It is remarkable (and admittedly late, but late is better than never) that Congress is developing a spine and pushing back at Hank Paulson’s unprecedented land grab. Even better they got mad at something that made your humble blogger nuts. Trust me, I am highly confident that no Congressional aide picked up on the issue via this blog, but you did have to be paying attention to catch Paulson’s dishonesty, and to their credit, they took notice.
Of course, this is all part of a larger Kabuki drama. Paulson is insisting that Congress release the remaining $350 billion of the now-misnamed Troubled Assets Repurchase Program so he can hand out more cash to his industry buddies. Congress will be damned if it gives Treasury any more money, given that the funds have so clearly been dispensed with no controls to favored parties. But since they don’t dare say the taxpayer has been ripped off (that would call their judgment into question for acquiescing to the hastily drafted and aggressively sold TARP), they will pound on Treasury as many ways as they can.
But this is a central issue. Paulson was brazen enough to say that he had misrepresented his intentions while the bill was still being renegotiated. From our earlier post, “Paulson Now Admits Mendacity.” And that means Congress can say they were sold a bill of goods:
From the text of Paulson’s remarks today (boldface ours):
During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.
Either way you cut this, it’s a lie. Either Paulson let his intentions be misrepresented via his silence, or he is now falsely claiming to have changed direction earlier than he did. Nouriel Roubini has claimed that Treasury was resisting the idea of of inserting language that would allow for capital injections into banks but that some members of Congress thought it was necessary, and put statements into the Congressional record via floor debates to allow for that interpretation. Roubini further contends that Paulson changed his mind only as a result of the adverse market reaction after the bill was signed.
But if Roubini is wrong and Paulson’s statement is accurate, it is still completely in keeping with the conduct of an Administration that told the public that there were weapons of mass destruction in Iraq. The bill was drafted to be extraordinarily vague and sweeping, and yet did not clearly give Paulson the authority he now says he realized back then that he needed while it was still being renegotiated.
Now to the fulminating from the legislature, via the Financial Times:
A senior US Treasury official came under attack on Friday as critics of the $700bn bail-out from the left and the right questioned whether the Bush administration had deceived members of Congress over how the funds would be used.
Congressional leaders, including Chuck Schumer, a Democratic senator, and Spencer Bachus, a Republican congressman, applauded a Treasury move this week to scrap plans to purchase troubled securities in favour of direct capital injections into financial institutions.
But at a hearing on Friday, Dennis Kucinich, a liberal Democrat, and Darrell Issa, a conservative Republican, lashed out at Neel Kashkari, the Treasury official in charge of the bail-out, for ignoring “congressional intent”.
The criticism pointed to deeper unease about the Treasury’s handling of the rescue among rank-and-file legislators, which could make it more difficult for the administration to secure approval from Congress for the final $350bn of funds that it is expected to seek.
“I want to know whether Congress was lied to or whether there was a team all along that had an alternate idea of how the money was spent,” Mr Issa said, before demanding to know the “time and date” Hank Paulson, Treasury secretary, had decided to abandon his initial plan.
Mr Kashkari said the legislation authorising the $700bn bail-out had been designed to give the Treasury broad flexibility to adapt its strategies. At the same time, he said, as the bail-out was being negotiated in Congress, “credit markets were deteriorating much more quickly than we had expected”.
He also defended the Treasury against claims that it was not doing enough to immediately help homeowners at risk of foreclosure, arguing that “every American” would benefit from stability in the financial system….
Some lawmakers have expressed concern that, because Treasury will not be buying mortgage securities as planned, it will have less power to modify home loans on a large scale.
I welcome reader comment, but I assume the reason for beating up on Kashkari was 1) he was testifying and 2) it may have been hoped that someone not well seasoned in the art of speaking before Congress would be more likely to slip and make an embarrassing admission. But Goldman employees are well practiced in the art of minimal disclosure.