Monday, February 9, 2009

TARP - Give Paulsen a Break

Everybody, and I do mean everybody (left, right, center, Democrat, Republican) is dumping on Paulsen. The rescue plan didn't work: banks aren't lending. It was all ad hoc with no central planning. It was wasteful (we paid too much). Etc.

Everybody seems to forget a couple of important things.
1. There was a GLOBAL financial meltdown. The U.S. was not the only country pouring money into its major banks.

2. After Lehman Bros. failed, the financial crisis got worse by an order of magnitude over just a couple of days.

3. There was no "bait and switch". Yes, Paulsen asked for the money to buy the toxic assets. But a number of people, in and out of Congress, doubted the government's ability to do that - which is why Chris Todd and Barney Frank crafted the bill to permit other means, especially capital injection (as was being done in Europe). Paulsen, to his credit, realized that they couldn't put together a purchase of toxic assets fast enough to help. And, as the months have gone by and various suggestions have been put forth, it is clear that solving this fundamental problem is not something that could have been devised over a weekend.

4. Only half of the TARP money has been allocated so politicians should stop acting as if the whole 700 billion has been wasted.

5. TARP has accomplished its primary objective: the stabilization of the financial system. Compare it to Sully's landing of the Airbus in the Hudson. The plane's a goner. But the people lived. Maybe if he had thought about it some more, he could have devised a better plan - but in the meantime the plane would have crashed and all would have died. We were in a crisis. Paulsen and Bernanke landed the plane and the passengers got off alive. They lost their luggage, maybe their clothes were ruined. And they had some bruises. But they survived.

So, yes, we need to do better with the next rounds. But the reason we have a chance to do better is because Paulsen and Bernanke gave us the time we needed to do better.

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