Nobody working for Obama seems to know how big his public works program will be, but the usual number you hear is around $700 billion.
You know where they got that number: from Hank Paulson's original bank bailout. You can imagine the rhetoric already: "If we can afford $700 billion for Wall Street, we can afford $700 billion to fill the potholes on Main Street!"
And how did Paulson come up with his $700 billion number? As far as I can tell, he basically had no clue. He just wanted a really big number "to restore confidence," but he probably didn't want one so big that you could round it up to "a trillion." Hence, $700 billion, our new national lucky number.
Update: A commenter points out that when Paulson left Goldman Sachs, he cashed in for $700 million, which might be how he came up with 700 as his favorite number.
Update: A commenter points out that when Paulson left Goldman Sachs, he cashed in for $700 million, which might be how he came up with 700 as his favorite number.
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13 comments:
I had a feeling about this. A new administration thinks they can spend money better that the last one. Rinse and repeat. Ramp to failure.
Lucky for SOME people... NOT lucky for us!!!
And when Paulson left Goldman, he personally cashed out $700M, which was his share of Goldman's phenomenally successful venture into becoming such a leveraged player in mortgage securities. That's probably where he got the idea of the "700" figure, which he later used to save Goldman from going under...due to mortgage securities.
Monty Python meets Wall Street...
700 Million? Good God, they could have paid me one seventh and they could have just lost money slower because I wouldn't know how to lose if faster.
so why would the high-stature paulson leave Goldman to serve in the last phase of the failing Bush administration? Well, the perfect excuse to dump $700 million of mortgage securities exposed stock without being viewed as trading on inside information or signaling to investors that Goldman was weak internally. wall street execs. weren't a bunch of bozos; they were just conflicted. shrewd insiders like paulson had very good insight into the state of the firms' finances and derivatives exposures. By the end of the chief executives' careers, the entire firms become trades. LTCM gambled its equity with the intention of going bankrupt; wall street execs continued to expose themselves to eventually catastrophic declines in subprime mortgage securities because they were able to generate higher short term profits and high bonuses. wiped out stockholders asking for the money back don't seem to realize that they lost in the trade. that they were the fools on the negative end of the zero sum trading game. you could say that paulson did the best trade of all, leveraging his public stature as the well respected treasury secretary to better cover his tracks.
Actually it's a curious fact of human psychology that if you ask someone to pick a number, they almost always pick 7. Magicians have known this for years.
http://en.wikipedia.org/wiki/The_Magical_Number_Seven,_Plus_or_Minus_Two
It seems at that level they really are talking about Monopoly money.
I think $700 billion was the rough estimate of sub-prime mortgage exposure.
Second anonymous: I don't think that Paulson left because he knew Goldman was a house of cards at that point. He left because he figured he had enough money and now he wanted some power and glory to complement his wealth. If he had known what a disaster all those CDOs were going to be, he would have done the same thing that his namesake John Paulson (the hedge fund manager) did and bet against them by buying a lot of credit default swaps. But Hank wasn't as smart as the other Paulson.
"wall street execs. weren't a bunch of bozos; they were just conflicted. shrewd insiders like paulson had very good insight into the state of the firms' finances and derivatives exposures."
It is true that Wall Streeters aren't a bunch of bozos, but I am not sure what you mean by "conflicted." Most of the people I know on Wall Street are not overly concerned with morality or justice, nor do they desire a deep understanding of the world. They simply accept conventional wisdom and want to make a ton of money. This goes from low level traders to Managing Directors at the largest firms who are pulling down massive salaries and bonuses.
What is frustrating is that people are so stupid they actually believe that people like Paulson are considered, research oriented men, who can also launch into action. This couldn't be further from reality. Wall Street pays big money to performers, not so much to the guy who dreams of drafting a philosphy of the world. Paulson is in way over his head. His actions are idiotic at best and criminal at worst. He is foolishly promoting state planning despite the fact that events in the 20th Century should have cemented the notion that such intervention is dangerous and ineffective.
Sadly we will probably need to go through this cycle one more time till they finally ditch the CRA. In spite of all of the sympathy for the recently defaulted I have not heard anything about what is going to be done going forward for new borrowers. Many of the ideas being kicked around about how to bail out the sub-prime mess are schemes that allow the defaulters to refinance their existing loans. What are they going to do? Give them another zero down loan just with less principle?
Anybody else here is wondering why Paulson is not in jail? Insider trading, embezzlement are still crimes, aren't they?
Just asking.
"Proofreader said...
Anybody else here is wondering why Paulson is not in jail? Insider trading, embezzlement are still crimes, aren't they?
Just asking."
Me too. And Bernanke too, while we're at it. And in keeping with the model of governance those two are in favor of, I say we throw them in prison for a period of time entirely at our discretion, and without possiblity of judicial appeal.
"Nobody working for Obama seems to know how big his public works program will be, but the usual number you hear is around $700 billion."
700 billion doled out over YEARS isn't going to do much; the government has already thrown away at least that amount in a matter of months and the system is still experiencing a major downturn.
But at least Obama's 700 billion will be used to maker things of concrete value like roads, bridges, sewers, cheap broadband (hopefully!), etc.
The financial system has been given hundreds of billions yet they do nothing productive; instead they shuffle paper and play with numbers on a computer screen.
Meanwhile the Big 3 who actually produce something of worth and value get NOTHING.
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