Thursday, June 10, 2010

More Madness from Phil Swagel: A New Plan to Screw Taxpayers for the Benefit of Wall Street Elite

I first introduced Phil Swagel to EPJ readers back in May of last year, when he admitted to me that although he was Assistant Secretary for Economic Policy under Henry Paulson at the Treasury Department from December 2006 to January 2009, that he had no clue that in the summer of 2008 Ben Bernanke had slowed money supply growth to a drip. I recount here the key part of  my questioning:
He finally went into total retreat and said this was finance and he was an economist. My reply, "Well, then let me ask you an economics question. Was there any concern at the Treasury about the slowdown in Fed money growth during the summer of 2008?"

He tried to answer with, "Well the Treasury is always in touch with the Fed and we are always monitoring every aspect of the economy."

I wouldn't let him get away with it. I pushed, "Do you know what money growth was in the summer of 2008?" His answer. "No." I pushed, again, "Do you know what money growth was in the first half of 2008?" His answer. "No."

I remind you this was the Assistant Secretary for Economic Policy at the Treasury Department during this period. Money growth dropped from a 12% annualized rate early in the year to 1.4% during the summer, in the midst of a housing crisis.

Clearly, Swagel was not at the Treasury to monitor the economy. He was a tool used to come up with the justifications for the machinations of the real insiders, e.g., Paulson.

Paulson didn't care what caused the downturn. He cared about how to shovel money to Goldman and JPMorgan. And when it comes to justifications for why all that occurred, Swagel has microscopic details...
I ran into Swagel again in November, this time he denied he knew what a gold swap was:
 When Swagel finished his question, I moved in to action quickly. His foot was almost in the revolving door. "Hi, Phil," I said, "You know I have been thinking. I know you were at the Treasury, but I am wondering, if you know about any gold swaps or leases the Fed has been conducting?"

His answer shocked me. He said, "You mean, currency swaps?" "No," I said, "has the Fed been doing any gold swaps or gold leases of any kind?" He seemed completely confused. He said to me he had never heard of gold leases or swaps. I said, "Well, I think they are very interesting." He took his pen and wrote on the corner of his notes "gold leases."

Now what is curious about this statement is that although the Federal Reserve doesn't include any footnote on its balance sheet about gold swaps or leases, the Treasury does so on its weekly U.S. International Reserve Position. Footnote 4 reporting on the same gold position says,

(4) gold (including gold deposits and, if appropriate, gold swapped)

Now, Swagel has to be totally clueless, or he is not shooting straight.

During the book forum, he got very animated, acted like he was disgusted, and said it was terrible that the Federal Reserve has become so unpopular. He said it was doing a great job. This from a guy, when I put him on the spot this spring, admitted he didn't know what money supply growth was in the summer of 2008, before the crash. And now he says he doesn't know what a gold lease is. And , he is going to pontificate to the public about how good a job the Fed is doing, when he either doesn't know what the Fed is doing, or wants to hide from public view what the Fed is doing.
So what's Swagel up to these days? He is out with a new plan to screw taxpayers for the benefit of the Wall Street elite. I'll let John Hempton of Bronte Capital  explain Swagel's latest move to please his master's on Wall Street:

Donald Marron and Phil Swagel have written a paper which proposes a reform structure for Fannie Mae and Freddie Mac. It should not be taken seriously – and indeed it should disqualify this pair from serious debate – a larger gift to Wall Street that does not solve the problems of the GSEs is hard to envisage. But – as the Washington Post takes it seriously and this pair are not lightweights I thought I should have a go at explaining what is wrong with it...

The Swagel/Marron proposal wants to allow multiple private entities with an explicit government backstop to compete in issuing guarantees – presumably driving the market price of the guarantee down. They do not state this – but this will allow Wall Street to lay credit risk off to the government at minimum cost to them. These entities however will not be allowed to own or finance mortgages or take interest rate risk – in other words they will be prevented only from doing the thing that is (a) profitable and (b) did not actually hurt Fannie and Freddie. The profitable business that did not hurt the GSEs will of course be taken up by the banks – especially the investment banks...

The Swagel/Marron proposal is all the credit risk (proven nasty) to the Government and all the rest (so far looking pretty benign) to Wall Street. It is the proposal from Goldman Sachs and – I presume that Wall Street could not be happier.
Swagel is clearly Wall Street's technocrat tool. He is probably angling to be Treasury Secretary, down the road. He has done nothing but support Wall Street interests, even to the point of not knowing what the Federal Reserve was doing in the middle of the financial crisis. If the Wall Street elite weren't interested,then he sure wasn't going to pay attention. These are the behind the scenes technocrats who draw up the details of the mad schemes that the elitists come up with. This is how Washington D.C. works.

1 comment:

  1. Great article. Not great in that it is saddening, but I think that more people around the world are seeing the game being conned by Wall Street. Geithner needs to be fired for sure.
    But he must not be replaced with Swagel or any of the rest of GS boys.