Some financial firms, but not all, will be saved. The pattern was set with Bear Stearns in March and repeated with Fannie, Freddie and AIG this month — but not Lehman Brothers. Information Arbitrage lays it out this morning here.
“Unwittingly or not, Treasury Secretary Paulson has effectively created the Paulson Doctrine. The doctrine states that firms that he deems too big to fail (but we’re not exactly sure where the line is drawn: LEH? No. BSC? Kind of. MER? Maybe. AIG, FNM and FRE? Definitely.) get the U.S. Government (and the U.S. taxpayer) as new senior shareholders, while the others are either left to execute an orderly private markets Good Bank/Bad Bank restructuring (if they can, like Mellon in the late 1980s) or a hurried Chapter 11 Good Bank/Bad Bank restructuring (if they can’t: see BCS/LEH circa 2008).
Sure, the headline reads that the Fed bailed out AIG, but was anyone other than Mr. Paulson pulling the strings? I doubt it. So what of this doctrine, and what does it mean for the global financial markets, the integrity of the U.S. regulatory regime and the U.S. taxpayer?
As for the Federal Reserve-backed rescue ofAIG, Reuters’ Emily Kaiser says that the “US central bank may have wiped out what credibility it won resisting Lehman Brothers’ rescue plea, and opened its door to countless other companies to come calling for cash.”
What do you make of the ‘Paulson Doctrine’?
Picture: Treasury Sec. Paulson/REUTERS/Paul Szep
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I personally think welfare is a necessary evil that should be reserved for those whose children might go hungry without it. This welfare for the rich makes my stomache turn. Paulson and the rest of the “old boys club” will be laughing all the way to their off shore bank accounts if they get what they are asking for on this.
- Posted by SkyThe guy was an offensive lineman and he is running true to his background. He is saying give me the ball I CAN make the score… but this is more than one man’s save. Where the hell is Bernanke? in fact where is anyone who actually gives the public confidence? This problem is being exacerbated by a corrupt and ham fisted regime, that is now reaping the rewards of it’s ignorant policys. It must be humbling to realize that they are now about to be washed away like ants down a drain. The conservative doctrine suggests that it is survival of the best adapted and fittest, how do you argue for that when you are going to be relegated to the dump yard of history. Of course there are many examples of this sort of folly over time, and it would be comical if it wasn’t so tragic. I just keep thinking what would Paulson and Bernanke be like running a school trip? Useless??
- Posted by MattMy only comment to all of this is that the United States now has its own version of National Socialism. Heil Bush.
- Posted by Paula Tschauner