Tuesday, 04.01.08
The Perils of Paulson
SAUL LOEB/AFP/Getty Images
The End of the American Exception
5 March 2008
Clive Crook says that economically speaking, America could soon be more European than Europe.
Cashing Out
September 2007
I'm not an expert in financial markets, so I don't pretend to know enough to evaluate whether Paulson's massive reorganization of the nation's financial regulatory apparatus is, on balance, helpful. But I do know this: Paulson and his White House sponsors are deaf and blind to politics.
Major reform requires certain prerequisites. First, you have to consult the stakeholders -- something Paulson did not do, echoing the mistake Hillary Clinton made when she tried to overhaul health care in 1994. The stakeholders -- here I'm talking mostly about the states that have tried in vain to figure out ways to conceive of, much less regulate, the new economy -- have to buy in for any reform to be successful. So do smaller banks and state attorneys general, many of whom do a pretty good job regulating insurance.
Two, you have to find a compelling narrative to frame the issue -- after all, an angry Democratic Senate stands in Paulson's way. If White House-sponsored reform dies an ignominious death in the Senate, you can bet that the Democrats, in crafting their own proposals, will use Paulson's plan as a foil and won't incorporate its best parts.
Third, offer a carrot. The practicality of helping the little guy aside, Paulson's plan -- put forward at a moment of economic crisis -- reads as if the average borrower doesn't even exist.
So what happened? Paulson, an intelligent and hardworking former Goldman Sachs executive, has lived in a world where leverage and risk are the lingua franca. Presidents love to appoint Wall Street types to top Treasury positions; no one understands the global economy better. But now, three successive Bush treasury secretaries -- Paul O'Neill, John Snow, and now Paulson -- have seen their ability to set and implement policy constrained by their political obtuseness.
Role reversalGerard Baker writes that "Paulson finds himself rather like an actor who has been preparing all year for the role of Tiny Tim in Charles Dickens's A Christmas Carol, only to be told on arrival he is going to play Scrooge." |
The invisible handThe Wall Street Journal editorializes that "the regulators are as much to blame as the regulated, and Adam Smith is providing more punishment and reform than Washington ever will." |
Much adoCapital Gains and Games calls coverage of the Paulson plan "akin to yellow journalism," saying that it has little chance of becoming law. |
Will function follow form?Clive Crook argues that the Paulson plan is "surprisingly thin" and "concerned exclusively with the structure of the regulatory system" -- that is, with who does the governing rather than what rules they're to govern by. |
All showPaul Krugman dubs the plan The Dilbert Strategy: "To hide their lack of any actual ideas about what to do, managers sometimes make a big show of rearranging the boxes and lines that say who reports to whom." |
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One need not be an expert in financial markets to recognize the astuteness of your statements. However, you might display skill in what you ostensibly do know. As you do present yourself as a writer and therefore should know that "craft" is not a verb and slso should not the proper (that would be, not lazily trendy) use of the word "narrative."
Mark,
If you read the whole speech by Paulson, it's clear he has no intention of trying to enact any of this; in fact, he explicitly said that it shouldn't be attempted until after the dust settles on the current crisis. He was just getting the conversation started and probably trying to preempt some ill-advised, rash attempts at overhauling the regulatory structure in the middle of the mess.
Mark,
Fred is on target. Also, attorneys general don't for the most part 'regulate' insurance; state insurance commissioners do. Finally, O'Neill and Snow were CEOs, not "Wall Street types."
A quibble, perhaps, but you seem at the end to be suggesting that the political obtuseness of Bush treasury secretaries issues from their Wall Street backgrounds. However, former Sec. O'Neill came from Alcoa, the industrial aluminum company, and former Sec. Snow came from rail freight corporation CSX. Hardly Wall Street firms, those -- quite the opposite, in fact, they came from "old economy" industrial & transportation firms.
"I'm not an expert in financial markets, so I don't pretend to know enough to evaluate ..."
However, these fundamental understatements do not deter you from discommend Henry Paulson's handling of the financial market crisis.
I understand you completely. For I have never played the violin, so I don't pretend to know enough to critique Isaac Stern playing a Violin Concerto, but I believe he is tone deaf.
Posted by Luis A. del Valle | April 1, 2008 8:08 PM