Senator Jack Reed pressed Paulson on the Warrants issue that I have been raising. Paulson’s bumbling excuse as to why this was unwise was totally inadequate. Reed was right on point. This is a voluntary program. If a bank would rather manage its mortgage debt because it doesn’t want to give the taxpayers any upside, that is their business decision. But if they need to surrender the toxic debt to survive, then the taxpayers should benefit if the recapitalized bank prospers.
Paulson, who is one of the largest shareholders in one of the banks (Goldman Sachs) that will be bailed out, obviously is profoundly conflicted in this case. As a Goldman shareholder he doesn’t want his equity stake diluted by warrants given to the taxpayers. He can’t pretend he’s a disinterested public servant.