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Wall Street Got Drunk


After suffering through the past year, perhaps Paulson could use a scotch on the rocks.

Understanding the complexities of the current economic climate can be a challenge. That's why simple analogies like the one President Bush offered earlier this month are useful. "Wall Street got drunk," he said. "And now it's got a hangover." Analysis for the masses.

Bush didn't intend for the comment to be made public, but perhaps he should have. Not only was the off-handed remark borderline clever, but it also accurately reflected the economic facts on the ground. Treasury Secretary Henry Paulson echoed the sentiment this week on NBC's Meet The Press.

"Absolutely there's a lot of truth to what the president said. And in terms of Wall Street, there was too much leverage in the system and more leverage than was appropriate and more than people recognized, because the leverage came into the system in the form of highly complex, structured products, which were difficult to understand," Paulson said. "So there was excess leverage, excess complexity."

Typical hangover cures involve tomato juice, coffee, and copious amounts of acetaminophen. Financial hangovers are slightly different, though no less relegated to the whims of trial and error. For his part, Paulson made clear he favored a wait-and-see approach to whether or not the government should issue a second round of stimulus checks. In other words, the economy's taken its first dose of Excedrin (in the form of $168 billion stimulus effort), and now just needs to wait for it to kick in.

Paulson has also offered a 218-page blueprint for overhauling how the financial system is regulated. The biggest proposal since the current system was formed after the 1929 crash, Paulson's plan calls for three super agencies with power over the financial industry. This is not unlike having three wingmen beside you at the bar-their mission, to keep you from having that eight shot of Jagermeister. You'll regret this, they'll say.

The government's current focus is on the housing bill that President Bush recently signed, said Paulson. The bill is designed to help 400,000 families at risk for losing their homes and provide financial assistance to Fannie Mae (FNM) and Freddie Mac (FRE).

It could take "well beyond the end of the year" for the hangover pain to end, according to Paulson. And he won't even be around to see it. The Treasury Secretary announced that he would not serve in the next administration.

After suffering through the past year, perhaps Paulson could use a scotch on the rocks.

No positions in stocks mentioned.

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