The Big Oops

Mr. Paulson changes his mind

Date published: 11/16/2008

WILL TARP 2.0 prove any more effective in curing the nation's financial malaise than its predecessor? That's the $700 billion question now that Treasury Secretary Henry Paulson has scrapped his initial rescue plan, the Troubled Asset Relief Program.

For taxpayers, it's kind of like being wheeled into an operating room, having been told you must donate an arm to keep your family alive, only to find out it's really a leg that's needed. Or possibly both. Not even the surgeon knows.

Mr. Paulson warned of impending collapse in September should Congress fail to pass a huge federal bailout of financial institutions--mostly mortgage companies that had unwisely invested in shaky home loans. The idea pitched to the American people was that they were buying assets--troubled assets, yes, but assets nonetheless--that would rebound in value once the credit market recovered.

The bailout, euphemistically dubbed a "rescue plan" and now called TARP, hasn't performed as expected. Mr. Paulson has already obligated $125 billion to the nation's nine biggest banks, $125 billion to some regional banks, and another $40 billion to AIG, the insurance giant "too big to fail." Now, however, the Treasury secretary is changing his plan. Rather than buying assets, he'll soon be writing aid checks to banks and other firms that offer auto, student, and credit-card loans. This, he hopes, will unfreeze the credit market. He means it this time.

(Why exactly we want to make credit-card loans easier to obtain is unclear. Aren't we already swimming in plastic debt? But then, that could just be our anesthesia speaking.)

Further, Mr. Paulson is allowing some non-banks to act like banks so they, too, can feed at the federal trough: American Express is first in line. Who will be next? Every business from Macy's to Target has its own credit card. Will they all need a gimme, too?

If all this isn't enough to send taxpayers into a swoon, none of the mandated oversight of TARP has been set in place. "It's a mess," Eric Thorson, Treasury's inspector general, told The Washington Post. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

Translation: Brace yourself. That arm and leg "this thing" has already cost you? It may be just the beginning.

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Date published: 11/16/2008