Hank Paulson Corrupt (What's New), Post on Canadian Free Trade, and the ECB Gearing Up for Printing?

Still the best George Carlin skit ever (warning, adult language):

 "It's a big club, and you ain't it!"

After yesterday's less-than-surprising Bloomberg report on the extent of the Federal Reserve's bailouts at the height of the financial crisis, here comes a full fledged dose of crony capitalism that makes Solyndra look like an honest mistake.

Remember former Treasury Secretary, former CEO of Goldman Sachs, and "tanks in the streets" scaremonger Henry Paulson?  Of course you do since his hand was in your wallet back in 2008.  It turns out that he warned a couple of his hedge fund buddies about the then-forthcoming nationalization of housing giants Fannie Mae and Freddie Mac in the hot, hot summer of 2008.

Nov. 29 (Bloomberg) -- Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co.

Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue.

Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.

Try not to punch a hole in the wall after reading what comes next:

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie's books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc., of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.

Stock Wipeout

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

Ron Paul has no choice but to run with this.  We should see Congressional subpoenas, heated and desperate testimony, and, if we are really lucky, maybe some type of house arrest for this scumbag.  Jail would be preferred but that's not how things work for Paulson's kind.  What's funny is that there is a silver lining in all this.  Those in the know already realize the Federal Reserve is a product of big banker privilege.  This report, outraging as it is, isn't some new revelation on how the Fed and the revolving door between Wall Street and Washington works.  It's just more proof of George Carlin's brilliant tirade.  I only hope it opens a few more eyes to the absolute corruptibility that embodies power centers.

In less aggravating news, I just posted this over at LvMIC:

From Reuters (ht Mark Perry):

Canadian Finance Minister Jim Flaherty said on Sunday the government would eliminate tariffs on dozens more products used by Canadian manufacturers, aiming to lower their costs and encourage more hiring.The initiative would scrap custom duties on 70 items used by businesses in sectors such as food processing, furniture and transportation equipment.
Flaherty, who estimated the tariff cuts would save Canadian businesses C$32 million ($30.5 million) a year, said the cuts were part of the Conservative government’s overall free trade policy.
“We believe in free trade in Canada,” Flaherty said on CTV’s “Question Period” program. “Some of these old-fashioned tariffs get in the way. So we’re getting rid of them.”

Well this is certainly a step in the right direct.  Despite the “we must stimulate exports through currency devaluation” dogma exhorted by classical mercantilists and mainstream Keynesians, exports can be stimulated in more effective ways than impoverishing those on fixed income with currency dilution.  As M. Perry mentions, tariffs are essentially a tax on imported goods paid by all consumers.  Reducing tariffs or duties is essentially the same as cutting taxes.  Both leave more income in the hands of the productive private sector rather than the grubby mitts of the state.
At the same time, productive inputs that a country imports often increase in cost due to tariffs and trade restrictions.  So while tariffs restrict foreign competition domestically, they also increase the price of potential manufacturing inputs like capital goods that are produced cheaper abroad.
Tariffs and duties are the product of isolationism and provide economic benefits for the few at the expense of the masses.  Canadians should embrace Flaherty’s endorsement of free trade.

Good news for Canada, but bad news for Europe today (but great for inflationists!).  Via Zerohedge:

As noted yesterday, the ECB had to sterilize €203.5 billion in cumulative bond purchases. Instead, it only got bids for €194.2 billion from a paltry 85 bidders. This means that for the first time, as shown on the chart below, the ratio of Bids to Bonds for Sterilization fell under 1. What is much worse, is that this happened on the day of the weekly 7-day MRO, during which a total of 192 banks took a combined €265.5 billion from the ECB's weekly 1.25% handout. The amount tops the 247 billion that 178 banks took last week and is the second week running that demand hit a new two-year high. In other words, despite demanding the most amount of money in 2 years, the banks were unable to flip all that cash and "sterilize" monetized paper. This is very bad news as it confirms that the SMP program is coming to a forceful close as banks withdraw in their shells and any further PIIGS bonds purchases will be no longer sterilized above some threshold level, somewhere in the high €100's, low €200 Bns. Whether this is the final straw that pushes the ECB to print outright remains to be seen: it is surely providing the needed dead cat bounce to the EURUSD as hopes that Draghi will finally do as the banks demand have once again resurfaced. (my emphasis)

I was watching CNBC for a few hours today and all the parrot talk was on whether or not the ECB is getting ready to print.  This new development certainly isn't going to deter the Central Bank but almost nothing will at this point.  It's only a matter of days now before Draghi joins Bernanke in the race to the bottom.