Rift at Fed Over AIG Bailout

A Rift at the Fed Over the Bailout of A.I.G.
By LOUISE STORY and GRETCHEN MORGENSON


New documents submitted to Congressional investigators examining the 2008 rescue of the American International Group show that officials at the Federal Reserve were deeply divided over the structure of the bailout and its long-term implications. At the same time, regulators had to contend with major banks that were A.I.G.’s trading partners and were unwilling to accept a discount from the government when closing out the contracts the banks had struck with the insurance giant.


Ultimately, the government decided to make the banks whole on the contracts, a decision that the documents say was approved by Timothy F. Geithner, the Treasury secretary who, at the time, was president of the Federal Reserve Bank of New York. The Fed’s decision to pay A.I.G.’s trading partners in full on tens of billions of dollars in contracts has been controversial because many analysts say they believe the government could have negotiated a price for a fraction of that amount, reducing taxpayer funds used in the rescue. Similar contracts were being settled at heavy discounts in other deals where the government was not involved.

Not good negotiating, for the most important deals. Such incidents increases one's skepticism of government involvement in anything important.


Last Thursday, Thomas C. Baxter Jr., the New York Fed’s general counsel, told Congressional investigators of his frustration with the banks, according to committee staff notes obtained by The New York Times. “We asked for concessions, and they said no,” he said, according to the notes. “I wonder why we even bothered.” Mr. Baxter also said that Mr. Geithner verbally approved the decision to pay full price to the banks. A spokesman for the Treasury Department noted that Mr. Geithner’s decision to give the banks 100 cents on the dollar in the A.I.G. bailout was previously discussed in a report that the Treasury’s inspector general released last fall.

Why bother? Why not push the banks to accept?

According to a 13-page slide show prepared by the asset management firm BlackRock that was submitted to the committee, Merrill Lynch and a French bank, Société Générale, were “resistant to deep concessions” on their A.I.G. contracts. Goldman Sachs, another major trading partner, was willing to accept only “a small concession” on its contracts. The slide show is among more than 250,000 pages of documents provided to the House Committee on Oversight and Government Reform in preparation for a hearing next week on the Fed’s role in the A.I.G. bailout. The committee, which is led by Edolphus Towns, Democrat of New York, has been interviewing some of the people who will testify, including Mr. Baxter.

In October 2008, one month after the A.I.G. rescue was initiated, the New York Fed encountered heavy objections to its plans for structuring the bailout from its overseers at the Federal Reserve Board in Washington. The New York Fed had recommended creating two vehicles — known as Maiden Lane 2 and Maiden Lane 3 — to house securities taken in as part of the A.I.G. rescue. A similar vehicle had been created to hold the assets guaranteed by the government in the Bear Stearns collapse.


In an Oct. 15 e-mail message to Mr. Geithner, Sarah Dahlgren, the New York Fed official leading the A.I.G. effort, wrote, “Board staff again reiterated that they didn’t think that the Governors (unnamed) would go for ML2 or ML3.” Later in the same e-mail message, Ms. Dahlgren noted, “The Governors have cited the Bear Stearns deal as a one-off deal that was done on the understanding it wouldn’t be done again (so ML2 and ML3 aren’t well-received...)”


The e-mail message also summarized the board’s questions about the bailout. Atop the list: “What does any of this buy us?” Plenty, said the Treasury Department in a statement on Friday evening. “Those investments have turned out to be very sensible, and the fund at the center of the controversy is on track to return every dollar to taxpayers, and may well yield a profit,” said Andrew Williams, a Treasury spokesman.


The Fed was advised that the banks had valued the contracts in question at severely depressed levels. The contracts were tied to bundles of mortgage bonds known as collateralized debt obligations, or C.D.O.’s. A senior New York Fed official wrote in an Oct. 22 e-mail message to Mr. Geithner that there was a “discrepancy” between “what our advisers are saying these C.D.O.’s are worth and where the firms have them marked.”


Some of the banks seemed to recognize that the mortgage bundles might wind up being worth more than they were claiming at the time. According to BlackRock’s slide show, Goldman and Société Générale were willing to tear up some of the contracts with A.I.G. if they were allowed to keep the underlying C.D.O.’s, indicating that both banks may have thought they could increase in value. The Fed instead decided to take those C.D.O.’s onto its own books and pay the banks to extinguish the contracts.

Bank, or banana?

Banks May Get Help to Escape Risk Limits
By LOUISE STORY and ERIC DASH


Only a year after the government stepped in to aid Goldman Sachs and Morgan Stanley by granting them access to the federal safety net, policy makers are developing an exit path that would allow them and others to escape limits on banks being proposed by the Obama administration.


President Obama wants to limit the scope of risk-taking by barring banks with federally insured deposits from trading securities for their own accounts and from owning hedge funds and private equity funds. The plan, policy makers said on Friday, would effectively require bank holding companies — which Goldman and Morgan became at the height of the financial crisis — to divest themselves of these lucrative operations.


But Treasury Department officials are also seeking to give banks that do not like the proposed rules the option of dropping their status as holding companies to keep their trading and other investment businesses.

Don't like the rules? We'll change 'em fer ya. No probelma.


The move is likely to turn the spotlight on Goldman, which could be one of the biggest potential beneficiaries because it makes sizable profits from proprietary trading and runs many private equity and hedge funds. Goldman traders are known for taking large trading positions, even as they manage trades for clients. It is less clear that Morgan Stanley would consider such a step, because it has aggressively raised deposits and reduced trading operations since its big losses during the crisis. Officials from each bank declined to comment on Friday.

Allowing Goldman, or other institutions, to abandon their bank charters carries risks. Such a plan could create a two-tier system, where Goldman could pursue business activities different from its bailed-out peers like JPMorgan Chase. Goldman would lose access to the Federal Reserve’s overnight lending program, which provides emergency financing. But investors may still assume that the government would bail out Goldman if it had trouble, elevating the risk of moral hazard.


Simon Johnson, a former chief economist at the International Monetary Fund, said allowing either bank to revert to a securities firm would do little to address the underlying problem. They are so large and interconnected that a collapse would imperil the global financial system, he said. “You can call them an investment bank, a hedge fund, or a banana, but they are still too big to fail,” Mr. Johnson said.

Who could put it better?


Andrew Williams, a Treasury spokesman, confirmed that the proposal would allow the banks to reverse their decision to become bank holding companies. But he said the Fed would still closely regulate companies like Goldman because they would still be systemically important. “There is no escape hatch,” he said. “There is nowhere to hide. Large, interconnected, highly leveraged financial firms must be regulated on a comprehensive, consolidated basis, the same as those for big firms who run banks.”

How?


While bank holding company status is generally permanent, investors have speculated for months that Goldman might seek a way to unshackle itself from some of the additional government regulation that goes with it. Goldman officials have said privately it would like to shed its holding company status, although they have stated publicly that they do not plan to change the company’s charter. On Thursday, David A. Viniar, the bank’s chief financial officer, said the topic was not under discussion. “I just think it’s unrealistic,” Mr. Viniar said in a call with reporters. “I think we’re living in a world where basically every major financial institution is going to be regulated by the Fed.”


But Goldman could change its tune if the Treasury created guidelines for banks to shed their holding company status. The first step for Goldman would be to dispose of its debt, which is backed by the government, or wait until it expires in about two years, the person with knowledge of the plan said.

In addition to the federal bailout, the government agreed that the Federal Deposit Insurance Corporation would back some bank debt issued when the markets were frozen and banks could not otherwise raise money. Goldman has issued $21 billion of the debt.

The Treasury will include the exit strategy in the legislative proposal it is preparing to send to Congress, Mr. Williams said. Lawmakers could make significant changes to the proposal. The plan does not now clarify what proprietary trading activities would be limited. Officials said banks would not be permitted to use their own capital for “trading unrelated to serving customers.” They also said that the rules would require banks that own hedge funds and private equity funds to dispose of them over several years.

Mr. Obama called the ban on trading “the Volcker Rule,” in recognition of the former Fed chairman, Paul A. Volcker, who has championed the proposal to prohibit bank holding companies from owning, investing in or sponsoring hedge funds or private equity funds and from engaging in proprietary trading. Big losses by banks in the trading of financial securities helped fuel the credit crisis in 2008.

Show Me the Money

Who decides what a trader is worth: His bosses? The government? The public? Inside the tug-of-war over pay at AIG, where compensation has become a proxy for a whole lot more.


AIG was saved by the federal government. Of course, it was saved for the benefit of the at-large economy and not for its own sake, but the fact remains that the government saved it. Despite that fact, executives and board members chafe at the pay restrictions imposed by Kenneth Feinberg, federal pay czar. Robert Benmosche, whom I met when he joined Metlife, is now CEO of AIG. He is chafing at Feinberg's rules, and perhaps his very presence.

Feinberg is familiar with emotionally charged disputes about money. As the special master of the 9/11 victim fund, Feinberg ruled on the dispensation of $7 billion to victims’ families. “The 9/11 fund was much more emotional and tragic,” he said. “There you’re dealing with dead bodies and burn victims and families that had their husbands and wives and sons incinerated. No, there’s no comparison.”

But in other ways, there are parallels. His true power as pay czar is not only to set specific compensation guidelines for the seven largest firms still using TARP money but also to inform Masters of the Universe what the taxpayers ultimately think they’re worth. It is a painful ego check many of them can’t stomach. “This is about money, but don’t pooh-pooh money,” he says. “In our society, money is a surrogate for worth, integrity, self-respect, power, and so there’s a lot of emotion associated with this. That’s a very important point. Contrary to what many people think, it’s not just about compensation and how much will be earned. It’s not just dollars and cents.”


Benmosche demanded $10.5 million as his compensation. Money matters greatly to him, in pretty much the way Feinberg defines it above.

On his first official day on the job in August he told the FP traders, “I think you are all worth every dime that you’re owed in these plans,” he said, according to a person present. “If it had been my son or daughter and they had come home and told me the story of what was going on here, I would have been outraged.”

He does not understand the populist revulsion against his ilk.

Next he took on Attorney General Andrew Cuomo, who’d threatened to release names of FP employees who received retention payments. “What [Cuomo] did is so unbelievably wrong,” Benmosche told a group of insurance workers, according to Bloomberg News. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the State of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.”

Arrogance drips off his words and attitude. Arrogance was obvious when I met him, and that goes back a dozen years.

The AIG board was not happy that Benmosche was potentially inciting a political fight with Washington. A week after his Cuomo remarks, Benmosche apologized to the directors at a board dinner in New York, telling them he had no idea his comments were being recorded. Since then, AIG has muzzled Benmosche and declined to make him available for this piece.

He apologized for being recorded, not for saying what he said.

If anything, the political stakes in the current struggle are even greater than financial ones. In the year since the government committed more than a trillion dollars of taxpayer money to rescue the financial system, AIG remains the proxy for everything the public hates about the bailout and Wall Street’s culture of entitlement and greed. Benmosche’s insistence that FP’s traders receive retention contracts strikes many as outrageous given the billions spent to fix a mess created by traders at the same desks. And AIG suffers from the Goldman Sachs backlash, because Goldman, at the peak of the crisis, when Hank Paulson was Treasury secretary and Geithner was head of the New York Fed, was paid 100 cents on the dollar for its credit-default swap contracts, $13 billion, money it would have lost had the government allowed the firm to go under. A year later, Goldman is set to pay as much as $22 billion in bonuses. For Geithner, everything goes back to Goldman, the original sin. “Everyone is watching Goldman,” one person close to Geithner says. “The pay problem is really a Goldman problem.”

Speaking of arrogance. Blankfein apologized and Goldman donated chunks of money purportedly to help small businesses and others, but filled with empty promises and large tax deductions.

Senior AIG executives contend that an exodus of traders over punitively reduced contracts risks blowing up the $1.1 trillion derivatives portfolio still left to be unwound, destroying the taxpayers’ $180 billion investment in the company and potentially dragging the fragile economic recovery back into the abyss.

That would be bad.

Feinberg, along with everyone in the Obama White House, recognizes the risks. “I’m concerned about that. I don’t want to see that happen.” But privately, Feinberg has indicated to Treasury officials that he’s not sure the FP employees are as crucial as they say. When the crisis erupted last fall, AIG hired McKinsey and Blackstone to study the portfolio and devise a strategy to wind down the trades. If a mass of FP traders leave, advisers might be able to stabilize the positions in time to bring in new traders. “You could triage it,” a former senior FP trader told me. Essentially, as long as someone managed risks to interest-rate and foreign- exchange moves, traders could be hired to continue the unwind.

Is anyone indispensable?

Inside AIG, senior executives came to believe that Treasury was manipulating the debate to deflect populist rage from blowing back on the government’s participation in the bailout.

Congress is good at grandstanding and pomposity, and the amount of demagoguery has been reaching very high levels. And surely Treasury is trying to cover its ass. For AIGers to charge bad faith is incredibly pompous and hypocritical.

Of course, there has been a lot of posturing by Andrew Cuomo and populist groups, fanning the ire of people outraged by remaining pockets of affluence seeming immune to the wretchedness of the recession and the financial crisis.

Inside FP, conspiracy theories have taken hold. Depending on who you talk to, there’s a feeling that Feinberg is a political puppet for the socialist politics of the Obama White House. “Who is truly controlling Feinberg? Our understanding is that it’s Rahm Emanuel,” one FP executive says. Another, more bizarre idea has it that Michelle Obama and Valerie Jarrett have convinced the president to redistribute wealth and make an example out of AIG. “Does Michelle Obama have a social agenda?” one FP employee asked.

Anyone mention the grassy knoll?

It’s the moral-hazard problem writ on a truly gigantic scale: Goldman, Morgan, Merrill, et al., took risks—for what was dealing with AIG but a risk—and didn’t ultimately have to pay any of the costs. AIG should not be a place to get rich, after all that’s happened. But the AIG FP traders are right that, in some sense, they’re stand-ins for the sins of an entire class.

Feinberg told me he doesn’t see binary choices. His job is to weigh competing interests and “come up with a fair number.” The problem is that fairness from a Wall Street point of view is very different from how most Americans think of the word. Part of Feinberg’s job is to bring them into harmony. “The companies will stay in business, they’ll thrive, and the taxpayer will get all, or some, of their loan back,” he says.

And for AIG, that question is a $180 billion gamble. The FP traders are well aware of their leverage in letting everyone know the stakes. “As a trader,” one senior FP executive says, “you’re only as good as the hand you have.”

Not worth THAT much

Several Wall Street firms seeking to buy back warrants held by the government as part of the $700 billion financial bailout are complaining that the Treasury Department is demanding too high a price, according to people familiar with the matter.

Driving a hard bargain is not nice when they're on the short side, apparently.

The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth, these people said. That has prompted complaints from some top executives. J.P. Morgan Chase & Co. Chief Executive James Dimon raised the issue directly with Treasury Secretary Timothy Geithner, disagreeing with some of the valuation methods that the government was using to value the warrants.

The inability to agree on a price has already prompted J.P. Morgan to take the next step in a complex process to remove the warrants from the hands of the government. The bank has waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which bank executives say will result in an actual market price.

Let the market determine value. Seems reasonable.

The disagreement between banks and the Treasury indicates that the banking sector, despite being pilloried for its role in the financial crisis, is becoming increasingly confident in its dealings with Washington. Some banks have begun pushing back against some government initiatives, a move fraught with political risk.

AIG bonuses furor? One can imagine how it'll look when a source close to the Secretary speaks on background to reporters about the hardball tactics banks are playing, refusing to cooperate fully with the Treasury.

It also is an indication of how tricky it is going to be for the government to extricate itself from its unprecedented investment in the financial sector. The U.S. has flooded the financial sector with hundreds of billions of dollars, most of which is expected to eventually be repaid and, possibly, create a profit for taxpayers.

Possibly? It had better.

Some banks argue they shouldn't have to pay much, saying the government's investment was essentially a short-term loan they accepted under duress to help stabilize the financial sector.

Under duress? Quite a stretch to interpret it that way. It isn't as if the banks could have gotten through without being bailed out.

Others argue that the government shouldn't be draining bank capital at such a fragile time. At least one bank has argued it shouldn't have to pay the government anything at all.

Nice. Nothing at all? One wonders who that genius is.

But the Treasury is under pressure to extract as much money as possible for the warrants and avoid seeming to favor Wall Street over taxpayers. Lawmakers and the bailout's independent overseers have warned the Treasury against settling for too low a price and robbing taxpayers of a richer return.

The banks are tone-deaf, politically deaf, if they can't see the word robbery.

Treasury officials are cognizant that their actions will be highly scrutinized, with likely congressional hearings and reports, and are taking a firm line.

Geithner could not possibly allow a high-profile embarrassment to happen, by approving a low price.

While banks could bid on their own warrants through a public auction, some are reluctant to go that route since it could drive up the price for the warrants and let them out of their control.

And that's the point: they want to get their warrants on the cheap, not a market price: they do not want to buy their warrants in a market, but at an arranged, low price.

TARP Cop

Recession Job Losses Top 4 Million is today's headline. The government has poured trillions of dollars into stabilizing the financial system, trying to stave off an economic calamity. Part of that is attempting to steady banks by giving them capital. It is essential that credit markets work again. The Troubled Assets Relief Program, a bumbling piece of legislation that Bush and Paulson left the nation saddled with, is a 700 billion dollar rescue package. 700 billion is a lot of money, a lot of taxpayer money, and the government has a right, and an obligation, to make sure it is spent prudently and wisely. The first part of $350 billion disappeared into a banking black hole.

Neil Barofsky, the man overseeing the $700 billion bailout, is armed with broad authority, including the right to carry a handgun and the power to subpoena. As special inspector general for the Troubled Asset Relief Program, he is charged with tracking the bailout funds. In the process, Mr. Barofsky is ruffling feathers on Wall Street and in Washington, demanding access and information some aren't eager to provide.

The mentality that got us inot this mess has not changed much.

Lawyers at institutions that have received government aid are trying to figure out how much leeway they have to push back against Mr. Barofsky, say people familiar with the matter. Some government officials say they are concerned about Mr. Barofsky's aggressive approach.

Instead of being open and forthcoming, institutions that have received TARP funds are using lawyers to finesse it, to hide, to conceal.

Mr. Barofsky ... is a former prosecutor who has tackled white-collar crime and international drug traffickers. He keeps a wooden knife from Colombia as a reminder of just how violent crime can become. Now he can roam the halls of Wall Street almost unfettered. His powers, granted by Congress last fall, give him the right to investigate and audit "the purchase, management and sale of assets under TARP."

His mission is clear, unequivocal: investigate and audit TARP funds.

He takes his mission seriously and views his mandate broadly. In an interview, Mr. Barofsky says his office has "the right to investigate and audit any TARP dollar, anywhere it goes" and to go after any type of TARP-related fraud.

It is good, for a change, that the government is the party with the hard-charging, focused, aggressive lawyer.

The position carries greater reach and independence than the other two "special" inspector generals overseeing the Iraq and Afghanistan reconstructions. Those officials answer to the secretaries of state and defense, while Mr. Barofsky answers directly to Congress.

Good charter. Intention seems quite clear.

Some within the government worry Mr. Barofsky's approach is scaring away participation in the government's rescue programs, rendering them less effective. Government officials say they saw a spike in banks withdrawing TARP applications after Mr. Barofsky said he would require documentation on how they are using the funds. Some of that spike could be due to congressional rumblings about stricter oversight.

Want the money? Answer questions, and be (o, that word) transparent.

Some hedge funds are leery about the Fed's lending facility because of the heightened scrutiny that would result, a condition included at the behest of Mr. Barofsky.

Lack of accountability and clarity are exactly the reasons why we are in this mess.

Mr. Barofsky says his purpose is to make sure taxpayer money is spent the way Congress intended, and to go after anyone, inside or outside government, who misuses the funds. "Members of Congress told me repeatedly that they want me to be the person who goes after the people who want to steal," he says.

Amen.

Congress is moving to head off any challenges to his authority. Legislation passed by the Senate, soon to be considered by the House, would codify Mr. Barofsky's authority to peer into any firm benefiting from TARP dollars.

As if it were not already crystal clear.

Cost of bailout(s)

Another day, another bailout. So, what is the cost, thus far?

First, the Fed:

Since early August 2007, the Fed's balance sheet has grown from $851 billion to $2.245 trillion as it has created rescue programs such as the commercial-paper facility. In addition, it has drawn down its stockpile of safe Treasury securities from $791 billion to $476 billion to finance programs and lent out $185 billion of Treasury securities to Wall Street firms in exchange for riskier securities. In all, the central bank has already committed about $1.9 trillion to support financial markets ...

$2.245 trillion - $851 billion = $1.394 trillion
791 billion - $476 billion = $ 315 billion
$ 185 billion
$ 1.894 trillion

Though the Fed has written down $2 billion on loans to Bear Stearns, Fed officials consider its programs to be well-secured. It is also earning interest and fees.

Two billion is such a small number in this context.

Next, Treasury:

All together, that's $398 billion invested by the Treasury so far. The Treasury is also sure to tap another $350 billion available to the TARP through funds approved by Congress in October.

HUD:

The Department of Housing and Urban Development has pledged to commit $300 billion to help homeowners avoid foreclosure.

BROADER PLEDGES: Adding together rescue money already explicitly committed by the Treasury and Fed brings the dollars spent, loaned or invested to date to $2.3 trillion, a number that is sure to grow and doesn't count fiscal stimulus.

The numbers get much larger when one considers the size of some markets the government has pledged to support. The Treasury has a program to backstop $3 trillion worth of money-market mutual funds. (It hasn't had to tap any funds so far to honor that commitment and has reaped about $800 million in fees on it.)

The Federal Deposit Insurance Corp. is in line to guarantee as much as $700 billion worth of bank debt, according to FDIC estimates. It has also substantially expanded bank-deposit insurance. The Fed is standing behind $1.3 trillion in commercial paper. Various agencies are helping Citigroup to backstop $306 billion in investments.

And counting.

Bailout chief has credibility problem

For all the accolades that Secretary Paulson is getting now, it is important to remember that a month ago he was getting pummeled for his initial three-page plan giving him unchecked powers. It is equally important, if not more so, that three months ago orso he said he wanted a bazooka but thought he would never have to use it.

So, what about his choice for interim assistant secretary for financial stability? One writer thinks little of it.

Let's be optimistic, or just flat out pretend, that Treasury Secretary Henry Paulson did not pick Neel Kashkari to run the bailout program just because he worked at Goldman Sachs Group Inc.

Kashkari as prodigy, not Kashkari as favoritism, is clearly what Paulsonites at Treasury and their allies at the Federal Reserve want us to believe, considering they bypassed offers from people with much longer resumes including New York City Mayor Michael Bloomberg, who's clearly worried about losing his job, and Bill Gross, the bond king at Pimco, who offered to do it for free.

I thought Bill Gross's offer should have been taken; who could be better?

Whoever ends up at the permanent post will be getting the leftovers. Consider that 36% of the funds already have been spent. The rest almost certainly will be used to buy bum assets. So much for the "flexibility" Kashkari talked about last week in his first major speech after being named to the post.

Who is overseeing his performance, anyway?

The asset-purchase part of the program is voluntary for participants. If someone other than Kashkari gets the job, they will be left with only the thankless task of digging through the garbage and trying to put a value on it.

Great.

If Kashkari is on the job, does anyone think Treasury will be driving a hard bargain with Goldman on its mortgage assets? And while we're on the subject of Goldman, under what criteria did Goldman and Morgan Stanley qualify as two of the nation's nine strongest financial institutions? Just wondering.

Good question. Although I would say that their importance in the intricate web of finance is reason enough to slot them in that category.

Kashkari has advised Paulson on security and other issues at the Treasury Department since 2006, which would have been a good time to start thinking about the consequences of the housing market bubble bursting. It does not take an egghead to connect the dots and conclude that mortgage defaults would have an impact on the derivatives built from them. Instead, Kashkari urged U.S. banks to start a covered-bond market like they had in Europe. They probably would have, had they not been edging toward collapse.

Uh-oh.

Missing the bubble is a big reason why critics think Treasury is too narrow-minded in its approach to the crisis. When some in the market were advocating a plan to take stakes in U.S. banks, Paulson and Kashkari were advocating baby steps: a bailout here, a rescue there. That course would have been fine had they made provisions should the crisis deepen, which it did, in part, because there was no back-up plan.

I've so wondered: where were all the financial geniuses while the house was crumbling? If they performed this way at Goldman, how the hell did Kashkari and Paulson ever get that high up? And if they did better at Goldman, how come they're such putzes at Treasury?

The equity-for-cash plan that Paulson and Kashkari have implemented is the right way to go. Better to buy a bank dedicated to survival than its garbage. But let's be honest, they only did it because it was working in Europe. Paulson and Kashkari didn't have a choice.

Geniuses?

Kashkari came from humble beginnings, but he studied hard. You can guess the rest of the resume: Wharton Business School, homes on both coasts, he met Paulson and got his job by knowing the right people. He stayed up all night working on the bailout proposal even though the document, at a total of three pages, was politically inept and borderline unconstitutional.

Borderline? It called for the Treasury Secretary's decision to not be reviewable even by courts. Didn't Chief Justice John Marshall settle that argument a couple of hundred years ago?

O, my, what a headache!

Secretary of the Treasury Paulson and Fed Chairman Bernanke testified today on Capitol Hill. The Chairman does not look very happy, does he? What is this guy saying? or maybe Do I really have to be here?


The second picture is on the front page of Friday's New York Times; this time the Secretary is feeling pain.