Blankfein to Paulson: OK Now What?

Thanks to Janet Tavakoli for a great takeoff on Milligan's classic laugh.

It’s September 2008. Goldman and AIG are trading in the markets, and Goldman notices that AIG seems to be having very severe liquidity problems. AIG needs to renew repo agreements after investing the trades’ cash in plunging mortgage collateral bought from investment banks, and asks around for various other sources of funding.

Recognizing an emergency, Blankfein whips out his cell phone and calls Hank Paulson. He gasps to the Treasury Secretary and former Goldman CEO: "AIG, one of my biggest trading partners is going under! This will cause a market meltdown! What should we do?"

Paulson, in a calm comforting voice says: "Take a deep breath and pull yourself together. I can help. First, let's make sure AIG is really going under."

There is a long pause, during which Blankfein checks the status of his credit default protection and other hedges against an AIG failure, yanks AIG’s credit lines, and presses AIG with calls for collateral on credit default swap agreements on plummeting CDOs.

Blankfein’s voice finally comes back on the line. He says: "OK, now what?"

Spike Milligan's Original

Two hunters are out in the woods when one of them collapses. He doesn't seem to be breathing and his eyes are glazed. The other guy whips out his phone and calls the emergency services. He gasps, "My friend is dead! What can I do?".

The operator says "Calm down. I can help. First, let's make sure he's dead."

There is a silence, then a shot is heard.

Back on the phone, the guy says "OK, now what?"

Ex-Fed Governor Mishkin in 'Pay for Say' Controversy Over Icelandic Economy

The Icelandic Chamber of Commerce commissioned ex-Fed Governor Mishkin to write a glowing report on their economy, even while the country was being destroyed from within by a rogue banking system, a financial oligarchy, and a corrupt regulatory regime.

What is surprising is that there was no disclosure of the payment of $124,000 and that Mishkin was unable to cite any substantial effort he made to investigate the economy when forming his analysis.

Alan Greenspan handled his own apparent faux pas in mismanaging the Federal Reserve and actively opposing the regulatory efforts that might have stemmed the orgy of financial fraud which occurred on his watch much more skillfully, so that the Fed was able to gain even more power from the recent 'financial reform' crafted by an industry complaisant Congress.

In a recent NY Times piece Making It Up, Paul Krugman takes economic fluffery to task, and rightfully so. In this day of think tanks and special interest foundations, there are often experts willing to engage in 'pay for say.' Experts are not exempt from the powerful contamination and capture by special interests, particularly the financial industry, that has affected regulators and politicians

In the formulation of public policy the learned opinions of economists must be weighed carefully, and the supporting data examined. And of course any conflicts of interest disclosed. Academic economists are no different than anyone else, because as it appears, their interests are not always purely academic.

As in so many instances of scandal and corruption, the best disinfectant is the light of day in the form of transparency, disclosure, and public accountability and review.

"Every thing secret degenerates, even the administration of justice; nothing is safe that does not show it can bear discussion and publicity." Lord Acton

W. E. Pollock: ZIRP the Wrong Tool For the Job