Oberweis, Foster blast Paulson's leadership on bailout

The first moves by U.S. Treasury Secretary Henry Paulson to lead America out of economic turmoil displayed some poor leadership skills, said both candidates for the 14th Congressional District this week.

However, incumbent Democrat Bill Foster and Republican challenger Jim Oberweis differ in what they believe motivated Paulson in the early days of bailout talk. For Foster, Paulson's goofs stemmed from bad judgment. For Oberweis, Paulson's actions were fueled by old friendships.

Oberweis said to judge Paulson one need only look at two facts. One is that the Barrington native was the CEO of the Goldman Sachs investment firm just two years ago. The second is how Paulson let the investment banking firm Lehman Brothers fail, but saved the insurance giant American International Group (AIG).

Oberweis said the collapse of Lehman Brothers was not much of a concern to Goldman Sachs, but AIG's failure would have gouged some $20 billion from Paulson's old company and the friends he still has working there. Indeed, Paulson selected a former Goldman Sachs associate to direct the Office of Financial Stability charged with overseeing the government bailout.

"He had a desire to protect his former firm and associates," Oberweis said. "When it came to rescuing Lehman Brothers, he let it go. When it got to AIG, the reaction was different."

Foster said he's never had an in-depth conversation with Paulson, but doubts he was motivated by lingering ties to Goldman Sachs.

"I don't think so," Foster said. "I believe he's acting in the best interests of the country."

However, Foster said the lack of help for Lehman Brothers was a mistake.

"My guess is if they had that decision back, they would do that the other way," Foster said. "Their free market approach on that lasted exactly one day. The sight of a dead belly was dramatic enough so that when the next company was set to fail, AIG, they said we'll do something about it."

Both candidates also criticized Paulson's initial version of the bailout and his exuberant call for action.

Foster said Paulson's three-page initial proposal and call for an immediate bailout was "clumsy" and a "dumb thing to do," at least politically.

Oberweis, who has said repeatedly he would have voted against all the versions of the bailout, took his criticism a step further in suggesting Paulson actually helped spark further panic in markets.

"It was a mistake for Mr. Paulson to say you've got to do this right now or else," Oberweis said. "Once they had rung that bell, it was very, very hard to stop it."

Paulson's words made any lending or selling of the so-called "toxic" mortgage-backed assets far less likely as companies sat and waited to see what the government would do instead of trying to fix matters on their own, Oberweis said.

Foster, meanwhile, said he retains confidence in Paulson to secure the most beneficial deals with companies who now come forward to accept the government assistance on the table and perhaps turn a profit for taxpayers when the smoke clears.

"Overall, there's a very good chance if we have strong negotiating from Henry Paulson, or whomever replaces him, we can pull this off," Foster said.