The Paulson Catalog

This will be everywhere this morning but I might as well join the fray--James Pethokoukis (channeling Ed Yardeni) on "The 11 Blunders of Hank Paulson" (link):

Strategist Ed Yardeni says that "everything that [Hank] Paulson has done or endorsed has worsened the credit crisis and sent stocks reeling." Like what, for instance? Like these, and I quote:

(1) Paulson's Super-SIV proposal was a distraction that went nowhere. It was the first clue that he likes half-backed schemes that are hard to implement.

(2) The vaunted "Teaser Freezer" hasn't worked. Neither has the Hope Now Alliance. Indeed, many borrowers who've been foreclosed never even heard about these new outreach programs to keep them in their homes.

(3) Letting investment banks borrow from the Fed's discount window just after Bear Stearns failed suggests that letting the firm go was done as a risky gesture to the principle of avoiding moral hazard, which has subsequently been thrown out the window.

(4) The government's unwillingness to provide transparent rescue plans started with the mysterious $29bn Bear Stearns portfolio acquired by the Fed.

(5) After multiple assurances that Fannie and Freddie were solvent, they were seized and put into conservatorship. Stiffing owners of their preferreds opened an estimated $25bn black hole in the capital of regional banks that owned these securities. It also seized up the one market that financial firms had for raising capital.

(6) Refusing to support the suspension of mark-to-market accounting was Paulson's second biggest mistake.

(7) His biggest mistake was letting Lehman go under. Dick Fuld should have been forced out, and Lehman should have been rescued. A guy who ran GS and all the MS advisors around him should have known that letting Lehman go under would blow up money market funds and the commercial paper market. It also blew up the prime brokerage business and massacred the hedge fund industry, which sent stock prices into a free fall.

(8) When AIG was seized, the terms of the government's rescue package were punitive. They've been recently eased, but the firm can't raise funds by selling only 49% of its various non-core assets, as required by its "bailout" deal.

(9) TARP was a really bad idea that was sold to Congress and the public by inciting a panic, and sending the global economy into a tailspin. Claiming that the Treasury could purchase one-of-a-kind troubled assets in reverse auctions made no sense. The RTC solution to the S&L crisis of the early 1990s won't work to end this crisis.

(10) The Capital Purchase Program of TARP, started on October 14, is providing capital to banks that probably should be forced to fail and to those that don't even need it. Hopefully, Congress won't give the second $350bn installment of TARP to the Treasury.

(11) Paulson has been aiming to kill "bad" hedge funds. The result of his disjointed fixes has been a massacre of innocent bystanders, including long-only investors getting killed in all the stocks that hedge funds are being forced to sell.

My take: I think Paulson's credibility with the financial markets has been exhausted. Now I am not sure what the magic solution was. Maybe some recapitalization of key players plus an Uncle Sam-led home refinancing plan. Or maybe a) suspending mark to market, b) a zero capital gains tax for the next five years, and a corporate income tax holiday. But I will give this to Paulson: He does strike me as a guy who is working himself near death to deal with an amazingly tough problem.

Comment: Some of these are above my paygrade, and not all are of equal dignity. Most important, surely: (9) and (4). I don't agree with (6) although maybe some tinkering with mark-to-market would be possible, and useful. The real point, though, is that the list is so long. As (I believe) John Stewart so wisely put it, we have the impression that Paulson is "flailing wildly at the keyboard." Oddly enough, the focus appears to fall entirely on Paulson. I should think we would give equal billing to the man who is supposed to know more than anyone else in the world about financial crisis--Fed Chairman Ben Bernanke.