I ended my last article, "Bailout will turn China into economic superpower" with the question "Why would our government leaders propose such a treasonous plan?" I now have some answers to that question that I would like to share with you.
As you know if you have been reading my blog Secretary of Treasury Henry "Hank" Paulson is the former CEO of Goldman Sachs (GS). Goldman Sachs has done fabulously well throughout this financial crisis as I have described in my article, "Goldman Sachs: Wall St. Gangstas".
And now both China and GS stand to be the big winners in the financial bailout. Here's what Bloomberg has to say, "Paulson Debt Plan May Benefit Mostly Goldman, Morgan".
Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.I have already written about why China and other foreign governments benefit from this bailout, so let me now discuss the connections between Goldman Sachs and China. I will focus on China because in addition to being a huge beneficiary of this bailout, China is an adversary of the US both economically and militarily. While Japan may also benefit from the bailout, Japan is within the US sphere of influence and is not as much of a threat to the US militarily. For instance, the US still has 90 military bases in Japan with about 52,000 US troops.
"Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,'' Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.
So let's begin examining the evidence. First up, "Can Hank Paulson Bring China and the U.S. Together?", from Time Magazine, Jan. 18, 2007
At the same time, Beijing views Paulson as a "Friend of China." During his tenure as CEO, Goldman Sachs advised the government on numerous privatizations of state-owned companies. Paulson himself was a key behind-the-scenes force in the controversial—and ultimately unsuccessful—attempt by state-controlled oil producer CNOOC to buy U.S.-based Unocal.So what about that Unocal take over bid by CNOOC that Paulson was behind. Here's what the Washington Post had to say about this deal in 2005, "China Tells Congress To Back Off Businesses". And remember that Paulson became Treasury Secretary in July 2006.
But being Washington's Mr. China is a delicate balancing act for Paulson. Chinese leaders such as Vice Premier Wu expect him to understand where China is coming from—and cut it some slack.
Four days after the House of Representatives overwhelmingly approved a resolution urging the Bush administration to block the proposed transaction as a threat to national security, China's Foreign Ministry excoriated Congress for injecting politics into what it characterized as a standard business matter.So after the $700 Billion bailout will Congress still be able to stand up to Chinese companies and keep them from buying out key US companies? I don't think so. The Washington Post article continues.
"We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries," the Foreign Ministry said in a written statement.
If completed, CNOOC's purchase -- its bid is for $18.5 billion -- would be the largest foreign takeover ever made by a Chinese firm.
"We cannot, in my opinion, afford to have a major U.S. energy supplier controlled by the Communist Chinese," said Rep. William J. Jefferson, a Louisiana Democrat.
But whatever comes of the Unocal battle, tensions over Chinese investment are probably only beginning. Just as a rising Japan in the 1980s snapped up high-profile assets in the United States and provoked widespread American unease, China's expanding horizons are having a similar effect.That article was written back in 2005. Today, 3 years later, China has about $1.8 trillion in foreign exchange reserves according to this article from the Globe and Mail, "The tables have turned on Wall Street as China takes the lead".
Moreover, key differences between Japan of that era and current-day China could make this go-round more combustible: Japan was a U.S. military ally and part of the same ideological bloc, whereas China is viewed by many in Washington as an adversary.
But the simplest reason for tension may be the amount of cash at China's disposal: As investment pours in and China's central bank buys dollars to maintain the value of its currency, the country has amassed $650 billion in foreign exchange reserves. China has plowed much of that money into U.S. Treasury bonds.
As far as we know, U.S. President George W. Bush didn't exactly ask China for help when he discussed the Wall Street crisis with Chinese President Hu Jintao on the telephone Monday. Mr. Bush is a proud man and the United States a proud country, still certain of its position at the centre of the economic and financial universe.Henry Paulson is in fact taking orders from China now. But he and Goldman Sachs stand to benefit because they have been building a relationship with China for years. Just take a look at this article from Fortune Magazine in May 2006, "Wall Street's war for China".
But the shift in power from West to East must have been palpable all the same. Wall Street, the citadel of Western capitalism, is in its worst crisis in decades. The American economy, once the powerhouse of the world, is on the brink of recession. China, meanwhile, continues to grow at a pace of more than 10 per cent a year, with most experts predicting only a modest slowdown as a result of the troubles in the United States.
The biggest bank in the world, based on its market capitalization as of Sept. 15, was Chinese: Industrial & Commercial Bank of China. In fact, three of the top 10 banks by that measure are Chinese (while four are American).
China, meanwhile, sits Buddha-like atop $1.8-trillion in foreign exchange reserves. Its debt and deficit are negligible by American standards.
The United States needs China, economically and financially, as never before. For some time now, China has helped prop up the U.S. economy by plowing the earnings from its soaring exports into U.S. government securities such as Treasury bonds. That has effectively financed the growing U.S. government debt, at the same time keeping U.S. interest rates relatively low and (until recently) the dollar relatively high. That, in turn, has allowed U.S. consumers to snap up Chinese-made consumer goods for cheap, buoying the American standard of living.
The Wall Street crisis means that Washington relies even more on Chinese wealth. Just three years ago, American legislators felt confident enough to spike the purchase of Unocal Corp., a leading U.S. oil producer, by China National Offshore Oil Corp. It was a snub to Beijing from a United States that felt uneasy about seeing its corporate assets snapped up by a foreign power.
Today, slices of Wall Street corporate giants are being shopped around to Chinese investors like so many used cars. China Investment Corp., Beijing's $200-billion sovereign wealth fund, is being courted to increase its 9.9 per cent stake in Morgan Stanley, for example. Suddenly, Chinese money doesn't look so bad.
It is not just the U.S. financial system that has been weakened by the past week's crisis. It is the whole brand of U.S.-style capitalism. Henry Paulson, the U.S. Treasury Secretary, has been fond of delivering lectures to Beijing on everything from how they value their currency to how they run their banking system. Just imagine him trying to do that now.
On a Friday in March, executives from some of the world's most powerful investment banks gathered at the Beijing headquarters of the Industrial & Commercial Bank of China to compete in one of the richest beauty contests of all time.I think you get the idea. Paulson as CEO of Goldman Sachs did everything he could to acquire a strong position in China - even bailing out some criminals to the tune of $68 million. Sounds like a bribe to me. Goldman Sachs is in an excellent position to benefit from this bailout. And of course the ones who are being taken to the cleaners are the American People. But Godfather Paulson and his fellow Gangstas at GS will profit enormously.
One after another, teams from each firm were led to a chilly tenth-floor conference room where they were given 60 minutes to describe their plan for selling the state-owned bank's shares to foreign investors. Contestants battled in pinstripes, not swimwear, and sought to dazzle with the brilliance of their PowerPoints more than their smiles.
But in this master-of-the-universe pageant the prize was well worth turning on the charm. Victors would claim the right to lead ICBC in a $12 billion public offering this fall, the world's largest in seven years. The mandate would mean hundreds of millions of dollars in advisory fees, millions more in follow-on business, and the chance to forge a long-term partnership with China's largest bank--not to mention fat bonus checks at year-end.
Goldman Sachs (Research) was the hands-down favorite. Its executives had courted ICBC for years. On his many trips to China, CEO Hank Paulson had called regularly on chairman Jiang Jianqing. Jiang's daughter had worked as a summer intern at Goldman in New York City. Earlier this year Paulson had underscored the firm's commitment by pledging to buy a 7% stake in the bank for $2.6 billion.
Goldman, which got a foothold in China in the early 1990s, is the only foreign securities firm with a trading platform on the mainland. But securing it has required some clever footwork. As a show of good faith to China's regulators, Goldman agreed to pay $68 million to bail out clients of Hainan Securities, a scandal-plagued brokerage it had no connection to that collapsed in 2001. Next it advanced Fang and five co-investors $100 million to launch Gaohua Securities, a new brokerage.
The final step was the creation of Goldman Sachs Gaohua, a joint venture in which Gaohua holds 67% and Goldman owns 33%, the maximum allowed. Goldman won't discuss the terms of its loan to the Fang group, other than to say it gives Fang, who serves as chairman of both Gaohua and the joint venture, ample incentive to remain a part of the Goldman team. The aim of all this was to create a legal framework granting Goldman effective control over a mainland investment bank, even if, on paper, it's owned by someone else.
So why is Paulson trying to push this treasonous bailout on the American People? Isn't it obvious? Greed and Power. Greed is not Good for America! Paulson is the biggest traitor since Benedict Arnold. Who are the terrorists? It's the Neocons and the Neocrooks that have sold out America and destroyed the country we love.