• Jeff Matthews

Paulson Explains Himself: Calling Frank Drebin!


“I felt like Butch Cassidy…. Who are these guys who just keep coming at us?”

—‘Running a Step Behind as a Crisis Raged’ by Joe Nocera and Edmund L. Andrews, New York Times, October 23, 2008

So began yesterday’s excellent, and profoundly disturbing, inside look at how it was that Lehman Brothers was allowed to file for bankruptcy, essentially by one man: Hank Paulson.

While few of its competitors shed tears for Lehman, the ramifications of that Chapter 11 filing are now making the collapse of Bear Stearns seem like a walk in the park.

Yet, as the article makes clear, the Feds looked on like the bumbling but always successful Lieutenant Frank Drebin in that famous scene in “The Naked Gun,” when, gas tanks exploding and missiles flying, Drebin urges gawking pedestrians to ignore the carnage:

“All right, move on! Nothing to see here!”

The Times article appears to be based largely on the recollections of the man who has been on center stage during the entire credit crisis, Hank Paulson, and the chief inconsistency appears right up front, in the second paragraph.

See if you can spot it:

It was the weekend of Sept. 13, and the moment Treasury Secretary Henry M. Paulson Jr. had feared for months was finally upon him: Lehman Brothers was hurtling toward bankruptcy — fast.

Knowing that Lehman had billions of dollars in bad investments on its books, Mr. Paulson had long urged Lehman’s chief executive, Richard S. Fuld Jr., to find a solution for his firm’s problems. “He was asked to aggressively look for a buyer,” Mr. Paulson recalled in an interview with The New York Times. The operative word, we think, is ‘asked.’ We do not recall the heads of Fannie Mae, or Freddie Mac being “asked” to sell their companies to the Federal Government, thus wiping out shareholders and even preferred shareholders in the process.

We do recall the two men being told what was going to happen, whether they liked it or not.

Nor do we recall the heads of Goldman Sachs, Morgan Stanley, Merrill Lynch, JP Morgan, Citigroup, Bank of New York, Bank of America and Wells Fargo being “asked” sell stakes to the U.S. Government.

We do recall that the men were summoned to the Treasury and handed a single page term sheet, with the expectation that every one of them would sign it.

And sign it they did.

So why the kid gloves with Dick Fuld?

Why, while Lehman was “hurtling towards bankruptcy” as Hank Paulson had “feared for months,” was Dick Fuld being “asked” to do anything at all except get the hell out of the way before his company failed and took so many other banks, hedge funds, commercial paper funds, bond funds, real estate developments and who knows what else with it that a catastrophe would result?

Why, really, did Hank Paulson let Lehman Brothers go under and cause precisely the kind of global shock that he professed to avoid with his $29 billion Treasury bailout of Bear Stearns?

The article provides no clear answers, although the reporters hint that the most obvious—that it was a mistake Paulson profoundly regrets but will not admit—is also the truth.

Like Alan Greenspan absurdly telling Congress yesterday that it was not that he did anything wrong by fueling a housing bubble with 1% money; rather, it was the inability of Wall Street to regulate itself, Hank Paulson seems to be attempting to protect his legacy.

Only in Paulson’s case, he isn’t even off the stage yet.

Where’s Frank Drebin when you need him?

Jeff Matthews I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

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GENERAL

The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

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