It Was the S.O.B. Paulson

who screwed America...Bush was clueless and intimidated by Treasury Secretary Hank Paulson, according to a GW speechwriter.

Here they come, the Bush year tell alls. A GW speechwriter, Matt Latimer, is the first one out of the gate spilling the dirt, and does he have dirt:

The secretary of the treasury, Hank Paulson, had sketched out a dire scenario...

...we’d have to write a speech for the president announcing his “bold” plan to deal with the crisis. (The president loved the word bold.)

We had to reassure the American people that everything was going to be okay. As it turned out, Secretary Paulson had a plan that would fix everything: a $700 billion bailout of the financial system. The plan, like the secretary himself (who’d been pretty much a nonperson at the White House), seemed to come out of nowhere, as if it had been hastily scribbled on a sheet of paper in the secretary’s car on his way to work. Basically, it could be summed up as: Give me hundreds of billions of taxpayer dollars and then trust me to do the right thing.

There was no denying it. This plan was certainly “bold.”...

Paulson had been brought into the administration by Josh Bolten, the White House chief of staff. They’d both worked at Goldman Sachs...

Unfortunately, I can’t say any of the president’s top economic advisers struck me as having a firm handle on the economic mess ahead. The economic team the president put together at first included his friend Al Hubbard. He may have been a competent adviser; I really didn’t know him. The only thing I knew about Al was that he went around putting whoopee cushions on people’s chairs in the West Wing...

Finally, the president directed us to try to put elements of his proposal back into the text. He wanted to explain what he was seeking and to defend it. He especially wanted Americans to know that his plan would likely see a return on the taxpayers’ investment. Under his proposal, he said, the federal government would buy troubled mortgages on the cheap and then resell them at a higher price when the market for them stabilized.

“We’re buying low and selling high,” he kept saying.

The problem was that his proposal didn’t work like that. One of the president’s staff members anxiously pulled a few of us aside. “The president is misunderstanding this proposal,” he warned. “He has the wrong idea in his head.” As it turned out, the plan wasn’t to buy low and sell high. In some cases, in fact, Secretary Paulson wanted to pay more than the securities were likely worth in order to put more money into the markets as soon as possible. This was not how the president’s proposal had been advertised to the public or the Congress. It wasn’t that the president didn’t understand what his administration wanted to do. It was that the treasury secretary didn’t seem to know, changed his mind, had misled the president, or some combination of the three...

As Chris and I were in our office in the EEOB trying to put in the latest of the president’s edits, there was a steady flow of people coming into the room. The economic team came in. Ed Gillespie, the president’s top communications adviser, came in. Tony Fratto, the deputy press secretary, was there. At one point there were twelve people crowded around our computer, trying to explain how the proposal worked. The economic advisers were disagreeing with each other.

There was total confusion. It was 5:30 p.m. The speech was in three and a half hours.

After finally getting the speech draft turned around and sent back to the teleprompter technicians, we trudged back to the Family Theater, where the president rehearsed. In the theater, the president was clearly confused about how the government would buy these securities. He repeated his belief that the government was going to “buy low and sell high,” and he still didn’t understand why we hadn’t put that into the speech like he’d asked us to. When it was explained to him that his concept of the bailout proposal wasn’t correct, the president was momentarily speechless. He threw up his hands in frustration.

“Why did I sign on to this proposal if I don’t understand what it does?” he asked.

The president was clearly frustrated with what was going on, but there was little he could do at this late hour. He went up to take a nap, saying he was beat. He looked it. I’d never seen him more exhausted. His hair was out of place and shaggy. His face looked drained and pale. Even more distressing, he was wearing Crocs. As I looked at him I thought to myself, how many more crises can one guy take?...

...we wrote speeches nearly every time the stock market flipped. Meanwhile, the White House seemed to have ceded all of its authority on economic matters to the secretive secretary of the treasury. The president was clearly frustrated with this. I was told that at one Oval Office meeting, he got very animated and exclaimed to Paulson, “You’ve got to tell me what you’re doing!” (In the weeks that followed, Paulson changed his spending priorities two or three times. Incredibly, he’d been given the power to do with that money virtually anything he pleased. All thanks to a president who didn’t understand his proposal and a Congress that didn’t stop to think.)...

As Treasury started to use the bailout funds to invest directly in financial institutions, Ed wanted to come up with a name for the plan that made it sound better to the public, particularly conservatives who thought this was nothing more than warmed-over socialism. Yes, a catchphrase would solve everything. As we were working on this, Ed called a few of the writers on speakerphone with the idea he’d come up with: the Imperative Investment Intervention. “Oh, that sounds good,” one of us remarked, as the rest of us tried not to laugh. We decided that if a catchphrase must be deployed, surely we could come up with something better than a tongue twister with the acronym III. We started out with dark humor: the “I Can’t Believe It’s Not Capitalism” Plan; the MARX Plan. I suggested that we also apologize to the former Soviet Union and retroactively concede the Cold War. Then one of the writers got serious and came up with the Temporary Emergency Market Protection Program, or TEMP. Not bad as gimmicks go, and Ed liked it. But he decided that instead of dropping it into a speech, we’d leak it to the press that this was the phrase we were using internally. Ed’s logic was that anything Bush said would be ignored, but if the press thought they’d got it from a leak, they’d find it more interesting and newsworthy. TEMP never made it as a catchphrase regardless.

When White House press secretary Dana Perino was told that 77 percent of the country thought we were on the wrong track, she said what I was thinking: “Who on earth is in the other 23 percent?”

This puts in a new light contradictory testimony from Bernanke and Paulson, during Congressional testimony last year. It appears that Paulson lied to everyone. At the time, in real time, I wrote:

There is nothing good to say about the Paulson Bailout Plan. Nothing.

From a short-term technical perspective, from a government oversight perspective, from a conflict of interest perspective, from a political perspective, and from a long-term perspective, there are serious problems which exist with the bailout plan at each level.

On a short-term technical perspective, problems begin at the price at which mortgage paper will be bought in the bailout. Treasury Secretary Paulson claims the paper will be bought at market rates. This is a myth, since if the Treasury were to only buy at the market price, the bailout would be superfluous. The banks, by definition, could just sell at the market price.

But this is what Paulson told Bush and Congress.

The following day, I wrote a post and called it, THE BIG LIE: The Supposed Paulson 'Bailout' Plan :

Treasury Secretary Paulson's "bailout" plan has little to do with bailing out banks in trouble. In fact, if his plan is approved by Congress, it is likely the number of banks that will be in trouble will hardly decrease...You see, Paulson wants to buy the mortgages on the cheap, at their "real" value. But the bad stuff, the sub-primes, and the like, are worth at best 50 cents on the dollar. For banks that are insolvent because they own this paper, a Treasury purchase of 50 cents or less on the dollar isn't going to help things, indeed, it may make it clear to even more that these banks' liabilities far exceed their assets.

Bush (and apparently Congress) couldn't figure out that it didn't make any sense. In fact, WSJ didn't figure it out, as per usual until a month after EPJ, when they wrote:

The problem with that idea was, and is, how to price "toxic" assets that nobody wants. And lurking beneath that problem is another, stickier problem: If they are priced at current market levels, selling them would be a recipe for instant insolvency at many institutions. The fears that are locking up the credit markets would be realized, and a number of banks would probably fail.

Ms. Schwartz won't say so, but this is the dirty little secret that led Secretary Paulson to shift from buying bank assets to recapitalizing them directly, as the Treasury did this week.

Now back to early Paulson/Bernanke Testimony. At the time, I wrote:

In early Congressional testimony, Bernanke's view of how the mortgage bail out would proceed was decidedly different from Paulson's. Bernanke testified that the bailout would result in mortgages being bought at "value at maturity". Paulson said they would be bought at discounted market value. The next day in further testimony, Bernanke fell in line with Paulson.

Right from the start Bernake knew the mortgages had to be bought above market prices to help the bailout, as did, we now know thanks to Latimer, that the insiders around the President also knew. It now appears that Pauslon lied to the President, and that's why he had to testify that they would be bought below market. Bernanke, who did not know about the lie, then testified, of course, that they were going to be bought above market price (He even came up with a term "value at maturity". ) When testimony was over, Paulson must have had a little one of his intimidating chats, this time with Bernanke. The next day Bernanke testified that the mortgagees were going to be bought out at nonsensical below market prices.

Thus, Bernanke on the second day of this testimony had to know what was going on, White House insiders knew right from the start what was going on. Paulson, the S.O.B. , was running a con on the financially unsophisticated President, which he later expanded to Congress and the American people. He got the money he was looking for and spread out what needed to be spread out to Goldman Sachs and his other investment banking cronies.

The full excerpt from a new Latimer book, Speech-Less: Tales of a White House Survivor, is here.