Incoming president Barack Obama is going to have to have a look at the TARP early on. There is still $350 billion left in the facility. There is a great deal of debate about whether Paulson has used the money correctly. Some analysts say he spent too much money dumping capital onto bank balance sheets and never bought toxic assets from financial firms like he said he would.
According to The Wall Street Journal, "While Treasury Secretary Henry Paulson has seized on equity investments in banks as Treasury's primary mechanism to help resolve the financial crisis, the Obama team is developing a broader approach that would likely incorporate multiple remedies." That would probably involve bring more direct help to mortgage holders. In principle that is a fine idea and it may silence some critics, but it won't work.
Pushing money to individual homeowners is a nearly impossible task to manage. It involves looking at hundreds of thousands of home loans, the incomes of their holders, and the falling value of their properties. Some yardstick has to be applied to determine who gets bailed out and who doesn't. In depressed markets like Florida or Michigan, should people get extra-special consideration?
If Paulson did make a mistake it was that he did not tie a requirement for mortgage reform to the money that was sent to banks. The firms kept it on their balance sheets to improve reserves. Given how bad bank earnings look for the quarter, that only made sense.
Solving the problem from the bottom up, home by home, will not work. Putting gun to the heads of the banks when they need more money will. At the end of the day, they control the mortgage market.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
12-17-2008 @ 1:29PM
BHarrison said...
Qutoe from article: "If Paulson did make a mistake it was that he did not tie a requirement for mortgage reform to the money that was sent to banks."
Well, since Paulson "made a mistake", wouldn't the solution be to "call the loans" of the Bail out monies to the banks . . . isn't that what they would do with a borrower whom they thought was misusing THEIR LOAN MONEY?
Personally, I don't think for one minute that "Paulson "made a mistake" . . . I think that Congress gave him carte blanc to do as he seemed to be best; and he used it to try to bail out his "industry buddies" and ealthy business "friends".
Congress did what they did because of fear and CORRUPTION; pauson did what the did to "better his position" with the others in the fianancial industry. (I'm sure that they are all "smiling all the way to their bank to deposit the bailout money . . . and Paulson has a new BFF, who may someday "repay his kindness and considerations"
12-17-2008 @ 2:27PM
BHarrison said...
Quote from article: "The firms kept it on their balance sheets to improve reserves. Given how bad bank earnings look for the quarter, that only made sense."
Hmmmm . . . well how about if, at the bottom of the balance sheet, they were required to list the BAILOUT monies that they received . . . or is that identified and listed as such on their balance sheets.
I do not understand how this can "make their balance sheets look better because of their reserves IF they had to list the obligation to repay the Bailout monies (debt obligations) on the balance sheet . . . something just isn't "right" with this statement, is it?