Bamboozled Again--Another Example of Fact Checking Too Late

When Henry M. Paulson, Jr., Treasury Secretary, appeared before Congressional leaders and scared the daylights out of them with claims that the entire American economic system was about to collapse, I was skeptical. Once again, the sky was falling, i.e., the terrorists were coming in fifteen minutes, we needed to pass the Patriot Act immediately, we needed to eavesdrop, we had to invade Iraq, we need to torture, all because of the incompetence of this administration.

Each of these hysterical calls made fact checking inconvenient and a dangerous delay. Only afterwards has he truth come out.

This time with Democrats barely in the majority in both Houses, the Bush White House whipped the Democratic leadership to push through its unpopular bailout plan, convincing Republicans colleagues that it has to be. That there is no alternative. Interesting since Bush has no credibility with his own party, suddenly he has some with Democrats? OK, we will put in some accountability, a little transparency, maybe even a little bone for the American homeowners.

On September 27, 2008, The New York Times published an investigative story by Gretchen Morganson about the connections that remain between Henry Paulson, former CEO and Goldman Sachs. There is considerable self-dealing involved in Paulson's bailout plan and we should be infuriated. This crisis might be about the collapse of the American financial system, but for certain, this solution is about saving the asses of the same people who made a lot of money while this administration was busy deregulating and being incompetent. Why should we trust Henry Paulson when he is saving Goldman Sachs so that he can protect his own?

Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.

As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.

The only Wall Street chief executive participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.

Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.

Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.

A Goldman spokesman said in an interview that the firm was never imperiled by A.I.G.’s troubles and that Mr. Blankfein participated in the Fed discussions to safeguard the entire financial system, not his firm’s own interests.

Yet an exploration of A.I.G.’s demise and its relationships with firms like Goldman offers important insights into the mystifying, virally connected — and astonishingly fragile — financial world that began to implode in recent weeks.

Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts known as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them.

Take time to read the article, and then raise hell.