Is Hank Paulson Andrew Fastow?

"Historically--and under accounting rules--banks stepped in to rework loans only if they were in actual default, when it became the bill collector's responsibility to minimize investor loss. ... At the same time, banks continue to keep those loans off their balance sheets via an increasingly flexible interpretation of existing accounting rules, a move which may have the added benefit of helping protect the banks themselves from investor lawsuits. ... Under accounting rule FAS 140, lenders must make a 'true sale' to the trust, so that it, and not the lender, is the actual owner of the loan proceeds. That allows the lender that originally made the loan to remove it from its balance sheet. ... But critics say another important reason banks and policy makers are straining accounting rules to preserve the QSPE structure is that the legal and accounting structure of the 'true sale' is designed to shield banks from investor lawsuits. ... [T]he potential liability for banks that set up these securitization structures could vastly outnumber the tens of billions banks paid out after Enron. ... Indeed, Treasury Secretary Paulson attempted to assuage the banks' litigation fears in his Thursday remarks unveiling the plan, noting that 'with the investor community on board as a clear beneficiary of this approach, the risk of litigation should be manageable.' ... Still, it's clear that as the crisis has grown, so has the flexibility of the financial community's interpretation of QSPE accounting rules", Tim Reason (TR) at http://www.cfo.com/, 11 December.

This is a farce. Why is Hank Paulson running interference for the banks? Is Chris Cox (CC), nominally our SEC chairman, protecting investors as opposed to banks' managements from investors' lawsuits? TR notes CC, "cited a June 22 roundtable hosted by the FASB--at their request--as justification" "to sign off in July on the idea that a 'reasonably forseeable' default gave banks the same authority as an actual default" and could change the accounting treatment of loan modifications. We are Alice in Wonderland. The Treasury, SEC and Fed all protect banks from Patrick Buchanan's "peasants with pitchforks". Thomas Jefferson was right, "banking establishments are more dangerous than standing armies". See also my 18 November post.