Paulson's testimony before Congress raises serious questions about the governance of US government. His testimony, combined with the record quarterly profit of Goldman Sachs, confirms a suspicion I've had for some time about the US Government. It has four tiers: executive, legislative, judicial and financial. The last tier explains why the banks have so much power and why they are propped up by US taxpayers.
In his extraordinary testimony, as reported here, Paulson conceded he had pressured Bank of America last year to go through with its plans to buy Merrill Lynch. More to the point, he said the negotiations were kept private to protect investors. "We didn't want to overly scare people and make it worse," he said.
Let's get this straight. US corporations have been forced to comply with Sarbanes-Oxley which is ostensibly designed to give shareholders as much information as possible. But in these negotiations, shareholders were kept in the dark, courtesy of the US Government.
As John Berlau from the Competitive Enterprise Institute writes here, Paulson has a lot of explaining to do. Paulson had threatened to remove the the Bank of America board and management when clearly that is the role of shareholders, not government. He says Paulson probably violated many of Bank of America shareholders's constitutional rights. And that includes the 14th Amendment's guarantees of due process and equal protection under the law.
Combine that with the record profit recorded by Goldman Sachs, the investment bank Paulson used to run.
Paul Krugman points out in his piece The Joy of Sachs that what Goldman Sachs does is bad for America. Its record profit has been helped by a system that has left US taxpayers on the hook with the financial system's liabilities now backed by an implicit government guarantee, something that can only come about when the financial services sector is another tier of government. At the same time, the finance sector is lobbying furiously to stop the Obama administration bringing in the most basic protections for investors. Krugman writes: "If these lobbying efforts succeed, we'll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers' money – except that it would involve the financial industry as a whole. The bottom line is that Goldman's blowout quarter is good news for Goldman and the people who work there. It's good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it's bad news for almost everyone else."
Or as Sheldon Fliger writes in the Huffington Post: "If Hank Paulson symbolizes the incestuous relationship between Wall Street and government, his attitude reflects how insignificant the general public has become in the minds of those calling the shots and making the critical policy decisions in the wake of the worst economic crisis to afflict the American people since the Great Depression. But when those who caused the disaster are spared the ravages of the unwashed masses who are now being corralled into ever-growing unemployment lines, and instead are basking in the illumination of near record bonus payments, their callousness can at least be understood."
It all goes to show the sickness in the corridors of power that in the end helped create a crisis that looks likely to drag on.