Alice to the Queen of Hearts in Alice in Wonderland. I say that about the dollar's value will reflect "economic fundamentals", instead of how many Helicopter Ben prints. Either HP is living in Wonderland or I am.

What's really going on? Does Mr. Goldman Sachs care about peasants losing homes, or those who hold the peasants' mortgages? It seems HP concluded MLEC won't fly. Now it's time for "Plan B", have Uncle Sam bail out Citigroup etc., by stuffing Freddy and Fannie with bad paper. To make "Plan B' work HP needs new rhetoric which makes it appear he's doing something for the peasants instead of the banks.

Tanta has an excellent 21 November 2007 post about HP at http://www.calculatedrisk.blogspot.com/. Yves Smith has a post about HP at http://www.nakedcapitalism.com/, which I take partial exception to. That said, its worth reading her take on HP's proposal.

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