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November 18, 2008

Paulson Rules Out Using Bailout Money to Assist Auto Industry

My previous tentative faith that he knew what he was doing is badly shaken, but at east he gets this one right:

Treasury Secretary Henry Paulson Tuesday defended a massive financial rescue in the face of criticism from lawmakers and a top US official wanting to use it to shore up the battered economy.

The 700 billion dollar Troubled Asset Relief Program (TARP) "is not a panacea for all our economic difficulties," Paulson told a hearing of the House of Representatives Financial Services Committee.

"The rescue package was not intended to be an economic stimulus or an economic recovery package; it was intended to shore up the foundation of our economy by stabilizing the financial system, and it is unrealistic to expect it to reverse the damage that had already been inflicted by the severity of the crisis," he said.

A blitz of bailout news from Jules Crittendon.

Jeff Sessions, of the Republican wing of the Republican Party, sends a letter to Bush urging restraint, if not reversal, on bailouts:

Less than a week after pushing for authority to purchase distressed securities, Secretary Paulson altered the focus of the Troubled Asset Relief Program (TARP) to recapitalize banks instead. That move directly contradicted his prior testimony to the Senate: “There are some that said we should just go and stick capital in the banks . . . but we said the right way to do this is not going around and using guarantees or injecting capital.” Since that time, Secretary Paulson has abandoned the stated goal of purchasing distressed assets and is now concentrating on purchasing large equity stakes in banking institutions. The financial sector recovery program operating today is entirely different from the one outlined to, and approved by, Congress in October. I can only conclude that the swift reversal from purchasing toxic assets to stock purchases was part of a plan to mislead the Congress because massive stock purchases would have received a much more hostile reception.

Predictably, efforts are now underway to expand the TARP to bail out private companies suffering in a recessionary economic climate, notably the big three auto manufacturers. Allowing this trend to continue sends a clear signal to foreign nations that the United States has turned its back on the free market and is a virtual guarantee that other “vital” industries will request government assistance in the future. As estimates for the Fiscal Year 2009 federal deficit approach the staggering $1 trillion mark, we must ask: where do we draw the line?

With this in mind, I urge you to:

1. Publicly outline a plan for extricating the government from the market as soon as reasonably possible, limiting further interference, and allowing markets to function in the future, as well as emphasizing clearly why this is an important principle.

2. Establish guidelines for making the TARP’s basic earnings and loss data – similar to that found on a corporation’s quarterly statement – available to the public. The Administration has argued that taxpayers may be made whole by the future sale of equities purchased by the TARP. Accordingly, the American people have the right to know the status of their investment.

3. Oppose the economic stimulus package that includes an additional bailout for troubled auto manufacturers. Your administration should not allow a struggling economy to be used as justification for a huge surge in government spending and control.
It seems to me that Secretary Paulson, whom you obviously admire, has assumed an inappropriate role in our governmental system. He is acting as a Wall Street investment banker, allocating hundreds of billions of dollars in taxpayer money, with no oversight and no stated plan. This undermines our heritage of law and order, and is an affront to the principle of separation of powers. Of course, the Secretary works for you and serves at your pleasure. While you have many challenges in these busy days, I believe you have a clear constitutional duty to personally supervise his actions and to direct this process. I urge you to do so.

In this time of economic turmoil, let your actions clearly reflect a commitment to the sound economic and governmental principles that have made our nation great. It is important that we recognize the magnitude of the precedent these actions have set, and that you intentionally act and speak in ways that limit that precedent for the future.

Malkin, meanwhile, declares vindication.

Paulsen came to the American people and sold some of us on the TARP plan. It is perfectly possible that the situation deteriorated, or at least changed, so much that it was wiser to inject capital directly into banks. However, he never came forward again (at least not in any well-publicized way) to make that case to us, nor did President Bush address the country prominent to explain the change in strategy.

So I, for one, feel like I've been suckered into supporting one plan only to be baited and switched into another plan. Without being notified, and definitely without my consent.

This is profoundly anti-democratic. This is a major policy shift. In fact, the original bailout was itself an enormous policy shift -- direct intervention in US markets -- that the nation only reluctantly agreed to, and only barely so. (Actually, I think the nation is and was still opposed to bailouts; the political class, however, went ahead with it.)

It is unacceptable that such large changes in a policy provisionally agreed to by a bare majority (or plurality, or even minority) of the country be enacted without serious, prominent explanations. Or updates -- is this crap working? Or not? I'd like to see the case made that what has been done thusfar has been helpful. I suspect it has been helpful to some degree (interbank lending rates are down quite a bit) but, having singed off myself on such a huge and unprecedented intervention, can you guys even make a pretense of keeping us in on the loop?

Or do you only plan to extract authority from citizens, claiming looming catastrophe, and then, once that authority is secured, begin making decisions secretly?

Whether the bailout was wise in the first place (and I'm now wavering on that -- not sure if the idea was good to start with, and losing confidence in the execution of the idea besides), I do know for a fact that politically, every damn Republican in the country should run against the bailout, even those who cast votes in its favor.

Let the Democrats own the issue -- they caused the catastrophe. Let them own the solution, for good or for ill.

But no more political cover from Republicans for bailout upon bailout. Trillions of dollars, which exist only in the imagination, are being spent on a dubious scheme overtaken by mission creep, with no exit strategy in place, nor any timetables for withdrawal from the quagmire. (See what I did there?)


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posted by Ace at 06:29 PM

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