Well, he's half right

Which is probably the best we could expect:

Global economic imbalances helped to foster the credit crisis by pushing down global interest rates and driving investors towards riskier assets, outgoing US Treasury Secretary Hank Paulson told the Financial Times.

In a valedictory interview, Mr Paulson cast the crisis as partly the result of a collective failure to come to terms with the way the rise of emerging markets was reshaping the global financial system. These imbalances – arising from differences in the inclinations of different nations to save and invest – are reflected in large current account deficits and surpluses around the world.

To be sure, the crisis is underlain with global economic imbalances. But no one should be surprised that the official government line blames it on responsible behavior - saving* - rather than on overspending. We should be even less surprised that they believe the solution is to give them more power with which to 'manage' the crisis.

Paulson is even right that low rates push investors toward riskier assets - they must. If I were a retiree who needed $50k a year in interest on which to live, I would have to have saved a half million with rates at 10%. With rates at 1%, I would have to have saved $5 million. If I have not saved $5m and "safe" government bonds yield 1%, then I have no choice but to chase risk**. But look who it is that is driving interest rates into the basement. In short, complaining that investors are seeking riskier assets when you are driving them there is like complaining that the guy you shot is getting blood on your Persian rug.

It remains to be seen if the Obama administration is any more sane than their predecessors when it comes to interest rate policies. I'm not hopeful***, if only because if the debt hole we have dug for ourselves in the last 20 years. With rates at 1% and a $10t funded debt, the government pays $100b in interest. When the rate becomes 10%, that interest will be a trillion dollars a year.

Let's see you write us out of this one, Joan Wilder.

* I don't understand how he can complain, with an apparently straight face, that too much savings "put downward pressure on yields," when the Fed is currently holding interest rates at the lowest they have ever been, and that by providing effectively unlimited amounts of money to the market and government. Saving makes more money available to lend - pushing rates down - but it is small potatoes next to a Fed that can have the same effect simply by creating reserves with a coupe of keystrokes.

** Or eat dog food, I suppose.

*** Or rather, I think the best we can hope for is 'marginally.'