The Revolving Door Between Wall Street and Upper Echelon Government

Bloomberg recaps, the goings on:

Former U.S. Senator Tom Daschle's...$1 million-a-year consulting contract with the New York-based firm [InterMedia Advisors LLC.]highlights how buyout firms often turn to former politicians to court investors and make deals. Former President George H.W. Bush, ex-Treasury Secretary John Snow and former Senate Majority Leader William Frist have all worked for private-equity funds...

Washington-based Carlyle Group helped pioneer the use of former government officials as fund raisers and dealmakers. Former President Bush and ex-U.K. Prime Minister John Major have advised the firm, and its ranks currently include former U.S. Treasury Undersecretary Randal Quarles.

Cerberus Capital Management LP, the New York-based firm that owns Chrysler LLC, counts John Snow as its chairman and former Vice President Dan Quayle as chairman of its international unit.

Not to be forgotten is that French president Nicholas Sarkozy's half brother, Olivier Sarkozy, works alongside Quarles at Carlyle Group as head of Carlyle's Global Financial Services group.

Wilbur Ross Pulls the Trigger

Wilbur L. Ross, the investor who made billions turning around distressed steel and textile companies, will buy a 68.1% stake in First Bank and Trust Co.

The bank has 'good opportunities' to expand, Ross said in a Bloomberg Television interview. 'We view the whole financial services sector as a very interesting one.'

This is a very good sign for the banking sector, Ross knows how to crunch the numbers.

The big question remains, when does Carlyle Group step up to the plate and start spending some of its $40 billion in sideline cash, on the financial sector? Both, Carlyle co-founder David Rubenstein and Carlyle banking sector head, Randal Quarles, have said they see major opportunities in the banking sector.

Carlyle Group Continues to Make Noises about Investing Big in Financial Services

Carlyle Group co-founder and managing director David Rubenstein told an audience at the recent Washington Economic Forum that:

PE [Private Equity]can invest in financial services businesses, an industry that hasn't previously seen a great deal of PE involvement. With $1 trillion of dry powder, the PE industry is in a stronger position than anyone else to help in economic recovery by providing capital and management expertise to financial services businesses. PE can re-tool itself by coming in and offering longer-term capital to these institutions and helping them turn around.

These remarks echo those of Carlyle man Randal Quarles, who pretty much said the same thing in early 2008, prior to the seriousness of the problems facing the financial sector becoming obvious.

Still, outside of a small position in Boston Private Financial Holdings, Carlyle has pretty much remained on the sidelines of the financial sector, despite having some $40 billion of sdeline cash to burn. The patience they have displayed is something to observe. Not even Warren Buffett has been able to keep his wallet closed, e. g., his positions in Goldman Sachs and GE.

The question now is, does Carlyle know something the rest of us don't, by continuing to hold out from buying? Or, given the enormous amounts of money Bernanke is pumping into the system, will Carlyle be too late to the buying party if they don't do some buying very soon?

Geithner Is the Greatest (Possibly a Genius)....

...says Carlyle Group's Randal Quarles, who will probably soon be asking Geithner for money, when Carlyle starts its bank buying binge.

"He's a very strong choice for some very specific reasons," Quarles told On Wall Street. "He has a wealth of experience at the Treasury and Federal Reserve. He's been intimately involved in dealing with the financial crisis. And before the financial crisis he was very thoughtful and involved in trying to reduce some specific risks in the system."

Before the crisis he was involved in trying to reduce some specific risks in the system? Oh yeah, that worked well.

Quarles has already managed to get Boston Private Financial Holdings Inc. $150 million in capital through the Paulson program.

Ht2peu

Watch Your Wallets...

They are planning on rewriting the banking regulatory system.

"The new president will be faced with the task of architecture, rewriting the regulatory system, the rules for the regulatory system," said Randal Quarles, managing director of Carlyle Group and a former Treasury undersecretary in the current administration. "I think political consensus will exist for doing that in a comprehensive way, which is something you know has been needed to be done for a long time, but it was always something that took political consensus to do it."

The political consensus will exist...

Translation: We have Obama covered with Goldman Sachs people and the crowds think Obama walks on water. This will be easier than a day at the beach.

The Carlyle Group, of course, has $86 billion on the sidelines waiting for the new "architecture".

Carlyle Making Noises About Taking The Plunge Into Bank Stocks

So where can you get the best take on the current investment opportunities in bank stocks?Quite possibly in Dubai.

Back in April, Carlyle Group managing director Randal Quarles said that banks were facing more trouble. He sure nailed that.

Now Carlyle co-founder, David Rubenstein, says there are great opportunities in bank stocks. Rubenstein is spreading these words of wisdom in the Middle East at the Super Return private equity conference in Dubai.

Rubenstein said the financial services sector was a very attractive investment opportunity right now.

He said financial institutions like banks and insurance companies seeking to sell assets are probably going to sell them at distressed prices.

Some smaller banks and financial service companies that need equity injections could also be attractive, he said.

"Right now there's an enormous opportunity for private equity to get into the financial service industry and invest in banks, insurance companies, other organizations that are heavily hit ... by the credit crunch," Rubenstein said in a speech at the conference, according to Reuters.

Rubenstein also said that credit-related investments, such as buying debt, remains very attractive.

If you can get into financial stocks at prices close to where these guys cut their private deals, you are likely to have a solid, big upside, investment opportunity.

BANKS ARE IN PLAY: Randal Quarles Gets His Change In Fed Rules

Those who have been following EPJ for sometime know that I have been carefully watching the activities of ultimate insider, Carlyle Group managing director Randal Quarles. One thing Quarles has been aggressively pushing for is to get an increase in the size of stakes that private equity firms, like Carlyle, can acquire before triggering bank holding company regulations. Today, Quarles got his wish.y.

Not only has the Fed granted Goldman Sachs status as a bank holding company, but, today, the Fed announced the approval of a policy statement on equity investments in banks and bank holding companies. The policy statement provides additional guidance on the Board's position on minority equity investments in banks and bank holding companies that generally do not constitute "control" for purposes of the Bank Holding Company Act.

The new policy raises the limit for those with a minority stake to 33% and allows some investors to have as many as two board seats.

Goldman gets bank holding status, Quarles gets the increase in the size of a position the Fed considers a minority stake, it can't be any clearer that the boys are ready to start buying bank stocks at fire sale prices and that bank stocks are in play.

-Robert Wenzel

The Carlyle Group During The Bush Years

The PEU Report cranks out the numbers:

While the average citizen's personal income stagnated under the Bush Presidency, one politically connected private equity underwriter (PEU) made out like bandits. The Carlyle Group went from managing $5.8 billion in assets in 2001 to over $89.3 billion in 2008.

In 2000 the mean household income was $57,047. By 2007 mean household income rose to $67,609.

Carlyle grew its asset base by 1,440% while income rose 18%. Adjusted for inflation, the 18% rise disappears.

...and this all occurred before Randal Quarles gets to perform his magic act for Carlyle's banking division. The players are in the right places. As the PEU Report puts it:

Carlyle senior advisers just landed key jobs as CEO of Freddie Mac and CFO of Wachovia. Why are these moves important? Carlyle expressed interest in buying chunks of troubled banks and government backed mortgage underwriters. They now have people on the inside who can work that same agenda.

-Robert Wenzel

Randal Quarles Is Sleeping Well Tonight

Things are moving along according to plan for Randal Quarles.

Long time EPJ readers know Quarles as the ultimate insider, and that Quarles always shows up at the right place at the right time.

He has just done it again.

The new CEO of Freddie Mac is David Moffett. Guess where Moffett worked before grabbing the CEO stint at Freddie? Yup, the Carlyle Group, right along side Quarles, in the global financial services sector.

This is all coincidence of course. Paulson's hand was just forced a couple of days ago. And if you believe that,I have some Freddie Mac common stock I'd like to sell you, cheap.

Insiders Are Ready To Start Bank Buying Binge

Randal Quarles, the ultimate insider,--current managing director of Carlyle Group, former Treasury Undersecretary and former Treasury liaison to the Plunge Protection Team, who, since early in the year, has accurately called the play by play developments in the banking crisis (See Carlyle Group's Plan to Takeover the Banking Industry)-- told Reuters that he expects to see Private Equity start buying into the banking sector before the year is up:

Private equity firms have been eyeing troubled banks and thrifts as investment opportunities as the credit crisis has taken a toll on share prices.

Randal Quarles, managing director at Carlyle Group CYL.UL, one of the world's largest buyout firms with $83 billion under management, forecasts that many of the investments will be minority stakes -- which can be accomplished without dramatic changes in the Fed's rules.

Quarles, previously undersecretary of the U.S. Treasury, said there could be an uptick in investment activity before the end of the year.

"It is going to be hard to raise (capital) in the public markets, particularly for depository institutions," he said. "I think that's going to drive a lot of private equity deals."

Interesting situation, we have a very smart guy in Quarles ready to take the plunge in bank stocks, while we have Bernanke about to the torpedo the entire economy (see Crashing Money Supply Numbers Signal Depression). If Bernanke doesn't start pumping M2 money and if Quarles starts buying without that M2 money pumping, Quarles is going to have his ass handed to him, courtesy of Bernanke.

On the other hand, if Benanke figures out that he has launched a torpedo at the economy, he may actually start printing money again and Quarles will make a fortune.

Stay tuned. We are watching money supply very closely and will report on what we see.

Randal Quarles Is Polishing His Presentation of Why Carlyle Group Should Takeover Banking

Randal Quarles, spoke to FT recently and appears to have polished his presentation as to why private equity operator Carlyle Group should be allowed to plow into the banking sector with privileges allowed none other.

FT reports:

"Private equity really is almost tailor-made to solve the difficulties currently faced by financial institutions in a way that will cause less friction down the road," says Randal Quarles, managing director of the Carlyle Group's new financial services team.

"A number of investments by private equity will tend not to be majority investments, which make can them even more politically palatable," says Mr. Quarles, who is a former US Treasury undersecretary for domestic finance.

Quarles is clearly more sensitive to the political aspects of PE investing aggressively in the banking sector. This is the first time to my knowledge that he has publicly discussed the non-majority nature of investments PE plans to make in the banking sector and the political palatablity of such.

Mr Quarles says private equity is an ideal solution for politicians concerned at the cost of bailing out banks...

Any private equity group with more than 25 per cent is considered a "bank holding company" and required to make "source of strength" commitments to provide more capital if required.
Mr Quarles argues that these regulations should be relaxed to encourage capital to flow where it is needed. In any case, he says private equity is likely to find ways to invest consistent with the rules, such as by investing via separate vehicles.

The above is about limiting downside risk. If PE puts in chips to buy a stake in bank, they want to be protected against being required to ante up a second time.

Ben Bernanke, chairman of the Fed, last month promised to clarify bank holding company regulations. "Private equity is a very good source of capital. There are the issues relating to effective control . . . what constitutes control. We are looking at that and we will make a clear statement about that."

Mr Quarles says: "Private equity has become popular to demagogue unfairly but I don't believe that politicians are succumbing to that temptation."

"Private equity is really about standing between the taxpayer and these losses for a finite period, then returning the stake to the public markets once the problems are addressed."

"Private equty is about sttanding between the taxpayer and these losses for a finite period, then returning the stakes to the public markets once the problems are addressed." Hmm.

This nobility of Quarles to protect taxpayers means only one thing, Quarles sees the banking crisis as overblown . While fear runneth in the streets, Quarles is going to aggressively buy into the sector, add capital where needed, whip the banks into shape and then blow the shares out the door into the public's hand, again. What a play!!

As we have stated in the past, we have no qualms with any operator willing to step in and buy into the banking sector, however, we suspect that along with stepping up to the plate, PE will have government created special privileges that will ease its operation in the field. That said, PE, Carlyle and Quarles are going to make a fortune on the banking sector.

Watch wherever they put their money and if the stocks are still publicly trading and at a price close to the insider price they negotiate for themselves, then it is certainly an investment to take a look at. These guys know what they are doing. Why not go along for the ride if you can?

The Players Have Settled On A Loophole

Bank stocks have been crushed and Private Equity is ready to step in and scoop up the pieces. And, it appears they have settled on a loophole du jour to do it.

First, we hear from HEC Private Equity/Venture Capital Club:

Considering that the private sector is always better at coming up with solutions to business problems than the public sector (i.e. government), there’s been ever increasing discussion that private equity should take a larger role in helping turn around the banks. The catch being pesky U.S. regulations. But as everyone should know, if there’s a law or rule then there is a way around it and private equity firms are beginning to find ways to bypass stipulations on bank ownership.

One method is to simply create a separate, unique fund without ties to a firm’s other funds which is what J. Chistopher Flowers of JC Flowers is doing. He’s created a fund under his own name that is not directly connected to his firm’s funds. This would
allow him to take controlling interest of a financial institution (at least greater than 24.9% in the U.S.) while permitting JC Flowers & Co. to own other businesses, which they wouldn’t be allowed to due if they controlled more than that percentile threshold in a bank. Nicely done.

And, FT is covering the story:

Executives of large private equity firms believe they have found ways of overcoming US rules that make it difficult for their funds to buy large stakes in banks. This would position them to bolster the faltering sector without changes in regulations.

Private equity firms have trouble buying banks because federal rules bar investors holding more than 24.9 per cent of a bank from owning other kinds of companies. This was intended to prevent conglomerates taking control of banks and using them to fund themselves.

Funds have also been skittish about bank investments because of fears that financial regulators could compel them to provide additional capital to such institutions in bad times.

However, with banks trading at historically low valuations, private equity firms have been scouring the sector for bargains, while their lawyers work on structures that would make such purchases palatable from a regulatory standpoint.

At the head of the pack isJC Flowers, a renowned investor in struggling financial institutions. The solution of its chairman, Christopher Flowers, has been to launch a fund under his own name - with no ties to his other funds - that would enable him to buy a controlling stake in a bank.Carlyle, the private equity group, could also consider establishing funds in the names of individuals, lawyers familiar with the matter say. Meanwhile, Carlyle has taken a 17.8 per cent stake - including 9.9 per cent of the voting stock - in Boston Private Financial Holdings, which has a subsidiary that is a private bank in addition to an asset management arm.

The Carlyle stake is of interest because the Federal Reserve does not usually sign off on private equity purchases of more than a 14.9 per cent stake in a bank. Carlyle has also been able to name a director at Boston.

Tony James, president of rival buyout house Blackstone, referred to the Fed rules as a problem in an earnings conference call on Wednesday. However, he hinted that Blackstone might try to back an experienced bank management team in raising a fund to buy bank stakes.

Will we be hearing of the formation of a Randal Quarles/Oliver Sarkozy Fund soon?

Whichever way Quarles decides to buy into the banking sector, keep an eye on the deals he makes. He is a SAP--Sharp, Aggressive and government Protected. If you can buy into a deal on the open market, at a price close to the insider price he cuts for himself, it is the best way I can think of to bottom fish the banking sector. BTW: The Boston Private Financial Holdings/Carlyle deal was his deal.

Is The Fed About To Change The Rules For Randal Quarles?

As long time readers of EPJ know, Randal Quarles wants his Carlyle Group to be able to buy into banks stocks without additional supervision. Well, ladida, notice this news from Bloomberg. The Fed is considering changing the rules for private equity, i.e. Randal Quarles. Notice the Fed isn't considering changing the rules for everyone, just private equity.

So here's how the play remains. Henry Paulson continues to scare the s#@*t out of bank shareholders, a few bank lines thrown in for good measure, and Randal Quarles wants to buy into the bank stocks Big Time, just him and his private equity cronies. Get it? You aren't going to be able to play in his sandbox, it has gold in it.

Here's the latest from Bloomberg:

The Federal Reserve, looking to spur investment in lenders hit by credit-market losses, is weighing three measures to ease rules for private-equity funds that buy bank stakes, people with knowledge of the deliberations said.

Notice how the change in rules mentions private equity only.

One proposal would permit buyout firms to use ``silo'' funds walled off from their other investments to buy the stakes without subjecting the rest of their holdings to more federal oversight, said the people, who declined to be named because the talks aren't public. Under another scenario, the Fed would let private equity firms exercise more control of banks they invest in. A third plan would encourage firms to team up on bank deals.

So Henry Paulson is talking about giving the Federal Reserve greater authority so the financial industry can be regulated more intensly by the Fed, and simulataneously the Fed is meeting with Randal Quarles so that there is less regulation of private equity funds that buy into banks. Cute.

Buyout firms are ``hesitant to invest in banks because of the various levels of regulation that would apply to them,'' said Thomas Vartanian, a partner at Fried Frank Harris Shriver & Jacobson LLP in Washington who advises buyout funds and lenders. ``The banks need capital, and private equity has it. Necessity is often the mother of invention.''

So Thomas Vartanian is a new front man for Quarles and private equity. Everything he is quoted as saying, Quarles said privately at a luncheon months ago.

Treasury Secretary Henry Paulson has called on banks and brokerages to raise cash as their losses from the collapse of the mortgage market and the ensuing credit-contraction climb to more than $466 billion. Blackstone Group LP and Carlyle Group, the world's two biggest private-equity firms, discussed the topic when they met with Paulson this month, say people briefed on the talks.

They just started talking about this plan in the heat of the crisis this month? Who makes up these movie scripts? Read my report from the Quarles luncheon again and you will know this play has been in motion for months.

Boston Private Announces $75 Million Investment by The Carlyle Group

Randal Quarles finds a financial services company he likes.

"In these challenging economic times, we have looked at many investment opportunities in the financial services sector and have seen few that we have found as attractive. We are attracted to Boston Private's strong history of growth and their diversified business structure that derives revenues not only from the private banking business but from strong fee-based businesses," said Quarles as part the announcement that Carlyle will invest $75 million in Boston Private Financial Holdings, Inc. (NASDAQ: BPFH).

Carlyle will purchase two series of non-voting preferred stock, one of which is mandatorily convertible into common stock and one of which is convertible only if Boston Private shareholders approve the conversion. The shares of mandatorily convertible preferred stock will, on an as-converted basis, represent 9.99% of the pro-forma outstanding common shares (including the shares issued in Boston Privates public offering and the shares issuable on conversion of the mandatorily convertible preferred stock). The mandatorily convertible preferred stock will convert automatically following a shareholders' meeting we expect to hold later this year at an initial conversion price of $5.52 per share. The conversion price was based on the average closing price of Boston Private common stock during the week of July 7, 2008.

The contingent convertible preferred stock will, on an as-converted basis, when combined with the mandatorily convertible preferred stock, represent approximately 19% of Boston Private's pro-forma common shares outstanding. The conversion price of the contingent preferred stock will also be $5.52 per share.

Both series of preferred stock initially will be entitled to receive dividends payable on Boston Private's common stock on an as-converted basis. If Boston Private does not hold a shareholders' meeting prior to the record date for Boston Private's 4th quarter dividend period, the mandatorily convertible preferred stock will carry a fixed dividend of 20% (accruing from September 30, 2008) until a meeting is held. If Boston Private shareholders do not approve the conversion of the contingent preferred stock prior to the record date for our 4th quarter dividend period, the contingent preferred stock will carry a fixed dividend initially of 14% (accruing from September 30, 2008), increasing to 15.5% and ultimately to 20% in the following two six-month periods if our shareholders do not approve the conversion at a subsequent meeting.

For every five shares of common stock issuable upon conversion of its preferred stock, Carlyle will receive warrants to purchase two shares of Boston Private's common stock during the next five years at a price of $6.62 per share (20% over Carlyle's initial common stock purchase price). As a result, Carlyle's economic interest in Boston Private, assuming conversion of all of its preferred stock and exercise of all of its warrants, would be 24.99%.

"The terms of Carlyle's investment with Boston Private closely aligns its interests with those of our current shareholders, without the various forms of special downside protection seen in many other private equity investments in this sector. Their willingness to partner with us and make this type of investment in Boston Private is a gratifying validation that our business model is positively differentiated from our competitors," said Timothy Vaill, Chairman and CEO of Boston Private.

Housing Short-Seller Will Start To Buy Bank Stocks

Randal Quarles has competition.

John Paulson, the money manager whose short-sales against the U.S. housing market helped him earn an estimated $3.7 billion last year, is now seeking to profit from Wall Street's search for capital to offset mortgage writedowns, according to Bloomberg.

Paulson plans to open a hedge fund by December that will provide capital to the world's biggest banks and brokers, according to two people with knowledge of the matter. His firm has hired employees this year to research securities firms such as Citigroup Inc. for long-term investment positions.

The New York-based firm's credit funds rose as much as sixfold last year, in large part as a result of shorting subprime home loan securities.

Paulson Speech: From Bad To Worse

Add another name to the list. Along with luminaries such as Alan Greenspan, Treasury Secretary Henry Paulson in remarks on Reinforcing Market Stability and Confidence, delivered at the New York Public Library, made clear at the start that he doesn't understand business cycle theory:

As we all know, the U.S. economy and our financial markets are undergoing a period of stress. We will work through this period, as we always do. Our workers, industries and companies are the most productive, resilient and innovative in the world. Periods of economic difficulty are not new. They are,unfortunately, inevitable.

Inevitable? No. They are the inevitable result of the Federal Reserve micro-managing the money supply. But, end the micro-managing and freeze the money supply at current levels and the distortions that cause the business cycle will disappear.(For a thorough explanation of business cycle theory see, Rothbard: Economic Depressions: Their Cause and Cure):

From there Paulson went from bad to worse.

He called for a "Modernized Financial Regulatory Structure ", which Carlyle Groups' Randal Quarles seems to think means, "let private equity buy up banks stocks, while they are flat on their butts." By coincident, we're sure, Paulson also called for (our emphasis):

Working through the current turmoil will take additional time, as markets and financial institutions continue to reassess risk and re-price securities across a number of asset classes and sectors. I have and will continue to encourage financial institutions to strengthen their balance sheets by raising capital, de-leveraging and reviewing dividend policies so that they continue to play their vital role in supporting economic growth.

Of course, Quarles, who used to work at the Treasury under Paulson, has made clear that only private equity has the ability to supply such capital. And, we are sure that Quarles is happy to hear that that this capital funding should be done at "re-priced" levels.

Paulson also dropped this interesting comment toward the end of his speech (our emphasis):

We also need additional powers to manage the resolution, or wind-down, of large non-depository financial institutions, such as larger hedge funds, so as to limit the impact of a failure on the broader financial system.

Hedge funds? Who said there was any problem with any hedge funds? Is Paulson just being forward looking, or does he know something the rest of us don't? Time will tell.

Paulson really needs to understand, though, that the United States financial system needs to stop being fed from the breast of Big Mother. The U.S. financial system is beyond infancy, hell, it is beyond puberty, it is nearly at old age. An old man sucking at his mother's teat is not an attractive picture.

If someone is trading with a hedge fund, then they should be aware of the risks involved and suffer the consequences should the fund go belly up. To set up to "manage the resolution of hedge funds" is simply setting up for larger collapses. Talk about moral hazard!

Scary character, this Paulson.

Randal Quarles Sure Does Get Around

Randal Quarles was spotted in Waterloo, Ontario Canada this weekend at an International Monetary Fund conference.

Waterloo's The Record noted coldly:

The conference also drew the presence of Randal Quarles, managing director of the controversial Carlyle Group, the American private-equity investment firm which manages funds of more than $81 billion.

Looks like Quarles would like to see the type of policy advice that is dispensed by the IMF changed. The Toronto Globe and Mail's Kevin Carmichael reported:

Others, including Randal Quarles, a former U.S. Treasury official, said the IMF's standing would improve if it offered policy advice other than that based on orthodoxy or fad.

Something to keep an eye on: Changes in posture and/or personnel at the IMF

Government Isn't God: FDIC Sticks Banks With Bad Loans and Sticks Borrowers With Subprime Junk

NEW! The Fed Flunks: My Speech at the New York Federal Reserve Bank

By Robert Wenzel

Paperback 

     

Price: $9.50

Ships in 1-2 business days

In April 2012, Robert Wenzel delivered a speech at the New York Federal Reserve that rocked the financial world. The Fed Flunks contains the speech he delivered, plus two other essays. In addition, Wenzel explains in The Fed Flunks just how it came about that he, a major critic of the Fed, was invited to deliver a speech at the Fed, how the event was almost sabotaged, who was at the speech and the reaction of the Fed economists there.

 Product Details

ISBN                                  9781312047235

Copyright                          Gallatin House LLC (Standard Copyright License)

Edition                              First Edition

Publisher                           Gallatin House

Published                           May 15, 2014

Language                           English

Pages                                 73

Binding                              Perfect-bound Paperback

Interior Ink                         Black & white

Weight                              0.35 lbs.

Dimensions (inches)           6 wide x 9 tall

Paulson: More Bank Failures On The Way

Treasury Secretary Henry Paulson hit the Sunday talk shows to tell America what you could have learned in April from future American Oligarch Randal Quarles, there are more bank failures on the way.

"I think it's going to be months that we're working our way through this period _ clearly months," he said. "Of course the list is going to grow longer given the stresses we have in the marketplace, given the housing correction," he continued.

Paulson said he hoped Congress soon would approve his plan to help shore up Fannie Mae and Freddie Mac, the government-sponsored mortgage companies.

"I'm very optimistic that we're going to get what we need from Congress here, because Congress understands how important these institutions are," Paulson said.

Paulson appeared on "Face the Nation" on CBS and "Late Edition" on CNN.

Freddie Mac To Paulson: Watch This

Freddie Mac is considering raising capital by selling as much as $10 billion in new shares to investors, according to people familiar with the matter, WSJ is reporting.

Freddie will try an do anything it can to stay free of a tighter Treasury Secretary Henry "Hank is for Hank" Paulson grip on the firm. But, pulling off a $10 billion money raise will be quite a trick. Freddie currently appears to have approximately $16 billion in shareholder equity, while Goldman Sachs is estimating it will need to write-down another $21 billion in mortgage related assets.

Thus, any new stock issued would in essence be, a probably very expensive, call option on the mortgage market.

Of course, if Freddie can't do the raise, the company will find itself in the tight grasp of Paulson, which could mean that Freddie could eventually fall into the hands of future American Oligarch Randal Quarles.