Tuesday, November 18, 2008

Paulson's Op-Ed

Secretary Paulson in today's New York Times:

Recently I’ve been asked two questions. First, Congress gave you the authority you requested, and the economy has only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties, why aren’t you addressing those problems?

The answer to the first question is that the purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had already spilled over into the overall economy. But recovery will happen much, much faster than it would have had we not used TARP to stabilize our system. If Congress had not given us the authority for TARP and the capital purchase program and our financial system had continued to shut down, our economic situation would be far worse today.

The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending. We are also working with the Department of Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures.
Double-wrong again, Secretary. The answer to the first question is that you had already lost control by that point, and you knew it. Of course, it's easy to say now that you got you bailout that things would have been much worse without it, but we'll never know, will we?

Your answer to the second question, if you were telling the truth, would sound more like this: "We couldn't care less about homeowners. We are trying to get as much cash into the hands of those that caused this mess as possible. If it weren't for that meddling Sheila Bair, we could ignore the homeowners all together."

I nominate the following statement to be the one most likely to come back to bite Paulson's ass:
As policymakers face the difficult challenges ahead, they will begin with two considerable advantages: a significantly more stable banking system, one where the failure of a major bank is no longer a pressing concern; and the resources, authority and potential programs available to deal with the future capital and liquidity needs of credit providers.
"The failure of a bank is no longer a pressing concern"??? So what will he say once Citigroup goes belly up? Oh, that won't be a "failure", because the government will either dump a bunch of money into them, or help them become acquired.

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