Guest Post: McCain Says Paulson and Bernanke Promised that the $700 Billion Troubled Asset Relief Program Would Focus on the Housing Meltdown

The Arizona Republic reports:

Sen. John McCain of Arizona … says he was misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis, the housing meltdown.

“Obviously, that didn’t happen,” McCain said in a meeting Thursday with The Republic‘s Editorial Board, recounting his decision-making during the critical initial days of the fiscal crisis. “They decided to stabilize the Wall Street institutions, bail out (insurance giant) AIG, bail out Chrysler, bail out General Motors. . . . What they figured was that if they stabilized Wall Street – I guess it was trickle-down economics – that therefore Main Street would be fine.”

McCain isn’t the only one to say that Paulson was doing a bait-and-switch.

The TARP Inspector General found that Paulson misrepresented the too big to fail banks’ health in the run-up to passage of TARP.

Congressmen Brad Sherman and Paul Kanjorski and Senator James Inhofe all say that the government warned of martial law if TARP wasn’t passed (Inhofe says Paulson was the one doing the talking).

And Paulson himself has said:

During the two weeks that Congress considered the [TARP] 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.

So Paulson knew “by the time the bill was signed” that it wouldn’t be used for its advertised purpose – disposing of toxic assets – and would instead be used to give money directly to the big banks. But he didn’t tell Congress before they voted to approve the TARP legislation.

Print Friendly, PDF & Email
This entry was posted in Guest Post on by .

About George Washington

George Washington is the head writer at Washington’s Blog. A busy professional and former adjunct professor, George’s insatiable curiousity causes him to write on a wide variety of topics, including economics, finance, the environment and politics. For further details, ask Keith Alexander…


  1. EmilianoZ

    McCain is a senator. If he wants to wrestle some money back from the banks he can legislate (or at least try to). We don’t need his kabuki.

  2. CapitalismGoneWild

    The Lesson here is:

    Oral contracts are invalid for $700,000,000,000.00 – even if it is between the Secretary of Treasury, Chairman of the Federal Reserve and the Republican Presidential Candidate and the Taxpayers!

    I believe that Oral contracts are only good up to $500 (someone correct me if I am wrong), and even that depends upon what state it was made in.

    So, they overshot the threshold by $699,999,999,500.00

  3. But What do I Know?

    Boy, that’s a tough one–do I believe a politician looking to deflect blame or a financeer trying to save his own skin?

    I give up.

    A plague on both their houses.

  4. Freethinker

    Ignorance of the law is no excuse, particuarly when evaluating the accountability of legislative bodies in making those laws.

    The Mea culpas of politicians planted in the press should be deemed public nuisances. We have heard similar blame-shifting sniveling from Congressional reps when explaining their inexcusable legislative action. Receiving poor or misleading data (as said to have occurred when the Executive Branch requested Congressional authorization of expenditures for the Iraq War) seems to be du jour bleating of our wolves-in-sheep-clothed Congress.

  5. LosingGround

    McCain’s comments are so incredibly stupid that they defy all belief (of course, everybody’s actions in this entire fiasco have defied all belief).

    McCain and the others were promised that the money would focus on the housing meltdown, but instead of writing that into legislation, they just decided to give the Treasury a blank check?


    Also great news for me–I’m going to tell McCain that I need a $700bn blank check, and I’ll verbally promise off the record and behind closed doors to use it for something housing-related too.

  6. blunt

    One wonders just where does trust lie in our country anymore.

    I happen to agree with the commenters above about both McCain and Paulson. Hell, Bernanke too. I’d shift in their most of the financial wizards on and about Wall Street (sorry Yves) and the denizens of both political parties. From those I’d except perhaps Russ Feingold and Dennis Kucinich and point out that since Bernie Sanders is a Socialistm I trust him as well.

    But, somewhere or another, prolly back in 1970 when I had to take a Econ course as an undergrad, I’ve heard that trust is important to the market, any market.

    But, somewhere along the line trust has been replaced by caveat emptor and moral hazard seems to have become anything wherein someone might conceivably make money dependent on some or another decision. So, excatly who’s left to trust?

  7. Mark Martinez

    McCain’s reaction and comments on the bailout shouldn’t surprise anyone. Sure, Paulson wasn’t being truthful. Still, let’s not forget that McCain was in the middle of the Keating Five / S&L debacle. Claiming that he was misled now only proves that he learned nothing. What’s that old saying? Fool me once shame on you … fool me and you can’t get fooled again (George Bush version

  8. charcad

    Senator Juan McCain is facing a strongly contested primary election against former Congressman and talk show host J.D. Hayworth. Juan and his neocon handlers may be calculating the home folks will be more forgiving if he appears to be senile. As it is he risks being viewed as out of touch living on his wife’s millions in DC.

  9. scharfy

    Look out y’all !!!!!

    It campaign season!!!!!!!!!

    Agree with above Charcad post.

    This is one of many politicians campaigning on anti-tarp.

    And yes, for the politically inexperienced – It is very very possible to vote for something and be simultaneously against it. Anyone who say otherwise lacks the delicacies needed for pubic office.

    The ultimate level of political zen-ness involves a level of internal nothingness whereby you are simultaneously for everything and against everything.

  10. attempter

    McCain’s another incompetent buffoon.

    I’ve never understood why, when he was behind in the polls, and he could see how unpopular the idea of the Bailout was, why he didn’t roll the dice and come out against it.

    He could have for once taken the side of popular opinion and even tried to reclaim his squandered “maverick” image, while for once having an actual issue on which he could fight Obama’s fraudulent “change” branding and represent Obama as the standard corporate hack he really was.

    But no, he fell meekly into line, once again broadcasting what a run-of-the-mill system corporatist hack he himself was while doing nothing to counteract Obama’s bogus act.

    Heckuva job.

    1. scharfy

      Agreed. The principled days of facing ARVN p.o.w. captors were long gone.

      Those memories of a idealistic man were no match for the continual whittling away of one’s morals in the game of politics. Sad.

    2. Doug Terpstra

      Poor John. Lighten up. It wasn’t his fault; he’s new to the game; only been on the job what, a few decades??

      This is the distinct advantage to passing a trillion-dollar bill under threat of martial law, consisting of three pages mostly saying there will be no conditions, no liability and no oversight. If only we could do that with healthcare, but then 22,000 unnecessary deaths every year isn’t much of an emergency for Obama and Government Sachs.

  11. Efrain

    As moribund as the economy is, we are not under martial law, the western world has not collpased. TARP was successful.

    1. Billy

      Mortgaging the full faith and credit of the U.S. taxpayer successfully back stopped the banking industry? Is that good?

      I suggest that you check your standards.

  12. Pat

    I voted for the honorable Sen. John McCain. I believe that he is well meaning but to tell a newspaper he was misled is so weak, it begs the unbelievable. If he is still the great American I believe him to be, he will insist on an independent counsel and try to right the listing ship before it’s lost. Otherwise, he’s just a Feckless, well intentioned old man who, at best, was never suited to be the President and at worst, has besmirched his own family name.

  13. goodrich4bk

    What would have been so bad about martial law? IMHO, it would have focused everybody’s attention on just who knew what, when and why. AIG would have failed, and then Goldman would have been exposed. Mostly foreign bank bondholders would have been wiped out, but most small depositors would have lost nothing with FDIC protection. Then we would have seen real reform. Instead, Paulsen stood there telling us “there will be plenty of time to lay blame for the crisis” knowing full well that once the banks got theirs, they’d have sufficient control over the government to delay and eventually thwart any such reform.

    1. democritus

      Just imagine if someone in the current administration had said something about martial law.
      The Ithaca pumps would have started going off by themselves.

  14. Evelyn Sinclair

    There was one interesting moment in the campaign when McCain appeared to be speaking out against the TARP.

    However, at the time it was seen as an excuse on his part to avoid debating Obama, if I remember these details correctly. He couldn’t think about TARP and debate at the same time, because he had to fly back to Washington to focus on the TARP legislation.

    But then he decided that, as distateful as he found it originally, he wanted it to pass and suggested people vote for it. (Republicans did not make angry noises about this but did make vicious remarks about Nancy Pelosi’s similarly squeamish ambivalence after having been threqtened with martial law and all that.)

    So I felt McCain had vaguely gained a little credibility ther for a few minutes.

    Obama just said “Pass it!”

    That and his LOVE of the Fed had me very very concerned way back then….

  15. Ron C

    Of course things got worse,the banksters got all starry-eyed at all that dough and made sure things got worse.

  16. Sam

    Did I misread that? Is McCain questioning the wisdom of trickle-down economics?

    St. Reagan must be rolling over in his grave!

    Regardless, this is incredibly weak of McCain to be playing the “I was misled” card. If you were misled, why didn’t you lead the charge to oppose Bernanke’s reappointment?

  17. Paul Tioxon

    How misled can a US Senator be after, how many years since 1982, governing through the S&L crisis, tax reform, Enron etc that he can not discern what is going on around him? His staff preparations for his committee assignments left him witless and an easy mark to lousy advice, to which he had no alternative, no go to brainiac to consult with, just in case. Wasn’t Mark Zandi his presidential campaign advisor? He could have sought a 2nd opinion. You know, he was only trying to get into the WH, I think people he could trust would return a call and give him their thoughts.

  18. eric anderson

    I voted for McCain (not with any enthusiasm), but this is just sad. Pitiful. TARP was a blank check. It basically said Treasury could do what it deemed best with the money, as far as I know. No recourse. If McCain didn’t know that, he has no business being dog-catcher, let alone a legislator.

    I guess actually reading these darn bills before voting is not really such a bad idea.

  19. Lee

    First of all, did anybody think to challenge Paulson on the martial law threat. Talk about using the bazooka. Seems to me somebody with vested insterests in the banking community that blithely mentions martial law as a probable outcome should be facing serious questioning. Likewise, the whole staring in the abyss nonsense. Every government and media hack even uses the same phrase – we were staring in the abyss. Would somebody kindly challenge these fools to explain this abyss we been hearing about since Paulson looted the taxpayers.

Comments are closed.