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Henry Paulson: About those toxic assets . . .

On November 12, 2008, in his never ending quest to show that he remains solidly behind the curve, Treasury Secretary Paulson announced that no bailout monies would be used to buy up toxic assets.

During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets – our initial focus – would take time to implement and would not be sufficient given the severity of the problem.

And later

Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use TARP funds

What you need to keep in mind is that buying up toxic assets was the raison d’être of the Paulson plan. It’s why Congress gave him the $700 billion. It’s what the TARP (the Troubled Asset Relief Program) mentioned above refers to. He had to have it he said or the financial system would collapse. Even at the time he was warned by many that it was a supremely bad idea, and after kicking it around for nearly two months, he now agrees but makes it sound like he had questions about it from the beginning. He didn’t. This typifies the Paulson style: absolute confidence coupled with a refusal to address or even acknowledge core problems. He dithers, gets it wrong, and even when he stumbles or is pushed in the right direction he embraces a solution that is totally inadequate. In other words, Paulson is very much part of the problem, not part of the solution. His leadership wastes time and money we do not have.

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