A Letter From Paulson Estates
The tools to understand what's happening to America lie not in the details of CDOs, CDSs, SIVs, LBOs, MBSes or MMMFs. They're heated and forged in history, context, metaphor. Having predicted 7 years ago in another scurrilous September, these fallouts we're witnessing, knowing this time they wouldn't be content until they'd taken everything, I'm still the fool.
Hank Paulson was involved in Watergate; he was John Erlichman's assistant, Erlichman who went to jail for setting up "the Plumbers," the internal witch hunt in the White House, and hotel break-ins. For any youngsters who wander in here, the codes you just heard means Comrade Treasury Secretary Paulson wants to finish America off and turn it into something else, say, "Paulson Estates." He appeared with all the talking heads on Sunday, then came before our cold comfort Congress to sow hysteria and demand the full wealth of Golconda, else the wrath of financial Jupiters will rain down. There has been silence, and a deeper silence, while the Senators hesitate.
There is no law which says when a mortgage lives to 3 years old, a borrower's payment has to triple. That's a contract, not a law. Foreclosure is a choice. $100 billion to bridge the gap between non-performing home loans and the value of financial derivatives would have held up the whole house of cards, but it couldn't be done, because the Law of Personal Responsibility would be violated. (Yet a mortgage moratorium was done here in 1933 to keep people in their houses and farms.) There are links, opinions, and facts galore, but history, context, and metaphor tell me what should be done is what will not be done. In a parallel universe where Ralph Naders dwell, here is what should be:
- No bailouts without conditions and reciprocity in the form of stock warrants.
- No more lobbying for any company that is bailed out.
- No golden parachutes or get-out-of-jail-free cards for guilty executives.
- No bailouts without public hearings.
- Reduce the moral hazard in U.S. mortgage markets by introducing covered bonds for the majority of mortgage products, as is done in Western Europe. That gives institutions that finance mortgages an incentive to be prudent, because they cannot just unload them and wipe their hands clean of the liability, but are instead on the hook if the homeowner defaults.
- Maintain neighborhood stability and housing security by passing a law with a sunset clause allowing below-median-value homeowners facing foreclosure the right to “rent to own” their homes at fair market value rates.
- Avoid future housing bubbles by removing implicit government guarantees for new mortgages that exceed thresholds of greater than 15 to 20 times the annual fair market rent value of the home.
- Make the Federal Reserve a Cabinet position, so it is accountable to Congress, as well as make sure all Federal Reserve Bank presidents are appointed by the president and answerable to Congress.
- Reduce conflicts of interest by taking away power for auditor and rating agency selection from companies and placing it in the hands of the SEC to be administered on random assignment.
- Implement a securities speculation tax, starting with derivatives, to deter casino-style capitalism.
I'm the fool. I still want them to take the world and hold it against the light which shines on Delphi, watch its cellophanes weave and play like color slides, suspend the orb in their marble abytum and set a gentle ear to the hive inside. I want them to pause on their ascendancy, roll pebbles idly down the mountain and meditate on each one's fall. Oh, how I wish they could skim across the surfaces of these earthly shelves and feel the tensile calculi, looking down with smiling faces, apprehending the artifacts of what once were nations, waving at us toiling on the shore.
(Note: the painting above is Salvador Dali's "Soft Construction with Beans, Premonition of Civil War," painted in 1936.)