Scott Pelley interviewed Treasury Secretary Henry Paulson on 60 Minutes Sunday night and I thought I was going to blow a gasket.

Pelley reminded Mr. Paulson of a quote he said way back in April 2007:
“I don’t see sub-prime mortgage market troubles imposing a serious problem. I think it’s going to be largely contained.”

And when Pelly asked why he didn’t know this coming, Paulson replied “Hindsight is 20/20… I didn’t expect quite this.”

Are you kidding me? Now, I may be just a pretty little girl and may not know a lot about this “economic stuff”, but how is it that I saw this coming 5 years ago? I was a manager of a real estate agency from 02-04 when houses were getting 10 offers and people with bad credit making $60K a year were buying $500K houses. We saw this catastrophe happening right before our very eyes and knew that very very bad things were going to happen once these loans started to adjust.

You’d Have to be Blind to Miss the Signs

We were having meetings to discuss it for goodness sakes! We were telling our agents that they need to learn how to become REO agents because that is where we were going to be in a couple of years! I even considered becoming an agent just so I could be an REO Agent when this puppy was going to hit the fan! That was way back in 2004! (Thank god I didn’t go that route. After all, it’s so much more fun to be a stressed out real estate investor rather than a stressed out REO Agent.)

Fast forward to the last 2-3 years and see all us investors educating ourselves to buy houses in this market crash. Did we investors know it was coming?

So how is it that we “regular” people knew that our market was going to crash and 10’s of thousands of people where going to loose their homes and banks were going to fail – but very important smart people like Paulson “didn’t expect quite this”?

Pelley also quoted several emails by analyst for credit rating agencies on Wall Street and one of the emails from two years ago said:

“Let’s hope we are wealthy and retired by the time this house of cards falters.”

Well it’s almost what we investors have been saying for the past couple of years – except that we are saying “Boy - We are sure going to be wealthy and retired by the time this crash is over.”

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Tags: $700 billion, Economy, Hank Paulson, meltdown, paulson

We all know by now about the $700 Billion Paulson rescue plan he’s been attempting to stampede through Congress for the last week. But do you really know what’s in it? Do you know what those against it want in the plan before they sign on?

What Hank Wants

Let’s take a look at the three most important measures in the Paulson Plan:

(1)The Treasury Secretary is authorized to buy up to $700 billion of any mortgage-related assets [Sec. 6].

Let’s look at this more closely. This measure will allow him to purchase the mortgage “related” securities. The verbiage is really important here. Notice the plan doesn’t say “mortgage-back securities or whole mortgage, but mortgage “related” securities. The reason for this is the truly underwater investments crippling the balance sheets of investment institutions and banks, is the mortgage derivative investments.

A mortgage derivative is an investment product that really increase returns when things go well, and REALLY rack up loses when things don’t. Racks up losses so quickly and so large it freezes the whole secondary market function for mortgage capital…at least that’s what Paulson is contending. These investments are then sliced and diced into sub-products many of which are worthless now with no hope of recovery.

Can buying worthless investments make the banks whole again and by proxy then free up the secondary mortgage market? If you were contemplating bankruptcy due to some bad “investment/purchase” decisions and decided to have a garage sale to unload all your bad choices. Do you think selling me your 50 inch Plasma TV for $100 is going to make you whole again?

It won’t…but I digress. I’ll discuss whether the plan “works” or not next week.

(2) The ceiling on the national debt is raised to $11.3 trillion to accommodate this scheme [Sec. 10];

Pretty self-expalinatory…the Fed lends the US the money and in order to allow the Fed to print the money, the national debt ceiling must be raised. This is what puts taxpayers on the line for the payment of this rescue plan.

(3) best of all: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency” [Sec. 8].

This proviso is what I call the “Hank as King” measure allowing the Treasury Secretary to act without impunity, supervision, or regulation with his decisions on what to buy, what to pay, and what to ask for in return.

Isn’t it the lack of oversight, regulation, and prudent financial choices that created this mess in the first place. Now we are being asked to allow it again?

Wow! Paulson has no shame adding that power in to Section 8. It’s funny a “Section 8″ is also the code which allows for a military discharge for being crazy…and I think Hank is a little crazy if he thinks anyone is going to sign on to this!

Want Dissenters Want

The Congressional leaders who are currently voicing opposition to the rescue plan say they won’t pass anything that doesn’t contain provisions that have some accountability, require the government to negotiate an equity position in exchange for their investment (ala AIG), limit corporate executive compensation and/or the paying of dividends to stockholders, and mandate loan modifications to help home owners in foreclosure on mortgage assets the government buys.

Time will tell if this is more grand-standing than real objections.

Would this Paulson rescue plan work even if it passed? Could it make things worse?

That’s the topic for next week…so stay tuned…

Tags: $700 billion, bailout, Economy, Hank Paulson, housing, mortgage bailout, paulson, rescue plan