The Bailout is a Bad Idea, Part V

The following article explains that the financial crisis was not caused by subprime mortgages, but by the enormous liability that insurance companies and financial institutions have for credit default swaps.

• New York Times article
  Behind Insurer’s Crisis, Blind Eye to a Web of Risk
  An exploration of A.I.G.’s demise offers insights into the virally connected financial world that is now imploding.

It also appears that Treasury Secretary Henry M. Paulson Jr. is trying to bailout his former firm Goldman Sachs. From the article:

"Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.

Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion."

Can you say conflict of interest.

Don't forget that in the first draft Paulson demanded that Congress forbid judicial review of his decisions on use of the money in the bailout. Not only would his decisions be beyond review but so would the actions of his pals in the banking world.

Paulson should be removed from office. And there should be no bailout until he is removed.