Paulson's new 'Global Banking Corp.' IPO 2009
Forget Washington, forget Goldman: Our hero has global ambitions
By Paul B Farrell
Last update: 7:05 p.m. EDT Oct. 6, 2008
ARROYO GRANDE, Calif. (MarketWatch) -- What if: Hank Paulson doesn't return to Wall Street and Goldman Sachs? Builds a global banking empire? Competes head-on with Goldman, Morgan, and other domestic and foreign banks? What if the money comes from offshore, from Asia and the Gulf? He's a red-hot brand! Expect a mega-IPO in 2009.
Next: What if Oliver Stone updates his 1987 attack on "Wall Street?" With Michael Douglas again? A new script's rumored: Gordon Gekko's out of prison, sets up giant private equity empire in London? Nah, too "yesterday!" Today's news is too hot, too juicy. "Wall Street, the Sequel," needs a new predator! A poster-boy for the arrogance, greed and incompetence of Wall Street and Washington. And "Hank the Hammer" Paulson wins hands down as the archetype of a modern global megapredator.
Years ago I was a Hollywood executive. Films have long lead times.
"Shindler's List" took Steven Spielberg over a decade. Stone's new film "W" was shot fast but years in development. Along the way, you're reworking scripts.
So imagine: You're Stone's screenwriter. Its 2011. You're asking yourself: What happened? Why a new bubble, bigger meltdown so fast? Paulson thought the bailout would work. Congress did too. You're looking back. Your job, sketch the key plot points of Stone's next thriller, based on all we know of the buildup and what we can rationally predict will happen between 2009 and 2011. Start:
1. Opening scene: Paulson and Goldman Sachs, 1974-2006
Harvard M.B.A., 1970. Then a staffer at the Pentagon and with Nixon. Joins Goldman in 1974. CEO in 1999. Paid $38 million in 2005. Federal ethics laws let him sell $484 million in Goldman stock tax-free when he left. Net worth, about $700 million.
2. U.S. Treasury Secretary, 2006-2008
Goldman was a big derivatives player under Paulson. His decisions at Treasury reflect 24 years as a Wall Street insider. He was protecting his old Wall Street buddies when he and the Fed chairman insisted in mid-2007 the subprime-credit meltdown was "contained."
3. Paulson suddenly flip-flops and hits panic button, Sept. '08
After years of denial, two weeks ago Paulson flip-flops. Using a classic Reaganomics "disaster capitalism" gimmick, he pushed the panic button, asked Congress for a $700 billion blank-check bailout bonanza for Wall Street. Nothing for Main Street. A one-sided Ponzi scheme, imperial powers, complete with Iraq War-type threats of "economic mushroom clouds." Conservatives were screaming "nationalization! socialism!"
4. Paulson's panic triggers 'feeding frenzy' for lobbyists, 2008
While baffled Republicans wondered why Hank pushed the panic button, his panic set off a scene rivaling "Jaws." Washington is run by 42,000 lobbyists. They smelled blood in this $700,000,000,000 ocean. Add my bank! Foreign banks! Hedge funds! Money markets! S&Ls! Auto loans! Bankruptcy relief! Sharks on a feeding frenzy.
5. Flashback: Paulson warned the president, but failed us, 2008
Yes, he saw this crisis coming years ago. Bloomberg Markets reports that back in August 2006 Paulson spoke to the White House staff at Camp David: "Paulson held up over-the-counter derivatives as an example of financial innovation that could, under certain circumstances, blow up in Wall Street's face and affect the whole economy." Yet he withheld this information from America, didn't tell us till his recent panicky flip-flop.
6. Paulson's conflicts of interest favor his old buddies, 2008
Paulson owes a lot to Goldman; 24 years almost made him a billionaire. An analyst told Bloomberg News that Goldman and Morgan Stanley may be the two "biggest beneficiaries" of the Bailout Bonanza: They've already "written down the value of their holdings." So they have much junk to dump on taxpayers, thanks to Paulson their, "inside man." And he wanted no oversight. With several former Goldman staffers working with him at Treasury now, you wonder: Did they give their old buddies early hints of the bailout?
7. Uncle Warren also gets priority before taxpayers, 2008
Main Street may be overlooked, but not old friends like Warren Buffett. Earlier as Goldman's CEO derivatives made Paulson one of the chief architects of today's "Economic Pearl Harbor," as Warren Buffett calls it (a strange comment since back in 2002 Buffett warned derivatives were "weapons of mass destruction"). Flash forward: Buffett offers Goldman $5 billion, spinning it as a show of confidence in the bailout. But in a Portfolio piece, "Salvation or Swindle?" we learn: "Saint Warren is buying $5 billion worth of Goldman's perpetual preferred stock. This stock pays a 10% dividend and is callable at any time at a 10% premium." Imagine, $500 million after taxes annually. Plus "Saint Warren also receives warrants with the right to buy $5 billion of Goldman's common shares at $115 per share over the next five years. That is 8% below Tuesday's closing price. ... This has nothing to do with saving the financial system."
8. Paulson's triumphant return to a 'New Wall Street,' 2008
Here's another sneaky script subplot from The Huffington Post: First Goldman pays Paulson megabucks, then "lends" him to Bush, a virtual Trojan Horse. Now Paulson's preparing the way for his grand march back into private life by throwing billions of taxpayer dollars to his old buddies. So Goldman gets billions, and taxpayers get a pile of illiquid junk. Scam? Yes, and a classic case of moral hazard: Freed of risky liabilities, Wall Street dances off into the sunset, laughing at the stupidity of the American taxpayer. If Paulson did return to Goldman, his future bonuses would likely more than double his net worth. In short, his 30 months in government will undoubtedly make him a billionaire while costing taxpayers a trillion in new debt as a result of his inaction and incompetence.
9. New president, same old lobbyists, same old greed, 2009
Some things never, never change, no matter who's president. America is run by 42,000 lobbyists, not our 537 elected officials. And Wall Street's the biggest political campaign donor. For example, USA Today reports that since 1989 Christopher Dodd, chairman of the Senate Banking, received $43 million. Barney Frank, chairman of the House Financial Services Committee, got $7.8 million. No wonder they voted for Paulson's Bonanza.
10. Paulson resigns, creates own bank-holding company, 2009
No, he's not going to stay. He's already the de facto president, an uncrowned king, the messiah of global finance. He raised hundreds of billions to "save" America and the world from collapse. So forget Goldman. What then? He's a former president the Nature Conservancy, a $5 billion global environmental charity. Bloomberg reports he's already working on a "$10 billion international fund under the auspices of the World Bank that would help emerging-market countries avoid investments in heavily polluting infrastructure." He's even lined up "$6 billion in informal commitments [and] Congress is considering the administration's request to kick in $2 billion." Get it? Not only is he bailing out his old buddies. Not only is he preparing for his return to private wealth. But he's also finagling more taxpayer money for his pet cause. All while being paid to work for U.S. taxpayers. Next, a new Paulson Global Bank Holding Corp.? An IPO? You bet, in 2009. But not retail, probably a private placement with $25 billion minimums.
11. Warning: Same old cycle: Bailout-Bubble-Bust, 2009-2011
"Wall Street's dead?" No way! The Street's alive, will survive and thrive. Paulson's Bonanza sets up the greatest "moral hazard" in world history. Our bad boys got away with a scam. Taxpayers are stuck with their toxic waste. Once freed, Wall Street comes roaring back with a new bull next year. The financial sector lost almost half its stock value since last summer's peak, $1 trillion. Our greedy financial geniuses must quickly invent new tricks to satisfy shareholders who lost billions and are now demanding higher earnings and stock prices. Banks must start blowing a newer, bigger, more lethal bubble.
12. Hot new aggressive competition among banks, 2009-2010
Yes! Paulson and his competition, J.P. Morgan Chase, Bank of America, Barclays, Wells Fargo, Citibank and Goldman, are revving up to Nascar speeds: Heavy trading, high leverage, risky derivatives to meet demanding quarterly expectations. Investors have short attention spans, want a new bull. The Fed, Treasury and SEC will look the other way, creating de facto deregulations to get the markets back on track. Who loses? Homeowners and taxpayers. But also small depositors in the bank-holding companies: Expect more excessive fees and commissions as all banks siphon off more to raise new cash for their same old high-risk gambling bets.
13. Armageddon: Bubble pops, global economic meltdown, 2011
Russia, China, Iran, Venezuela and others are already praying for America's demise. Now staunch allies like Germany join the chorus: The German finance minister blames the current crisis on Wall Street's "insane drive for higher and higher profits ... Wall Street will never be what it was ... The global financial system will become more multipolar." To protect itself before and after the 2011 collapse, Paulson's new global banking empire will likely be headquartered in multiple locations in Asia, Europe and the Gulf. But the moral hazard created by Paulson's 2008 bailout will eventually backfire. We relieved Wall Street of the consequences of its costly, stupid blunders. But we also released them to chase a new raging bull in 2009 ... and blow a bigger more lethal credit bubble that'll bring down the global economy before the end of the next presidential term.
Comments? My advice to Stone: Forget recasting Michael Douglas as Gordon Gekko. Start planning, plotting and writing a new script now for a 2011 released date. Get Clint Eastwood as Hank the Hammer. Then we get an IPO, you guys get a couple Oscars!
Paulson's new 'Global Banking Corp.' IPO 2009
Published: October 27, 2008, 8:44 pm