Paulson Has Understated The Financial Crisis All Along

I admit it: I’m a Dean Baker fan. Although I might not agree with everything he says, I love the fact that he is a trained economist with a gift for communicating clearly who is not afraid to speak his mind.

In his latest post, “Paulson Missed the Bubble and Understated the Financial Crisis at Every Point,” Baker addresses a concern about the former Goldman Sachs honcho — aside from the questionable assumption that his previous experience running an investment bank means he has the skills necessary to resolve the current crisis — that Congress (and others) should be taking into account.

Treasury Secretary Henry Paulson is telling Congress that if it doesn’t give him a $700 billion blank check the financial system is going to collapse. It would be reasonable for reporters discussing this request to present some background on the track record of the person asking for this enormous blank check.

In March of 2007, after the first shock waves of the housing meltdown had already hit, the Associated Press reported Mr. Paulson’s view that the credit difficulties linked to the housing slump would be limited.

In August of last year, after the second round of financial shock waves disrupted markets worldwide, Paulson commented, “We have the strongest global economy I’ve seen in my business lifetime.”

Just last March he warmly endorsed a reduction in the capital requirements for Fannie Mae and Freddie Mac, saying “additional capital [invested in mortgages by Fannie and Freddie] will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market.”

At every point along the way, Secretary Paulson has failed to see the extent of the crisis resulting from the collapse of the housing bubble. This raises serious questions about his judgment. Reporters should be discussing Paulson’t track record in the context of this bailout proposal….

[The NYT is on the job -- I missed the excellent chronology in the sidebar.]

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