All the Wrong Policies: Paulson Gets 'F-Minus' from Former Regulator
Posted Nov 21, 2008 02:52pm EST by Aaron Task in Newsmakers, Banking
Related: GS, XLF, JPM, BAC, C, WFC
As bad a year as the stock market is having, Treasury Secretary Paulson is having an even worse one, according to William Black, Associate Professor of Economics and Law at the University of Missouri.
The professor, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis and blew the whistle on the "Keating Five" in 1989, says Paulson deserves an "F-minus" for his role in the financial crisis.
"All of his policies made [the crisis] worse," says Black, citing Paulson's:
Pushing for more deregulation of the securities and mortgage businesses.
Failure to recognize the liquidity crisis in credit markets sooner.
Failure to act to stop foreclosures sooner.
Opposition to the government taking equity stakes in financial institutions, until very late in the crisis.
"And he gets the worst grade because as head of Treasury he's also in charge of banking and thrift regulation," Black continues, noting he "destroyed" rather than beefed up supervision. "I hope you like the consequences."
Black, author of "The Best Way to Rob a Bank Is to Own One," says there's ample reasons why the financial markets have lost confidence in the Secretary.
He also notes Paulson steered Goldman Sachs into subprime and alt-A mortgage securities before becoming Treasury Secretary in 2006. Goldman began shorting those instruments shortly after Paulson's departure, he notes.
The current crisis is "not a hundred-year flood, that suggests it's an act of God caused by random forces," Black says. "This was one cause by bad policies, the same policies that have caused prior crises."