Trouble comes in two - Paulsons that is.

The first was the ex-Goldman Sachs chief and ex-Treasury Hank Paulson who used his influence as a smart and astute investment banker to lobby for deregulation particularly in diluting the leveraging norms and got the Congress to allow his investment banking firm to lend 30 times its capital. His firm used it to ramp up all kinds of toxic assets and spread a culture of mercenary banking.

And then as Treasury Secretary he saw to it that the competition to Goldman is wiped out, first by helping JP Morgan Chase to buy Bear Stearns at a cheap price (with Government help underwritten by the Treasury and Federal Reserve) and then in September 2008 forcing Lehman Bros to declare bankruptcy, by refusing to extend the same helping hand.

Hank Paulson was also in the thick of scheming (along with Geithner of Federal Reserve then) to make sure Goldman and Morgan Stanley convert themselves into Banks to qualify for Government rescue. He thus effectively slayed the opposition in a series of wise moves.

Goldman became one of the two remaining Superpowers of Wall Street, which gave it a nice position to write the rules to make more money. It is a legend that Goldman started shorting its own clients and played all sides of a deal to keep making money.

Now comes the other Paulson, John whose scheming along with Goldman to create and short toxic bonds is the news of the day, as revealed by the SEC suit.

Below is a very concise description of what SEC’s suit is all about.

http://money.cnn.com/2010/04/16/news/companies/Goldmans_Sachs_fraud/index.htm?cnn=yes&hpt=Sbin

Wonder what ethics Goldman has if it ventured to bundle toxic assets into a synthetic or hybrid CDO tranche to sell to other 'sophisticated’ investors who were managing the funds of pension funds, churches, schools, municipalities, etc. And which other investment bankers did similar deals with deliberate intent to make money on toxic sub-prime loans ?

The key description of the deal as per the SEC charge:

Quote: So they seek out a reputable third party to, as internal Goldman memos state, put its “name at risk…on a weak quality portfolio.” Unquote

They were ‘Too big to be sued' till now.

Let us see whether this opens the floodgates of more such suits.

But wait, Goldman and its top management could escape making its Vice President,Fabrice Tourre, the fall guy. It appears that Goldman was aware much earlier that a suit like this might be laid. It is not unthinkable that they used their influence with SEC to name Fabulous Fab as an accused so he could become the fall guy. They have already issued press statements saying that the deal and its aftermath was the result of action of a single employee. They are obviously playing to distance themselves from Fabrice Tourre's action even though he worked in the firm, painting him as a 'rogue dealer'.

Who knows they may get away with it and carry on their merry dealings through more such 'rogue dealers'.

But again, the political reality of mid-term elections may work against Goldman getting off so easily. Obama and the Democrats are spoiling for a fight to push their reforms of the financial sector and may be using this as a test case or pressure to bring the titans into line. They have to convince the American public that they are working in their interests and not on the side of the fat cats and what better way than to get a win over the biggest titan, Goldman.

Gordon Brown, the British PM, who is also facing elections has nicely picked the opportunity to rail against the titans in UK.

So it is all becoming very political too. Witness the current bill in the Senate 'Restoring American Financial Stability Act' being upstaged by 'The SAFE Banking Act'. The former is not supposed to go far enough to brak the 'Too Big to Fail Banks' so the latter has prescribed some quantitative restrictions.

The question is - Will Obama do a Teddy Roosevelt and take on the Titans to break them up ?

He may well do, because this is an election year, after all.

To disclose or not to disclose-Transparency of the Bailout in USA.

An interesting court battle is being waged in the USA regarding the Freedom of Information Act.

Huge sums of money were disbursed by the Federal Reserve during the Global Financial Crisis in the latter half of 2008 to banks, companies and other financial firms to stem the tide of deteriorating markets and to prevent the US economy from going belly-up.

Apart from the debate about whether this massive rescue effort was undertaken to save a few preferred Wall Street banks (which had its own ex-executives, including the Treasury Secretary, Hank Paulson at key places), there is a tussle going on to find out how exactly the funds were disbursed and who were the recipients of these rescue bailouts.

Bloomberg has filed the case under FOIA. Naturally the Federal Reserve is opposing the release of information. The arguments for release of information is that public money was used and public has a right to know. The opponents say release of such sensitive information will undermine the status of the recipients and there could be negative effect (even a run on them) on the prospects of these firms.

Both arguments are very valid.

Public money was spent so quickly in those turbulent times, even Congress baulked at authorising it at first. There is a story that Paulson went with just a one page proposal to Congress to throw $700 billion at the problem and not enough details were given to make an informed decision. It was pure scare-mongering that got the funds released.

After nearly 18 months of the rescue being in effect, it is still not clear who was saved and whether they were worth saving, because the ground position has not changed much, with the Wall Street bankers (those that are remaining that is) going about their secretive business and controlling the markets as they used to before.

On the other hand, the Fed is right in arguing that it has to conduct its business not in the glare of public light and certain decisions and acts are too sensitive to be released in a volatile market and such release may screw the market further, even risking the bailout money itself.

My view is the Fed was right to keep things secret at that time, but now after so much time has passed, it is not a bad idea to release it. The bailout has worked to the extent it was hoped for and the bankers don'e need continued protection for an indefinite time.

Also many stories are already coming out regularly about the events and players. Lehman's auditors are in the soup for signing off on a fictitious balance sheet and the firm is going the way of Enron with possible criminal charges against the then management.

Books and articles are being released regularly detailing what went on inside these famed institutions, including the Government then.

I recommend reading the book Too Big to Fail by Andrew Ross Sorkin. It is interesting to read about how Lehman was raped individually and in group by the Treasury, Federal Reserve and all the other bankers like Goldman, JPMorganChase, Morgan Stanley etc leading up to its final bankruptcy.

With so much information coming on, it would not be too damaging if the Federal Reserve is asked to release full details of the rescue it undertook along with the Treasury Department then.

In that light, I applaud the latest ruling by the US Court of Appeals in Manhattan authorising the release of the information.

The Public has a right to know, sometimes a little belatedly, because releasing the information as the events are developing may be harmful but that can't be the case forever.

But wait, the battle is not over yet. I expect the case to go to the US Supreme Court and it will be then interesting to see how the whole thing pans out in the next few months.

May be the Congress will legislate a holding period for such information before they are released.

Is the Love Affair between US and China over ?

The increasing differences of opinions/stand between the two great Superpowers is being talked about more and more now.

To summarise the recent points of differences:

1. US is selling heaps of arms again to Taiwan, stoking Chinese fears and worries that US is again stirring up trouble in its backyard

2. US President Obama is going to meet Dalai Lama, always an issue of prestige and face for China.

3. US has been exhorting China to revalue its currency and give relief to the crisis US is facing at home due to job losses, slowing economy and myriad other ills afflicting US.

4. China is not supporting US stand against Iran and is also silent on North Korea

5. China is expanding influence across the Globe by buying up companies and even nations (with its money power) to ensure the supply of resources it needs to keep ticking.

6. The US manufactured GFC has been a WMD slicing off a big chunk of China's wealth and slowing China's growth.

So there it is. The balance of power has shifted and continues to shift and US is not comfortable with the loss of its status.

Obama, being so inexperienced, is not able to keep China close or in line. He has not charmed the Chinese with his silky tongue like he did his own countrymen. In fact he could not even woo the Muslim world which is also becoming more and more disillussioned with his policies on Afghanistan and Palestine. Obama's team have not really focussed on strengthening the relationship/partnership with China. Their focus has been all over and not getting any result on any issue.

China on the other hand, is not averse to playing its hand overtly and covertly especially now when the US is seen to be down and out on all fronts, economic and political.

The only link that is sustaining the relationship may be the huge investment China has made in the US Treasury bonds and other money-market instruments. China is seeing the value of this supposedly $2 trillion dollar investment not giving a good return and may even be losing a bit of capital too. But China is not able to make break away because of the trade with US.

But what if China one day awakens to the power it has over US and decides to do something about it.

One out of the box scenario.

How about China and US come to an agreement by which US withdraws its commitment to Taiwan and lets China absorb Taiwan if China writes off say $1 trillion of US's debt. In a manner US would be selling off Taiwan to China.

Similar scenarios can be thought of in the matter of N Korea.

Seems like more interesting times ahead for the world as the US and China try to force each other down.