1115.org

Paulson braces public for months of tough times - AP (7/20/08):

Treasury Secretary Henry M. Paulson Jr. sought to reassure an anxious public today that the banking system was sound, while also bracing Americans for more troubled economic times ahead.

“I think it’s going to be months that we’re working our way through this period — clearly months¹,” he said.

Paulson, appearing on several TV talk shows, said the number of troubled banks would increase as they struggled to cope with big losses on bad mortgages. The government this month took over Pasadena-based IndyMac Bank after steep losses on home loans and a run on deposits led it to fail.

“Of course, the list is going to grow longer given the stresses we have in the marketplace, given the housing correction². But again, it’s a safe banking system, a sound banking system. Our regulators are on top of it³. This is a very manageable situation,” he said on CBS’ “Face the Nation.”

Paulson went on to assure depositors that no one has ever lost a penny of an FDIC deposit. Given Paulson’s abysmal record of situational awareness and prognostication, it might be time for a nationwide bank run. Let’s review:

¹ “I do believe that the worst is likely to be behind us.” (5/7/08)

² “All the signs I look at” show “the housing market is at or near the bottom.” (4/20/07)

³ “Their regulator has made clear that they [Fannie Mae & Freddie Mac] are adequately capitalized.” (7/10/08)

Even Paulson’s admission that it will take “clearly months” to work through all of this is suspect:

Sir Win Bischoff, chairman of Citigroup, said that house prices in the UK were likely to fall for another two years and said that the situation would be the same in the US.

Talking to business editor Robert Peston on BBC Radio 4’s Today programme, he said: “I am a great believer that over a period of time there is a reversion to the mean, which would suggest that house prices have further to fall.

“I think that it will take some time - two years perhaps - until the markets stabilise. We certainly think that in certain areas of the United States it will take that long.”

“I suspect that in the British market house prices are not as leveraged as in the United States. There will be pressure on house prices coming down. How long will it take? Again, I think two years might be an estimate - I don’t think it will be much quicker than that.”

There was no byline on the AP piece on Paulson above, which is unfortunate. Quoting him without noting his track record only serves to misinform readers, the opposite of journalism’s stated mission. Paulson will cease to taint the Treasury in six months, and odds are he’ll skulk back to a Wall Street firm, reputation largely intact due to financial reporters who just can’t bring themselves to actually keep score.