Sentiment Is Starting To Turn Against Those Who Are Supposed To Sort Things Out

At the outset of the current crisis, most of the financial community believed that it would only be a matter of time before the Federal Reserve, Congress and the Bush administration figured out a way to fix the mess and allow the secular bull to reassert itself.

In contrast, those of us who had done the research and understood the true extent of the imbalances and excesses that had built up over the past several decades had a different view. We believed that once the unraveling began, nothing could really prevent the dangerously far-reaching collapse of history’s biggest housing and credit bubbles.

And with history as our guide, a few of us also understood something else: as time went on, people would lose faith in those they had counted on to rescue them from the disaster that was unfolding. Eventually, in fact, fear and gushers of red ink would transform many would-be saviors into scapegoats.

Well, based on the following Bloomberg report, “Senator Bunning Says Paulson Acts Like Socialist, Should Resign,” it looks like attitudes towards those who are supposed to sort things out is already taking a turn for the worse — more-or-less as expected.

Senator Jim Bunning said Treasury Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac, is acting like China’s finance minister and both Paulson and Federal Reserve Chairman Ben S. Bernanke should step down.

“I sincerely believe that Henry Paulson and Ben Bernanke should resign,” said Bunning, a Republican from Kentucky on the Senate Banking Committee. “They have taken the free market out of the free market.”

Paulson and the federal regulator for Fannie and Freddie placed the two largest U.S. mortgage-finance companies in a government-operated conservatorship on Sept. 7, ousting their chief executives and eliminating their dividends. Treasury also may purchase up to $200 billion of stock in the firms to keep them solvent.

“We no longer have a free market in the United States, we have a government controlled free market,” Bunning said in an interview. Paulson, a former chief executive officer of Goldman Sachs Group Inc., “is acting like the minister of finance in China.”

Bunning, 76, criticized Paulson’s successful effort in July to obtain congressional authority to pump unlimited amounts of money into Fannie and Freddie to keep them afloat.

“When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turned out it was socialism here in the United States,” he told Paulson at a July 15 Senate Banking Committee hearing.

Following Paulson’s Sept. 7 announcement of the takeover of Fannie and Freddie, Bunning said he now feels like a citizen of China.

Former Phillies Pitcher

“No company fails in communist China, because they’re all partly owned by the government,” said the former pitcher for the Philadelphia Phillies.

Bunning accused Paulson of deception when he told Congress in July that the Treasury’s plan would instill such confidence among investors that it would never have to be used.

Paulson “saw and knew what was happening, and didn’t tell the truth to the banking committee,” Bunning said yesterday.

Treasury spokeswoman Michele Davis didn’t respond to requests for comment.

Bunning, a critic of former Fed Chairman Alan Greenspan, faults Bernanke for lax supervision of the mortgage market.

The Fed chief waited too long to require lenders to change how they write mortgages, Bunning said. “I mean he just did it two months ago. Come on.”

When asked if he expects more multibillion dollar rescues by Treasury, Bunning said, “You bet I do.”

He said Paulson on Sept. 7 should have detailed an overhaul in the business model of Fannie and Freddie.

Bunning predicted in July that, contrary to statements by the Treasury, Paulson would provide capital to Fannie and Freddie.

“Every time we propose and do something, it always gets used,” he told Paulson at the July banking committee hearing.

Posted in Categories: Contributor, Economy, Eurozone, External Research, USA.

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