by Deb Cupples | I don't understand the latest news on U.S. Treasury Secretary Henry Paulson's latest plans. According to the New York Times, the Treasury has already committed $290 billion of the $350 billion (which could later turn into $700 billion) that Congress appropriated for various bailouts:
- $125 billion to nine big national banks
- $125 billion to some regional banks
- $40 billion to expand the AIG bailout
The whole point of the taxpayer-funded bailout was to unfreeze credit markets, by getting big banks to lend to businesses, people, and other banks.
As we learned about two weeks ago, some of the big banks targeted to receive bailout funds are not planning to use bailout funds for lending; instead, they want to buy other banks, give employees raises, and give executives bonuses. Some of them have even tightened credit restrictions. (NYT and AP)
In short, the big dogs will take tax dollars but aren't too interested in actually helping our nation's economy.
How did this come about? Because neither Congress nor the Treasury legally required companies receiving bailout funds to spend money in ways that would actually help our credit markets and our nation's economy.
No worries: Mr. Paulson has come up with a plan. He wants to "to invest about $50 billion from the bailout fund into the new loan facility, with the aim of helping companies that issue credit cards, make student loans and finance car purchases."
Once again, it's all about directly helping big companies and (maybe) hoping the benefits will trickle down to us ordinary folks and will eventually shore up our economy.
By now, our government officials should know better.
Treasury officials said that the consumer-lending plan would give the "biggest bang for the buck." If that's the case, then why are Treasury officials aiming to invest only $50 billion in consumer-lending programs -- after they funneled $290 billion (with very few strings attached) directly in big companies?
Another thing confuses me: Mr. Paulson still rails against the idea of actually helping refinance the mortgages of homeowners who face foreclosure.
Wouldn't keeping Americans in their homes -- and keeping foreclosed homes off mortgagees' books -- be good for our nation?
Still another issue: Mr. Paulson publicly growls against using the Big Bailout Funds to help bail out our nation's auto industry, which is understandable given that Congress already agreed in September to lend that industry $25 billion.
Yet, for some reason, Mr. Paulson found a clever, back-door way to increase the auto-industry bailout: sending money to the financing subsidiary companies of Ford, Chrysler and GM. (NYT)
Let me backtrack with something else about Mr. Paulson's consumer-lending plan:
"As envisioned by Treasury officials, the Federal Reserve would set up a special-purpose lending entity, which would lend cash to investors or companies that put up collateral in the form of consumer loans. The Fed might lend up to 80 percent of the value of those loans, providing a cushion for taxpayers against losses.
"The Treasury would contribute 5 percent to 10 percent of the money to finance the lending. But the Fed would raise most of the money by selling what is known as nonrecourse commercial paper to investors.
"Treasury officials said the plan would allow them to leverage the government’s money by as much as 20 to 1, meaning that the Treasury would provide 5 percent of the money and investors would provide 95 percent. Using $50 billion from the government rescue program, they said, could thus underwrite $1 trillion worth of lending for consumer loans." (NYT)
Admittedly, I do not understand all the details. That said, the leveraging of $50 billion in government money to underwrite $1 trillion worth of loans sounds shakey -- not unlike some of the reckless, convoluted stuff that big Wall Street players were doing over the last few years.
I simply do not understand what the powers-that-be are trying to accomplish.
Memeorandum has commentary.
Other Buck Naked Politics Posts:
* Waxman Wants Executive Pay Data from Banks Getting Bailout Funds
* Are Bailout Funds Being Misused?
* Cutting Executive Pay Would Save Jobs
* Lehman Execs Redistribute Shareholder Wealth (to Themselves)
* AIG Execs Redistribute Shareholder Wealth (to Themselves)
* Execs Made Millions While Driving Companies into Ditch
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remind me and the subprime crisis aint even really hit yet
Posted by: All Mi T | November 13, 2008 at 11:34 AM
All Mi T,
You make a good point.
Posted by: Deb Cupples (Buck Naked Politics) | November 13, 2008 at 10:50 PM