Henry Paulson and Asset Valuations

In response to last night's item here picking up Jonathan Weil's Bloomberg News column faulting Treasury Secretary Paulson for not notifying the Department of Justice or the Securities and Exchange Commission or the public when he knew that Lehman Brothers and Merrill Lynch had overstated the value of their assets, a FutureOfCapitalism.com reader writes in to make the point that it is more likely that Paulson had no idea what any of the securities were worth at Lehman, Merrill or other places. The real value of these assets, such as mortgage-backed securities, was volatile and dependent to some significant degree on the actions and statements of Mr. Paulson, Timothy Geithner, and Ben Bernanke. At the time, people in and out of government were describing these as "toxic assets" over and over again. But in the past year, as the forced selling brought on by government policy and general hysteria has subsided, the value of many of these assets has rebounded. In other words, had Mr. Paulson called the SEC or the Justice Department in on Lehman Brothers executives, as Mr. Weil suggests he should have at least considered doing, he would have been prosecuting Lehman's executives for valuing assets on the basis of what they were worth before the Paulson-induced panic or after such a panic, rather than their value during the panic. Not much consolation there to Lehman or Merrill shareholders who would have liked to have known what Mr. Paulson did at the time about the value of what they owned. But a point worth mentioning nonetheless.