Paulson shifts gears again on bailout
The mighty morphin' Troubled Asset Relief Program isn't going to buy troubled assets after all. At least not the ones originally envisioned. The law was passed so Treasury could purchase toxic mortgage bonds, get them out of the system and let the economy resume business. Then people realized that this would do nothing to recapitalize the banks, at least if Treasury paid a fair price for the bad bonds. Then Washington decided to inject banks with capital directly by having Treasury buy preferred stock with a modest coupon.
Now Paulson is talking about lubricating the markets for credit-card and car loans to stave off a consumer strike. This was obviously motivated by last month's miserable car-sales results. He'll keep infusing banks directly, but he's scrapping Plan A. So the banks are stuck with the poison mortgage paper, which may end up being not quite as bad as feared if the economy doesn't tank too badly. One advantage of the original plan was that it would have established some kind of price discovery for iffy mortgage assets and perhaps gotten that market moving. That's on the back burner now.
Comments
Doesn't seem to be a plan after all...we were scared into supporting this big government boondoggle, and we "prepaid" to see the doctors butcher and attack the patient through their pet projects of the week. Obama will add more stimulus so we can make things less worrying for the baby boomer generation, but everyone younger, buckle up for the bill that comes due in a few years!
Posted by: joek | November 12, 2008 2:01 PM
How come noone is talking about Section 382 being changed when no one was looking? This is huge stuff.
Posted by: Politikal Princess | November 12, 2008 2:33 PM
My guess is they're past the panic stage. With little public outcry, the AIG package has ballooned, GE has become a ward of the state, and American Express will belly up to the trough. The Fed resists disclosing what it's taken in as collateral. The Treasury has elbowed banks to have a not-so-silent partner whether they want one or not.
What amazes me isn't that the grand rescue scheme changes almost week by week but that the public remains relatively complacent. Spending is slowing dramatically, but most people still haven't dived for the root cellar.
The common thread behind the schemes--and behind idiocy such as Mikulski's latest bray--is to preserve a status quo that may be fatally wounded.
Posted by: John | November 12, 2008 6:02 PM
Hank read, "If you give a mouse a cookie"
It's a children's book and it might help!
http://nomedals.blogspot.com
Posted by: Jason | November 12, 2008 8:26 PM
Mikulski's idea is good. By making only mortgage interest deductible in 1986 (Tax Reform Act), Congress effectively blessed borrowing against your house, as only that type of borrowing was govt-subsidized. Adding auto loan interest back into the mix will encourage auto purchase and financing, both dried up right now.
TARP required investors to take too much of a haircut, lose too much control, to get benefit of getting bad loans off their books. Might as well just let them run their course.
Posted by: Tim Naughton | November 12, 2008 10:16 PM
It now looks as if the Bush Administration has decided to give the US economy the Katrina treatment. You all remember that hugely bungled mess don't you?
Next thing we'll be seeing is Bush heading back to Crawford looking out the airplane window at the wreckage of the US economy that he's left behind,
Posted by: Doug | November 13, 2008 5:16 AM