The whole letter is here:
http://assets.usw.org/News/GeneralNews/paulson-letter-final.pdfUnied Steel Workers
Leo W. Gerard
International President
Henry M. Paulson, Jr.
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Dear Secretary Paulson,
While I am sure that you face no shortage of advice regarding the crisis that continues to engulf the world’s capital markets, I did want to share with you some questions and concerns regarding your decision to invest $125 billion of the taxpayers’ money into nine financial institutions, including the securities firm which until recently you headed, Goldman Sachs.
While the media was filled with the usual breathless “behind-the-scenes” reports of your “High Noon” bargaining, what seems to have escaped their notice was your decision, on behalf of the taxpayers, to pay roughly twice as much as you needed to for the securities that you purchased.
To me, at least, this is far more important than whether you gave the assembled CEOs two hours, two weeks or two minutes to sign up; whether, as the New York Times helpfully tells us, you have seen “Butch Cassidy and the Sundance Kid”; whether you have worked long hours in the last few months; or what brand of cell phone you use.
While Wells Fargo Chairman Kovacevich, who was forced to get by on only $300 million over the past ten years, may or may not have actually pretended to resist the deal, if he had in fact turned you down, he should have been fired, given the extraordinary deal he was being offered.
I have enclosed with this letter a copy of the analysis that we prepared which values the investment of the taxpayers’ money in Goldman Sachs at only 50% of what was actually paid. Perhaps one of your former colleagues at Goldman could take a minute away from their busy day shorting mortgages to see if we are correct.
Mr. Secretary, this analysis is not rocket science. Just twenty days before Goldman announced that it would “accept” Treasury’s investment, Warren Buffett invested $5 billion into Goldman Sachs and acquired the very same type of security –
preferred stock – with the very same form of “upside” – warrants to purchase common stock. For some reason, however, per dollar invested, Mr. Buffett received at least seven and perhaps up to fourteen times more warrants than Treasury did and his warrants have more favorable terms. In addition, Mr. Buffett’s preferred stock has a higher dividend rate and can only be bought away from him at a premium, while Treasury’s investment of taxpayers’ money pays a lower dividend and can be repurchased at par.
Now I know that you have a lot on your plate, but I am sure that someone at Treasury saw the terms of Buffett’s investment. In fact, my suspicion is that you studied it pretty closely and knew exactly what you were doing. The 50-50 deal – 50% invested and 50% as a gift – is quite consistent with the Republican version of the “spread-the-wealth-around” philosophy that seems so much in vogue.
If the result of our analysis is applied to the deals that you made at the other eight institutions – which on average most would view as being less well positioned than Goldman and therefore requiring an even greater rate of return – you paid $125 billion for securities for which a disinterested party would have paid $62.5 billion. This means that you gifted the other $62.5 billion to the shareholders of these nine institutions.
This is no different than if you paid me $10,000 for a car for which no one else would pay more than $5,000. You bought it for $5,000 and gifted me the other $5,000. In my world such gifts are rarely offered to working people.
It’s hard to list all of the ways in which this is disturbing, but let me note just a few:
• If this deal is the model for how you intend to spend the whole $700 billion that you got from the Congress, then it would appear that you intend to reward the institutions that have driven our nation, and it now appears the whole world, into its most serious economic crisis in 75 years with a gift of $350 billion from the American taxpayers, who have watched 760,000 of their jobs disappear over just the past nine months.
• The recipients of the first wave of gift-giving include Goldman Sachs. It has been widely reported that you have surrounded yourself with former Goldman employees as well as individuals from other Wall Street firms. Yet it has never been revealed whether in fact you and they have fully divested yourselves of your Wall Street holdings. Doesn’t it seem just a wee-bit of a conflict of interest for those setting the price of the investment to be either so directly linked to the firms receiving the investments or, even worse, direct beneficiaries of the decision to overpay with taxpayer money?
