Trust them? We don't have a choice

By Jon Markman

The Bush administration's attempt to forestall financial disaster began as political theater last Friday but has ended this week as farce, imperiling the confidence of foreign lenders and American taxpayers alike, and turning our economic system upside down.

Since it has already gone into the mortgage and insurance businesses, it's almost as if our political leadership next decided to make a foray into television by launching two reality shows.

The first was a pilot starring Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke in "The $700 Billion Pyramid." The concept was to see how many lawmakers they could get to sign off on a law that gave them control of a mountain of money with no strings attached. The second starred members of Congress in "Are You Smarter Than a 5th Grader?"

Neither is doing so hot in the ratings, and for good reason. American and foreign fund managers alike are already upset at being suckered into buying overrated U.S. mortgage derivatives from companies like the one Paulson used to run, Goldman Sachs (GS, news, msgs). But now the TV appearances are making the public realize that the folks in charge of these debacles aren't even very clever. This is aggravating because it's one thing to lose billions in an ingenious con, but to realize you were taken by fools just makes you furious.

In his close-up this week, Paulson appeared uncomfortable, unknowledgeable, uncaring and often unintelligible, as if notes he had scrawled on a cocktail napkin on the way in were just out of reach. Bernanke was more patient with senators' dumb questions and self-serving speeches, yet he clearly gave the impression of an egghead who would rather be teaching Econ 363 back at Princeton.

Since our leaders failed to explain much, let me give it a try -- and provide my own review of their efforts.

Sieves and tarps

Bernanke originally burst into investors' consciousness as a junior Fed official in November 2002, after giving a speech in which he said the government could solve deflation problems by dropping money out of helicopters. Fast-forward six years, and he is amazingly trying out this academic theory by teaming up with his sidekick at the Treasury, whom some are calling "Helicopter Hank."