Secretary Paulson discusses U.S.-China dialogue

Secretary of Treasury Henry Paulson made remarks about the U.S.-China Strategic Economic Dialogue (S.E.D.) at an event hosted by the World Affairs Council in Washington, DC.

“We have learned that engagement works,” said Paulson, “engagement can help achieve meaningful tangible results that would not have been possible otherwise.” Paulson said that the S.E.D. has yielded results from economics and trade to product safety and transportation.

Paulson stressed the importance of the U.S.-China talks in helping to solve the current financials crisis. “It is critical that the United States, China and other major economies continue our vigorous efforts and take whatever further actions are necessary to stabilize the financial system,” said Paulson.

Paulson also discussed China’s increasing energy needs. “China is...the second largest consumer of oil behind the United States. Building cooperation and trust between our countries can help prevent competition over scarce energy resources.”

House Committee grills Paulson, Bernanke on bailout decisions

The House Committee on Financial Services held a hearing on "Oversight of Implementation of the Emergency Economic Stabilization Act of 2008 and of Government Lending and Insurance Facilities; Impact on Economy and Credit Availability" on Tuesday in which they questioned Secretary of Treasury Henry Paulson, Federal Reserve Board Chairman Ben Bernanke and Federal Deposit Insurance Corporation Chairman Sheila Bair.

“At this point, public confidence in what we have done so far is lower than anyone would have wanted it to be,” said Chairman Barney Frank (D-MA), “it is essential that we do something to use some of the TARP’s (Troubled Asset Relief Program) funds” to stop the tide of foreclosures in the country. Chairman Frank and other Democrats were critical of how Secretary Paulson had decided to use some of the $700 billion bailout money to buy preferred stocks in banks rather than buy “toxic assets” for which Congress initially called for.

Paulson defended his position by arguing that the best way to save the credit market was by injecting cash directly into banks. “It is very, very important to stay with the purpose of the TARP,” said Paulson. “This is all about protecting the financial system, avoiding collapse, and recovery.”

Who's to blame for Lehman Brothers bankruptcy?

The general consensus was "jail not bail" for Lehman Brothers CEO Richard Fuld, Jr., at a hearing by the House Committee on Oversight and Government Reform on the causes and effects of the Lehman Brothers bankruptcy. This view was held by the Committee, panel, and Code Pink protestors (who were eventually thrown out of the hearing). Congressman Jim Cooper (D-Tenn.) said, "Is this Wallstreet or a casino? Lehman did not find itself in this situation by accident. It as the unlucky draw of a consciously made gamble." Dr. Luigi Zingales of the University of Chicago pointed out that by bailing out these investment banks, we are giving them incentive to gamble at the cost of taxpayers down the line.

Nell Minow of the Corporate Library said that Fuld, "intentionally surrounded himself with people who are complicit. These were people who were getting side payments from the company. They had no incentive to provide any kind of independent oversight." Minow said that by doing so, Fuld created a false idea of the value of his company. These false ideas created high leverage rates, leaving little security in times of economic trouble, and eventually the downfall of Lehman Brothers. Minow proposed a general rule be mandated to pay executives based on the value of business rather than the volume of business. Peter Wallison of the American Enterprise Institute agreed that the only protection taxpayers have at this point is more government regulation.

Additionally, Congressman Dennis Kucinich (D-Ohio) said, "there is an apparent conflict of interest permitting Treasury Secretary Paulson, former CEO of Goldman Sachs, to be involved in these discussions on the survival of Lehman Brothers." The panel agreed it was clear that Goldman Sachs benefits from Lehman Brothers going under, due to the competitive market they're in. As long as Goldman Sachs' interest is in Paulson's pocket, Kucinich says, his role in the bailout goes "against the free market."

Pelosi: Nothing personal Mr. Paulson

Speaker of the House Nancy Pelosi (D-Calif.) announced that she is not buying into the proposed $700 billion rescue package. She said that the Secretary of the Treasury Henry Paulson's proposal is giving away "very expensive powers" without oversight.

"Nothing personal Mr. Paulson, we don't want any secretary of the Treasury having that much power," Pelosi said.

According to the speaker, progress is being made on the bailout issue currently debated in Congress, saying there is need for a strong oversight for the situation not to repeat itself again and the bill will need serious revision before complete. Pelosi said that the market should not be stabilized with taxpayers money. "There had to be a clear message to the markets that Congress would act, and we would act responsibly," she said.

Pelosi said that protecting the taxpayer and stabilizing the markets are the goals of any legislation, "We will have a package that will speak to the issue in a substantial way, and the markets of our seriousness" Pelosi said.

Pelosi admited she is not certain if the current situation will have changed after today's White House meeting, saying a lot of decisions is still to be made before the markets reopens on Monday.