Don't get me wrong: I give him credit for insisting this be brought before the American people just weeks before the election. The more cynical in the world--or the conspiracy novelists in thw world--would have expected the lid to be held down till after 4 Nov.

But, that said, Treasury seems not to have put in place even the most rudimentary business criteria for either parceling out the money or controlling its use once parceled out. For holding the dike together for a few weeks, maybe we can live with what we have. But beyond that, we need new blood in there to infuse good business practices in all of it. MANAGEMENT DOES MATTER!

Dubya must have taken one look and found a soul mate.

http://blogs.wsj.com/economics/2008/11/18/paulsons-testimony-tarp-isnt-an-economic-stimulus/

"We needed the financial rescue package so we could intervene, stabilize our financial system, and minimize further damage to our economy. 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."

Before:

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a4N8DULfg0Sw

"Oct. 14 (Bloomberg) -- Treasury Secretary Henry Paulson urged banks getting $250 billion of taxpayer funds to channel the money to customers quickly to halt a credit freeze that's threatening to bankrupt companies and hammer the job market.

``Leaving businesses and consumers without access to financing is totally unacceptable,'' Paulson said in Washington. He rolled out the emergency program after a crisis of confidence in the financial system last week spurred the biggest stock sell- off since 1933. Paulson told companies getting the government funds to ``deploy'' the money in loans. "

And this:

http://www.bloomberg.com/apps/news?pid=20601087&sid=amZ3uCIUB8GQ&refer=home

Oct. 15 (Bloomberg) -- Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.

The equity stakes the government is purchasing in Citigroup Inc., Morgan Stanley and seven other big institutions come with no guarantee that the investments will spur lending and unfreeze credit markets. Nor do they give the government board seats or any other leverage to demand that that the firms actually use the money to help the economy.

``The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.

Treasury officials acknowledge they can't force banks to get the taxpayer money into the hands of their customers. Instead, officials are betting that the government's investment will create conditions where banks have a greater incentive to earn profits from lending than to hoard money to shore up their balance sheets.

``It's in their economic interest,'' said David Nason, the Treasury's assistant secretary for financial institutions, in an interview with Bloomberg Television. ``When you give them a stronger capital position and you also provide a certain amount of government backstop to their funding sources, it's incumbent upon them to go out and continue to lend.''

Now, I see deploying the money as a credit stimulus plan.

And this:

Monday, November 17, 2008
What Happened To The Stigma Problem?
Here's my cognitive dissonance for today, from John Carney on Clusterstock:

"No wonder thousands are lining up for TARP money. It's now one of the only signs of financial health the markets trust these days.

From the Wall Street Journal: The Treasury Department doesn't disclose to the public which banks have applied, have been approved or have been rejected for capital. Publicly traded institutions are supposed to get an answer from the government by Dec. 31, with closely held banks told later.

Until then, U.S. banks will continue to be whipsawed by rumors of who will get money and who won't, analysts say. Those who can't say they have been approved could face pressure to sell to another bank or line up additional capital from private investors."

Here's my comment:

Don the libertarian Democrat (URL) said:
Nov. 17, 5:32 PM
"A rejection under TARP means "failure within maybe a day, maybe a couple of days," Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP, said at a banking conference earlier this month. "It's hard for me to see how a bank survives if the regulators have said it is not sufficiently viable to be in these programs."

Assistant Treasury Secretary Neel Kashkari, head of the federal aid program, said Friday it isn't "a good use of taxpayer money to put taxpayer capital into a financial institution that is going to fail."

Wait a second, isn't this the opposite of the Stigma Problem? Before, it was a problem if you did join, but others didn't. Now, it's a problem if you're not in the program? What's Up?

Friday, October 17, 2008
One More Try On The Stigma Problem
William Poole in the WSJ tries to explain to me the stigma problem:

"Treasury's argument, as I understand it, is that it needs to require some participation in the capital-infusion program to avoid stigma. Because participation carries terms objectionable to banks, such as limits on executive compensation, only weak banks will want to participate willingly. If some banks participated and others did not, those who did would be in effect declaring they were weak and scaring away depositors and investors.

The stigma argument does carry some weight. But the way to deal with it is for participating banks to raise private capital as well as Treasury capital -- so that they can demonstrate that they are unquestionably solvent and strong. One way to demonstrate strength would be to hold capital clearly in excess of the regulatory minimum."

I still don't get it. They have to publicly post their statements.

And that's what I've come up with just after your reading your post.

So, having had a very negative opinion of Paulson, I have to agree with him here:

http://blogs.wsj.com/economics/2008/11/18/frank-irritation-over-paulson-stance-on-foreclosures/

"That plan was rejected by Mr. Paulson, however, over his concerns that the TARP is meant to be an investment – not a direct spending – vehicle. At today's hearing, Mr. Paulson said he hasn't ruled out using TARP to mitigate foreclosures but that he's looking “for programs that protect the taxpayers and are effective. In designing a broad-based program there's a balance in getting money to those who need it as opposed to those who don't need it.”

I was starting to waver on this, but he is doing what I said had to be done. Namely, make sure the taxpayers can possibly get paid back. So, I guess I'm starting to like him more.