Forgive Us Our Trespasses


Cinderella.  Glass slippers.  A poor girl.  It was a story about illusion.  The story was really about wealth and poverty.  And the author in the end ties the illusion into romance.  Marrying well. in the fairy tales. 


At the time of the New Millennium, John Paul II proposed that debt forgiveness be instituted for 3rd world countries, keeping a custom from an age long ago.  No one one on Wall Street appeared to give this idea serious consideration.  The idea seemed more like a story for young kids.  There seemed to be a fairness missing. 


In a piece today, Elizabeth Moyer in Forbes quotes CreditSights, a research firm in New York and London, that so far the U.S. government has put itself on the hook for some $5 trillion in an attempt to arrest a collapse of the financial system.  The estimate includes many of the various solutions cooked up by Paulson and Ben Benake.  “The FDIC, meanwhile, is guaranteeing $1.5 trillion of senior unsecured bank debt.” 


In a speech yesterday at the Treasury Department., Henry Paulson said: “I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world, we have already seen signs of improvement.”


The environment of leveraged borrowing is over.  It is over for government.  It is over for the home owner.  Bankers, LIBOR rates, big money realize that in a deflation, you need cash to keep going, to keep your business in operation.  In a new era of deflation, you want cash.  To offer low interest rates when low interest rates developed this quagmire is beyond logic and is throwing oil on a fire.  You can no longer create wealth with illusion.   


The axis of power at the Treasury Department has included an imposing army of top-of-their-class Goldman Sachs people. From the September 21, 2008 Washington Post was a letter written by Eric D. Hovde, chief executive of Washington-based Hovde Capital.  “Firms such as Goldman Sachs and Lehman not only made billions of dollars packaging and selling these toxic loans, they also wagered with their own capital that the values of these investments would decline, further raising their profits. If any other industries engaged in such knowingly unscrupulous activities, there would be an immediate federal investigation.  Why is Washington so complicit in this intricate and lucrative affair? First, the Fed laid the groundwork for both these asset bubbles by lowering interest rates to historic lows.”


The axis of power at the Treasury Department includes a lot of people who must be afraid to tell Henry Paulson “NO!” 


In a piece in Fortune in the last week of September 2008, Alan Sloan wrote: “It is apparent to me that Washington’s attempt to bail out banks and brokers will do nothing but add to consumer debt, weaken the US dollar, and literally waste $700+ billion dollars which could have gone to more productive uses. Since the markets blew up in the summer of 2007, Paulson and Bernanke have tried one thing after another to stimulate lending and restore confidence but nothing has worked for more than a brief period.  For the past 14 months Paulson and Bernanke have thrown hundreds of billions of dollars of fed assets into the market, yet lenders still won’t lend.”                                                           


According to an October 17, 2008 piece in the New York Times, as he fought for the survival of LehmanBrothers this summer, “the CEO of Lehman Brothers, Richard Fulda, Jr., made a final plea to regulators to turn his investment bank into a bank holding company which would allow it to receive constant access to federal funding.  According to an October 17, 2008 piece in the New York Times, according to a former Lehman executive who requested anonymity because of continuing investigations of the firm’s demise, the president of the Federal Reserve Bank of New York, Timothy Geithner told him no. Its options exhausted, Lehman filed for bankruptcy in mid-September.  A week later, Goldman and Morgan Stanley were designated bank holding companies.” 


“That was our idea three months ago, and they wouldn’t let us do it,” said a former senior Lehman executive who requested anonymity because he was not authorized to comment publicly. “But when Goldman got in trouble, they did it right away. No one could believe it.”




 No one could believe that Cinderella had been at that ball.  Eight years ago, no one gave serious consideration to the idea of debt forgiveness.  No one could believe the idea.  I still have a hard time getting a handle on credit swaps, how this was all derived.  I know that Henry Paulson was at the ball when these ideas which were driving valuations down were derived at Goldman Sachs.  Now he was at the printing presses of currency.  I cannot believe all that is happening.  What Eric D. Hovde never quite explained when he said “Firms such as Goldman Sachs and Lehman not only made billions of dollars packaging and selling these toxic loans, they also wagered with their own capital that the values of these investments would decline, further raising their profits.”  The unscrupulous activities involved people and institutions who had contracted for new building with these credits swaps attached like your mortgagee requring you to purchase life insurance on the amount of your loan when you took out a mortgage.  After Lehman Brothers went poof in the night, builders who might cancel a construction project still would have to pay Lehman if they cancelled their project.  

How soon now before money as the medium of exchange would be questioned? 


Suddenly debt forgiveness was being talked about for every corporation with a spin doctor and a lobbyist.    In my view, Henry Paulson should have just asked for forgiveness for his mistakes.  “As we forgive those…..”


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