We’ll likely be exploring this in an investigative story in HousingWire Magazine, but we’ve been gathering all sorts of evidence that at least should lead any rational financial and mortgage market participant to question Treasury secretary Henry Paulson’s motives. The latest entry comes courtesy of MarketWatch’s David Weidner:
Let’s be optimistic, or just flat out pretend, that Treasury Secretary Henry Paulson did not pick Neel Kashkari to run the bailout program just because he worked at Goldman Sachs Group Inc. Let’s hope that the 35-year-old whiz kid was chosen interim assistant secretary for financial stability on Oct. 6 because he is the Rain Man of asset valuation who may or may not be able to tie his shoes but can estimate within a nickel the losses on Alt-A mortgage-backed securities held to maturity.
Which is an eloquent way of saying that there is no way Kashkari should have gotten this job. No way, no how. Not when Bloomberg himself made an offer, and Bill Gross offered to do the job for free. Worse yet, as Weidner notes, all of that “flexibility” Kashkari touted when he took the job is now likely gone, after $250 billion of the funds under the program have already been earmarked. Is it any wonder there are rumors that both GSEs have been directed to purchase up MBS? $700 billion isn’t nearly enough to help, but it is enough to put the U.S. economy at risk of devaluing the dollar or our nation’s debt rating — take your pick. Kashkari has yet to be confirmed by the Senate, as Weidner notes:
Our Treasury Secretary also seems to believe that in order to fix this mess, you have to have had a hand in creating it … The asset-purchase part of the program is voluntary for participants. If someone other than Kashkari gets the job, they will be left with only the thankless task of digging through the garbage and trying to put a value on it … If Kashkari is on the job, does anyone think Treasury will be driving a hard bargain with Goldman on its mortgage assets? And while we’re on the subject of Goldman, under what criteria did Goldman (and Morgan Stanley) qualify as two of the nation’s nine strongest financial institutions? Just wondering.
Wiedner’s musings aren’t exactly his alone, as I’ve heard directly from more than a few Street participants in recent weeks who are as convinced as ever that somewhere deep in the bowels of the Treasury is a red phone that runs straight into Goldman’s board room. Who knows how many discussions that red phone has seen in recent weeks. But we should be able to force Paulson’s hand as a public servant, and have him open up his own books. How much Goldman stock does he own? What options does he still hold? What are his own financial interests here? After all, the man has said he will leave his post when the next administration takes office. It only seems reasonable to want to know how he stands to gain from his re-engineering of the nation’s financial markets.