Former Top Treasury Advisor Takes the Gloves Off

Former Assistant Treasury Secretary for Economic Policy Phil Swagel has come out swinging against some of the highly interventionist types hanging around the White House. I have personally crossed paths with Swagel a couple of times.

Swagel publicly told me that even though he was at the time the senior economic advisor to Treasury Secretary Hank Paulson, he had no idea that Fed Chairman Bernanke had stopped printing money during the Summer of 2008, and on another occasion  he told me he didn't know what a gold swap was. One wonders what he had been paying attention to.

But he did pay attention at the recent Treasury-HUD GSE Conference. He sent notes about the conference to his buddy, Greg Mankiw. Mankiw has published the notes. Here are  the hot snippets.

Swagel on Bill Gross:

Bill Gross made some news in calling for full nationalization of housing finance and complete guarantees on mortgage capital. He prefaced this by saying that he was speaking on behalf of public policy and not his firm. Mr. Gross is smart and was exceedingly public-minded during the financial crisis (even, yes, while profiting from some astute investment calls). There is no doubt that he means well. But it’s scary to think about what he might suggest when he speaks for his book of business instead of the public interest.

Swagel on the Obama Administration:

The administration is scared of its own shadow with respect to flak from the left—the White House staffer’s introductory remarks were an awkward ode to inclusion and conference guidelines such as time limits went out the window when advocates of affordable housing subsidies were speaking (As a note, I very much support these subsidies and think that an important element of GSE reform is to make the subsidies more effective. But this still does not mean that the people making that point should have had carte blanche to long-talk while avoiding answering direct questions.) Amidst the long-talking, it turns out that there is good reason for the administration’s trembling. To the limited extent that advocates of affordable/low-income housing participated in the conference, they vehemently opposed scaling back any form of government support, including reducing the activities of the portfolios. It was impossible to tell what the affordable advocates were for other than “more.” The administration’s GSE reform plan could come down on stone tablets from Mt. Sinai – and still be attacked by the advocate community as "not enough." GSE reform thus represents yet another conflict brewing between the administration and its frenemies in the “professional” left.

And a bit of biting Swagel sarcasm:

Yesterday's conference was a show of attention to the issue but not more. And next on the agenda are several regional conferences—perhaps the hotel and travel spending is a form of stimulus.

Sweet. I didn't know Swagel had it in him. I know, I know he did curtsy in favor of housing subsidies, and in general he is a big government interventionist, but it is nice to know that when his team is out of power, he knows how to throw a sucker punch. Overall, I give him a passing grade for style, substance and attack, on this one.

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 ...it 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.

A Phil Swagel Encounter II

Phillip Swagel was Assistant Secretary for Economic Policy under Henry Paulson at the Treasury Department from December 2006 to January 2009. In other words, he served during the height of the financial crisis. Today, he told me he now sees the benefits of bankruptcy over bailouts. It should be noted, Swagel was also a member of the TARP "investment" committee.

My opportunity to question Swagel came about because of his participation at a Cato Institute book forum where Robert Pozen's book, Too Big to Save? How to Fix the U.S. Financial System, was discussed. Pozen seems like a sharp guy. He is chairman of MFS Investment Management, which manages more than $170 billion in assets for mutual funds and pension plans. I'm sure his book is packed with all sorts of data and details about the financial crisis. If you are a financial historian, you can't ignore it. However, when detail turns to recommendations, he turns out to be an interventionist. Thus, the book will confuse the average reader trying to understand the crisis. I almost choked when he called the structure of the bailouts, "one way capitalism." Of course, as Michael Labeit has explained what has been going on has little to do with capitalism, one way, two way or HOV lane.

Pozen also seemed to think of every financial crisis as separate and distinct, so during the Q &A I asked him if there was anything like a business cycle theory that could explain these cycles, or was each crisis separate and distinct. He thought for a minute and then said that, in emerging countries, crises seemed to be caused by currency panics and in the United States they seemed to all be the result of high leverage. I took this to mean he had no clue of any underlying factors that could be causing these recurring cycles.

I hesitate to point out that Pozen is a senior lecturer at Harvard Business School, in addition to being the chairman of an investment firm overseeing $170 billion. There wasn't any awareness in his eyes of any business cycle theory, not only didn't he bring up Austrian Business Cycle theory, he didn't bring up the Friedman/Schwartz view of what caused crisis, or for that matter Keynes' theory of a failure of aggregate demand. It was as if a teacher had called on the dumbest kid in class to go up to the blackboard and answer a question. You just settle into your seat and try and guess how you might be entertained, and they always surprise you. I really thought he might even get in the ballpark with some kind of Keynesian stuff, but these guys just don't think in terms of the possibility of a general business cycle theory.

But, my main purpose wasn't to send Pozen to the blackboard. It was to truly understand what Phillip Swagel did while he was Assistant Treasury Secretary, since I already discovered, in our last encounter, that he wasn't watching money supply.

So as the Pozen book forum finished, I headed up to the sandwich buffet that Cato is kind enough to provide, where I staked out my target. The sandwiches provided the fuel I need to battle on, and they also served as bait.

So I picked a spot from where it would be easy to spot Swagel as he headed toward the sandwiches. As I munched on a turkey sandwich, I spotted him. There was still quite a line at the buffet, so I figured I had plenty of time to finish my sandwich before he would even get to the buffet, but Swagel cut to the front of the line. I realized quickly that I would have to pick up and move my plate and sandwich and head to whatever table he would go to. But he circled the sandwich table twice. I mean he really circled like a guy who had bought much too much junk mortgage syndicated securities, looking for any crumb that might have value, and then he walked away. He then swarmed a table with potato chips and then a table with Fritos. But nothing seemed to be appealing to him, maybe it was just a knee jerk reaction he had to everything after being a member of the TARP "investment" committee. Now, he was heading out toward the revolving door.

I wasn't going to be able to finish my sandwich. I dropped it to my plate, left it, a few chips and a coke and rushed to the door.

Fortunately, a wide eyed beauty of college age stopped him to ask a question. He gave his full attention to her (This would not be hard to do.) It gave me the chance to catch up. And I stood there marvelling at the fact that this beauty, with innocent eyes that suggested she had never been bruised by a man, and who resembled a young Sophia Loren, was also interested in economics.

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.

He seemed to want to change the topic, and he seemed to be a bit more nervous talking to me, than when he was when he talking to the college coed. His gestures were very jerky and fast. This is when he volunteered that he was now coming to believe that bankruptcies made more sense than bailouts.

I asked him what insights Goldman CEO Lloyd Blankfein brought to the AIG bailout meetings. He said,"On no, I wasn't at those meetings." That did it.

He was through the revolving door, and down the street in the cold and rain, without even stopping to put his umbrella up.

-RW

Grilling Phillip Swagel

Phillip Swagel appears to be a bright nice guy. Picture a younger version of the late Mr. Rogers, sans the sweater, and wearing a suit instead.

Nevertheless, this mild mannered man is a major league technocrat for the state. Picture a guy sans the sweater who can justify any financial or economic position, if it will help justify the acts of the evil doers and, in turn, they promote him to a position that will enhance his resume.

Swagel was Assistant Secretary for Economic Policy under Henry Paulson at the Treasury Department from December 2006 to January 2009.

He served as chief of staff at the White House Council of Economic Advisers from July 2002 to February 2005, and was a senior economist at the Council from August 2000 to July 2001.

Swagel was also previously an economist at the Federal Reserve Board and the International Monetary Fund.

Swagel spoke at a luncheon today before the Washington D.C. based National Economists Club. I was there and had the opportunity to ask Swagel a couple of questions.

After his prepared remarks, I asked him:

I'm curious about your thoughts on the change in the way the Bear Stears situation was handled versus the Lehman situation versus the Citigroup situation versus the Washington Mutual situation. Further, I have noticed that JPMorgan Chase was involved in two of these situations and that they came out of the stress tests without requiring any further capital. How much capital were they able to gain as a result of the acquisitions of Bear Stearns and Washington Mutual?

As for the differences in the different deals, he gave the standard reply. There were different circumstances for each. Blah, blah, blah.

As for what capital contribution benefit JPMorgan Chase received as a result of the acquisitions of Bear Stearns and Washington Mutual, he said he didn't know and that he hadn't seen any data on it. I replied, "I haven't seen any data on it either. Do you know where I can find it?"

An awkward silence. He said he didn't know but he would try to find out for me.

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 (pdf).

After the formal luncheon broke, I pushed a little more, privately. I asked if there were any memos at all in the Treasury by anyone raising the question of why Bernanke had slowed money growth to 1.4% during the summer of 2008. He said, he hadn't seen any.

If no one at the Treasury was looking at something as simple as the dramatic drop in money supply, then how can anyone conclude anything other than that they were all there to find props for Hank Paulson theft?

Still on the sidelines, I pushed once more. "Given that JPMorganChase did not need to raise any capital after the stress tests, don't you think an investigation should be conducted to see how much the acquisitions of Bear Stearns and Washington Mutual resulted in an increase in capital for JPMorganChase?", I asked.

There was a bit of dancing around the question, but I persisted and I think he finally nodded, and, under his breath, I think he said "yes."

UPDATE: The answer to the question, of how much of a capital benefit was the takeover of Washington Mutual to JPMorgan, appears to be at least $29 billion.