obama czar criticism

obama czar criticism

Paulson’s “bait-and-switch” Bailout

It’s only been a few weeks since Congress signed off on Treasury Secretary Henry Paulson’s big $700 billion bailout plan—the Troubled Asset Relief Program (TARP). What exactly do we have to show for it? Nobody knows. What’s more, we now face a complex financial logjam that’s every bit as messy as the original fiasco. And the situation is all the more hazardous because Paulson keeps waffling.

As you recall, the original plan was to buy $700 billion in toxic securities—spoilage from defaulted home mortgages that kicked off the financial meltdown. Simply put, taxpayers would buy $700 billion worth of assets nobody else would touch, ostensibly to get frozen credit markets back in motion. But the toxic-loan plan never got off the ground. It couldn’t move far or fast enough to bring the immediate relief Paulson promised.

Instead, Treasury announced it had devised a new plan aimed at thawing out the frozen credit markets. The new plan: Put money directly into big banks by enacting a little-known clause in Sec. 113, (e )(1) of the TARP legislation, which economists are calling the “Stock Injection Alternative.”

Paulson promised that stock injection effectively served to “rescue” the banks, but instead of owning shaky assets, the government—the taxpayers—would become preferred shareholders of the banks themselves. That means the taxpayer would be promised a return (since preferred shares pay interest), and those owning common shares would take the first hits. Thus, taxpayers would be more protected and less likely to lose money.

Amid this back-and-forth maneuvering, people started whispering that perhaps Paulson didn’t really know what to do. First he’d claimed that buying toxic mortgage-based investments from troubled banks, particularly those whose failure might undermine the domestic or global financial systems, was the only conceivable solution to bank failures. And he tenaciously opposed any congressional suggestions that could modify his plan.

Then after the first $350 billion had been released, he unexpectedly switched gears into what some believed was too broad and too vague a direction.

Paulson had already spent $85 billion to bail out insurance giant, AIG. But even after a congressional hearing and scandalous admission about the company’s lavish corporate resort boondoggle, AIG still had the audacity to come back to the money trough and lap up another $40 billion.

If there is anyone in the Treasury keeping track of where all these dollars are going, they aren’t letting on. In fact, the money banks have received has done little to thaw out credit for U.S. businesses or consumers. Banks appear to be more willing to lend to each other, judging by a drop in the LIBOR rate. But the no-strings nature of the bailout has led some to use the money in ways Congress may not have intended. For example, PNC Bank, headquartered in Pittsburgh, PA, used part of its allotted cash to acquire Centurion branches in its market area.

Credit cars and auto loans next in line

In a further drift away from Congressional intent, Paulson announced he wanted to extend the bailout program to non-bank credit markets like those holding credit card receivables, auto loans and student loans. American Express has, with a sprinkle of Treasury pixie dust, been deemed a bank, thus qualified to feed at the trough with the others. Companies like GMAC, the lending arm of General Motors, and other carmakers’ lending units, are standing in line as well.

In the original bailout plan Paulson asked for overarching Czar-like authority to move money around, without being subject to review by any court or administrative agency. His initial “just trust me” proposal didn’t fly. Congress assured the public that any plan they approved would have built-in oversight.

But by early November, not only had the White House failed to nominate a special inspector general to head up oversight efforts, Congress had yet to appoint any members to a five-person congressional oversight panel. In fact, a comprehensive plan seems non-existent.

A lot of money had been blowing out the door, but no one had bothered to consult with Congress about any of the details. Finally lawmakers stepped up to the plate.

On November 18, Paulson faced harsh questioning by members of the House Financial Services Committee where he shared the table with Fed Chairman Ben Bernanke. In addition to sharp criticism of mishandling matters, pointed questions reminded everyone that some TARP money was to have helped homeowners faced with foreclosure, an idea strongly supported by FDIC Chairman Sheila Bair.

Paulson argued that TARP was meant to stabilize financial markets and the flow of credit, not serve as a panacea for all our economic difficulties. And, he brushed aside questions about future plans by saying he had no intentions of doling out the second half of the $700 billion program — let the Obama administration deal with it, he said.

A secret $2 trillion deal

Back in mid-October, the Federal Deposit Insurance Corporation announced a new $2 trillion three-year program—the Temporary Liquidity Guarantee Program. The program was meant to strengthen confidence and encourage liquidity in the banking system. This guarantee is in addition to the $250 billion preferred stock purchase plan we already mentioned.

Perhaps you might be curious about the details surrounding that $2 trillion deal, a little transparency perhaps? Well, never mind. Federal Reserve Chairman Ben S. Bernanke said the central bank would not disclose any details of these loans of taxpayer funds because doing so would “stigmatize banks needing the money.”

The American taxpayers deserve a coherent explanation about what has happened with all the money spent so far, like who’s getting what, how much and why. They were promised oversight and transparency, but Bernanke’s statement it’s yet another example of a whole country being left in the dark with no real answers.

Now more than ever Americans need confidence that their government is making smart decisions as they sort through this financial fiasco. The best way to instill confidence is for Congress to do what it said it would do: ensure strict oversight of the bailout process. They would do well to start at the beginning by keeping a closer eye on Paulson, a man who seems hell-bent on making up the rules as he goes along.

Perhaps the entire bailout fiasco was summed up best during the congressional hearings when Gary Ackerman (R-NY) looked Paulson in the eye and said, “You seem to be flying a $700 billion plane by the seat of your pants. It seems to be the second-largest bait-and-switch scheme that history has ever seen, second only to the reasons given to us to vote for the invasion of Iraq.”

This is far from being the final chapter of the story. You can find updates at our website: www.financialspeculation.com.

About the Author

Jose Roncal is co-author of “The Big Gamble: Are You Investing or Speculating” which Donald Trump endorsed as “a great read”. Many of the author’s articles related to finance and the global economic crisis can be found at financialspecuation.com

What do you think of the new TV show “Dancing with the Czars?”?

By some accounts, Obama has nearly three dozen czars in his administration, managing everything from closing the Guantanamo Bay detention facility to ending the genocide in Darfur

http://www.foxnews.com/politics/2009/07/15/obamas-czars-draw-criticism-sides-political-aisle/

Blessed- Republicans and some Democrats are complaining that there are too many so-called czars in the Obama administration, and now the Senate Health committee even is proposing a health care czar to oversee the overhaul of the system.

Catch up, will you!

Sounds like fun. Let’s watch Van Jones rant at his white dance partner for being a racist and screwing up his chance to win.

And LOL at the wench who said “Fox News is unreliable”. Comrade Obama doesn’t even deny it, sweetheart.

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