Treasury Secretary Henry Paulson said today that he was changing the focus of the $ 700 billion bailout passed last month from buying up troubled bank assets to propping up the economy:
WASHINGTON (AP) — Treasury Secretary Henry M. Paulson Jr. said Wednesday that the $700 billion government rescue program would not be used to purchase troubled assets as originally planned.
Mr. Paulson said the administration would continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending. In addition, he said the Treasury’s capital infusions through the Troubled Asset Relief Program, known as TARP, might also be aimed at other kinds of financial institutions.
“We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments,” he said in opening remarks at a news conference. “In developing a potential matching program, we will also consider capital needs of non-bank financial institutions not eligible for the current capital program; broadening access in this way would bring both benefits and challenges.”
Mr. Paulson praised a new set of guidelines issued Wednesday by the Federal Reserve and other bank regulators, saying that they addressed a crucial issue of making sure that banks continue to lend at adequate levels.
He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.
Mr. Paulson said 40 percent of the nation’s consumer credit was provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets had “for all practical purposes ground to a halt” and needed support.
“With the Federal Reserve we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities,” he said. “We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers’ investment. By doing so, we can lower costs and increase credit availability for consumers.”
So, essentially, an unelected official has decided, on his own to completely change the focus of the bailout. Instead of propping up banks that have been put at risk by the subprime mortgage crisis, the bailout will now prop up the entire consumer credit market.
Something tells me this is a very bad idea.
