Paulson's Bailout: So Much for That Idea!

You know what the bailout feels like? This is what it feels like:

You're walking down the street, minding your own business, when the guy in the scruffy clothes approaches you with his tale of woe. He used to be a productive member of society, he tells you, but then things took a turn, and lately he's been down on his luck and struggling to keep body and soul together. What he could really use, he tells you, is a dollar so he can get something to eat. He hasn't had a meal all day, and he's just a dollar short of a sandwich.

So you reach into your pocket and press a crumpled bill into his outstretched palm. He thanks you, and wishes you a wonderful day, and as you continue down the street, you cast one last glance over your shoulder and see the guy walk into a liquor store.

That's what it feels like. Only multiplied by 700 billion.

700 billion being the number of dollars the Congress of the United States recently agreed to give to the Secretary of the Treasury so that he could set about solving the credit crisis by buying up the "toxic assets" that were clogging up the financial system.

And now, just weeks later -- with half of the 700 billion already in hand and the rest soon to follow, with lots of those billions already disposed of, but without buying a single "toxic asset" -- Henry Paulson stands before the microphones and says, approximately, "Never mind."

He's decided to use the money for something else.

Oh?

Unsettling but true: The secretary has now officially abandoned Plan A. Instead of getting things flowing again by taking on the burden of those rotting mortgage-backed securities, the secretary has now decided to get things flowing again by injecting money directly into the banks themselves. How? By buying ownership stakes in individual banks.

Wait -- there's more!

The secretary is also considering setting up a brand-new "special-purpose" lending program, targeted not at banks and Wall Street firms, but at the companies that finance car purchases, make student loans, issue credit cards. The goal? Making credit more available to consumers -- you remember consumers, don't you? -- who'll start spending again, which will create a demand for more products, which will kick-start the manufacturing sector, which will...

That's the idea, anyway. The latest idea. Of course, by the time you read this, there may be an entirely different latest idea.

And by now, the thought has probably occurred to you: They're making this up as they go along!

You betcha. That's because nobody has ever seen anything exactly like this before, moving as quickly as this, or as broadly as this. And nobody -- not even the Secretary of the Treasury -- is sure how to deal with it.

So if Plan A stops looking like the right solution, there's always Plan B. If Plan B doesn't cut it, get ready for Plan C. Will one of them work? Your guess is as good as mine. (It may be as good as his.) Is it better than doing nothing? Probably.

"I will never apologize," says the secretary, "for changing the approach and the strategy when the facts change."

Henry Paulson isn't walking into a liquor store after all -- he's just looking for the right sandwich.

Meanwhile, we could all use a stiff drink.

Rick Horowitz is a syndicated columnist. You can write to him at [e-mail].

Comments

[TheIndependenceParty]

"The guy in the scruffy clothes" was actually wearing a shiny suit and a pink silk tie. What happens next in your scenario is that the bum goes down the sidewalk and knocks on the window of a black Bentley and passes the bill to a waiting accomplice at the curb. He's drinking champagne in the back seat.

Oh, ... and I'll by a drink for a bum any day. At least he is likely to tell me "Thanks".

[ProfessorDuh]

So now Paulson wants to breathe new life into securitization by providing liquidity for nonbank financial institutions who get their money from the wholesale market. Of course, no one really knows how this will work since these operations are completely unregulated by the federal government. No worries; the charade will persist behind the dodgy claim that "it's needed to get credit to the consumer". Baloney. What the consumer needs job security and a pay-raise, not more debt. This is just more Paulson flim-flam.
— Mike Whitney

[lj9283]

The "Pualson" bailout plan is nothing more than a continuation of the cronyism of the Bush Administration as practiced over the past eight years.

I believe this Administration is purposely mishandling the taxpayers bailout monies in order to continue crisis in the financial markets so that the Obama Administration will have fewer options to help the American people when they take power in January.

They'll then leverage that into "diminished accomplishments" in the 2010 elections.

Keep in mind how obsessively self serving this administration has been for eight years.

[ProfessorDuh]

As we now see plainly revealed, what Fox News, Cheney, Paulson and the Bush scum call "the free market" is nothing of the kind — it's a kleptocracy in which mendacity, bribes, government favors, secret intelligence, black ops, blackmail, torture and massive fraud are combined to rob the public blind. The history of the Bush family fortune consists of a long series of public trusts betrayed for private interests and personal gain. The remaining right-wing Bush loyalists in this country are all supporting criminal conspirators, and most of them or too brainless and religion-drugged to even realize it. They spend all their time hating and fighting any shred of compassion in public policy, while behind their backs they and the nation are being raped.

[beaupritchard]

Loaning you back your own money ... that's good ... that's real good.

[blood1]

As Paulsen has demonstrated that he has no plan...then Congress should deny him the rest of the money. So far, the estimated $300B has not had a positive effect for the economy and banks have continued to fail. His Wall Street friends have taken his money...and if credit is not either available or being used...then make them give it back and let the next administration use the money wisely. All he and the GOP are tying the hands of the Obama administration. If I was a conspiracy theorist, I would conclude that this was designed by Bush / GOP to attempt to manipulate the election...and then what would the effect be different?

Can we survive until Jan 20th?