JOHN PAULSON VS HANK PAULSON

The link cited below is to an article from government and finance series I started in 2007.  Many of my past predictions are now ‘old news’ as we’ve become as blind to the bailout numbers as we were to the deception that started them.

In fall of 2008, during the midst of the greatest financial crises the world has known, I wrote a piece entitled, “The Game is Rigged.”  In it, I put in my two-cents to expose what I saw happening with the Hank Paulson bailout plan, which only served to bully us into enriching the cabal of ‘good ‘ole boys’ composed of  Wall Street banksters, government thieves and other criminal insiders while everyone else tightens their collective belts.

The Hammerin’ Hank Paulson Plan designed a plan to use pubic funds to solve private Hammerin' Hankindiscretions, corruption, and greed.  It was embarrassingly obvious if anyone cared to look.

He presented the plan in the fall of 2008 – intimating that some unimaginable disaster would happen unless we all did exactly what Hammerin’ Hank wanted us to do –  the congress capitulated and gave the banksters more money than most of us could imagine at that time, over seven hundred billion dollars!  Now we know that was only the tip of the iceberg.

It was a classic hustle, a con perfectly executed by well-trained, experienced operatives.  The money disappeared into an invisible hole that may never be recovered.  And to add insult to injury, the perpetrators of the crime awarded themselves obscene bonuses while the Wall Street financial institutions they worked for or were in charge of ended up losing money.  At that time, it was the largest heist the world has seen.  But hang on, you ain’t seen nothing yet!

Those of us who wrote to oppose this sleight of hand rip off but those voices were largely ignored and detractor of considerably higher profile than the musings of this humble author. 

John Paulson is one of these people, a renowned investor and speculator on Wall Street.  The article to follow reveals information you need to know to survive the systemic financial risk facing us all.  Let me introduce this man if you haven’t heard of him.

John Paulson – the most successful speculator of the last 20 years – is not related to former Goldman Sachs CEO and former U.S. Treasury Secretary “Hammerin’ Hank Paulson.”

In 1994, John Paulson started a hedge fund which as of 2008 had over $36 billion in assets under its direction.  By the end of 2009, he was on the Forbes 400 list of wealthiest Americans with an estimated net worth about $12 billion.  Then, Mr. Paulson made a calculation: The supply of dollars had expanded by 120% over several months. That surely would lead to a drop in its value, and an eventual surge in inflation. “What’s the only asset that will hold value? It’s got to be gold,” Mr. Paulson has now placed more than $4 billion of his firm’s assets in the metal.

A rare insight into what John Paulson is doing with his personal money is revealing.  Apparently, his fund offers a special option whereby you can invest using gold. You convert your cash into gold and buy into the fund using bullion. When you cash out, you are paid in gold at the value it is worth that day. John Paulson is 100% invested in this style.

“When the world’s most successful speculator would rather be invested in his own fund via bullion instead of dollars… you gotta wonder why you’re still carrying greenbacks in your wallet.” –  rickackerman.com

The writing to follow is a piece that John Paulson wrote for the Wall Street Journal, published on September 26, 2008.  He makes a compelling case against the “Hank Paulson Plan” and the $700 billion “invested” in Wall Street banks.  Hindsight has shown us that the “Paulson Plan” was nothing but a con-game scheme to cover the hubris, greed and arrogant criminality of Hammerin’ Hank’s bankster buddies and it did nothing for the people, except to further burden them with debt beyond any imaginable ability to repay.

I am proud that I wrote the articles I did a year ago in a small way to help raise awareness of what was going on.  I am prouder still that a high-profile  luminary such as John Paulson agrees with my point of view.

Read his article to follow, and you will end up with a very clear idea of what is really going on behind the curtain of subterfuge and deceit of our “loyal” government employees.  As will become clear, we have the best politicians and economists that money can buy.  And neither group is motivated by any other significant reason whatsoever.

daniel w. jacobs
(c) 2009-2020, all rights reserved

THE PUBLIC DESERVES A BETTER DEAL

The Treasury plan to buy illiquid financial assets has been widely criticized as being unfair to taxpayers, who will have to bear losses ahead of shareholders of the institutions that will be bailed out.

[The Public Deserves a Better Deal] Corbis

There is a better alternative to stabilize the markets: Invest the $700 billion of taxpayer money in senior preferred stock of the troubled financial institutions that pose systemic risks. Let’s call this the “Preferred plan.” In fact, it is the Fannie Mae and Freddie Mac model — which the Treasury Department has already endorsed and used in practice. It is also the approach Warren Buffett used for his investment in Goldman Sachs.

There are major problems with the Treasury plan. First, by buying banks’ worst assets at above-market prices, taxpayers take an immediate economic loss — while transferring wealth to shareholders and executives of the very institutions that brought on the financial crisis.

Second, this plan puts too much discretionary power in the hands of Treasury officials. Who determines what financial assets are purchased and at what prices? Who determines which bank gets to benefit from these taxpayer subsidies? Will bank shareholders continue to receive dividends, and executives continue to get paid huge bonuses?

When financial institutions borrow massive amounts of money to invest in assets that are now found to be illiquid and poorly performing, it is not the responsibility of taxpayers to bear the resulting losses. These losses should be borne by the shareholders.

If taxpayers have to step in and provide capital to keep operating enterprises that the government decides are key to the functioning of the economy as a whole, taxpayers must receive protection.

Treasury Secretary Henry Paulson said at the Senate Banking Committee hearing this week, “[the] Fannie Mae and Freddie Mac [interventions] worked the way they were supposed to.” These enterprises continued to function, maintaining homeowner access to and lowering the cost of mortgage financing. However, managements of these companies had to leave and forfeit the compensation packages they had negotiated.

Shareholders had their dividends blocked and remain first in line to bear losses, as they should have been. Taxpayers came both first and last — first to get paid back, as the new preferred stock is senior to all shareholders; and last in realizing losses, as common and other preferred equity would be extinguished before the taxpayers would be at risk.

This mechanism — purchases of senior preferred stock with warrants in troubled institutions — addresses the problems with the Treasury plan. The financial market is stabilized, companies get recapitalized, failures are avoided, debt securities are supported, and time is gained for illiquid assets to mature.

The institutions continue to function, their cost of funding will decline as equity capital increases, and innocent third parties like bank depositors, broker/dealer clients and insurance-policy holders are all protected. The only difference is that potential losses are kept with the shareholders where they belong.

The Treasury plan would also entail larger outlays than the Preferred plan. By allowing all banks to sell their worst assets to Treasury at inflated prices, taxpayers would be subsidizing healthy banks which have access to private capital (Goldman Sachs, J.P. Morgan, Wells Fargo, and Bank of America, for example) as well as banks that don’t have a private alternative. But under a Preferred plan, only banks that don’t have a private alternative will be given federal assistance. This would reduce the outlay otherwise required to solve the crisis.

Few people familiar with the issues deny that Treasury action is needed to stabilize the financial markets. However, the question is who should bear the cost?

Under the Treasury plan the taxpayer pays the price. Under a Preferred plan, the shareholders of the firms who created the problems bear the first loss. Who do you think should pay?

Before committing $700 billion of our money, we should encourage Congress to take a few extra days to get this legislation right.

Mr. John Paulson is president and portfolio manager of Paulson & Co. Inc., a New York-based investment management firm.

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