naked capitalism

You have to hand it to Paulson. The man is brazen.

Now, admittedly, he has not asked Congress for the second half of the $700 bailout funds; the Wall Street Journal says merely that he is considering making a request.

Now let us consider;

1. Paulson got the bill passed (remember the timing: it was signed into law October 3) by threatening Congressional leaders that if he didn’t have the funding, the result would be financial armageddon. October delivered that anyhow.

2. Paulson first was going to buy troubled assets, and when that turned out not to be such a hot idea (observers saw it as a back door bank recapitalization, with the added advantage of creating phony inflated valuations for crappy paper, useful for those who did not avail themselves directly of the program), he switched gears and started recapitlizing banks directly and inefficiently, putting $125 billion into nine large banks, some of whom profess they didn’t need it (and that was a feature, not a bug, with Paulson saying up front that he didn’t want to stigmatize banks by singling out the bad ones). Oh, and virtually no strings attached, this was supposed to be user friendly

3. Paulson then renounces the TARP version 1.0 “buy crappy assets” program. Crappy MBS go into a tailspin, necessitating creation of new Treasury/Fed programs to help shore up agency mortgages and asset backed securities, and rescue of Citi.

4. New head of oversight panel, Elizabeth Warren, is already saying that the Treasury is failing about and lacks a strategy.

Put more simply, what pray tell do we have to show for the $350 billion spent so far? Why would you trust this man with another penny, particularly when the terms of the bill put him above the law (although some readers contend that language is unconstitutional). Plus there is no pending emergency to warrant releasing the funds.

But with that lousy fact set, Paulson still has the gall to be noodling making a appeal to Congress for more dough. But then again, those Goldman new business guys were trained to be relentless.

From the Wall Street Journal:

U.S. Treasury Secretary Henry Paulson is debating whether to ask Congress for the second installment of the $700 billion bailout package, concerned about competing demands for the funds and a potentially hostile reaction from lawmakers…

If Mr. Paulson decides to request the next $350 billion, he is expected to do so next week. His hand may ultimately be forced if market conditions continue to deteriorate.

Yves here. What nonsense is this? Since when was the TARP envisioned as a vehicle for propping up “markets” generally? You’d need to add at least another zero to the commitment to accomplish that scale of manipulation.

Back to the article:

Political and practical concerns also color the debate. While Mr. Paulson wants to steer more funds to financial institutions, Congress has its own ideas, including aid for the auto industry and troubled homeowners — two ideas Mr. Paulson has resisted….

The presidential transition is adding to the uncertainty. White House aides approached the transition staff of President-elect Barack Obama two days ago and talked about convening a bipartisan meeting, including congressional leaders, to discuss the next installment, according to an Obama aide. The Obama staff was noncommittal and offered little advice beyond insisting that more money be directed toward direct mortgage assistance. “We’re not in the lead here,” the aide said.

On Capitol Hill, there is little appetite to grant access to the second $350 billion. The skepticism that almost torpedoed the original legislation in September has turned into full-blown revolt amid distrust over implementation and frequent changes to the program.

“Paulson is a big part of the problem because they don’t have a coherent plan,” said Rep. Virginia Foxx (R., N.C.).