Dear Secretary Paulson:
Because you are spending my money and have neglected to go through my elected representatives to do it, I thought I’d write you directly. My biggest fear is that we are about to replace an incompetent socialist administration with a competent one. Let’s see if I have a vague understanding of your vague plan.
First, you told Congress that if your two-page plan was not adopted within 48 hours, the economy would fail. In a way, you were right. The plan wasn’t adopted and the economy started to fail. After adding more than $120 billion to your initial request, the Troubled Asset Relief Program (TARP) was enacted into law. A tarp is defined as a heavy, oil-soaked canvas, often used for shelter and to cover things up. Perhaps the acronym is a Freudian slip, because it is the only shelter available to the newly homeless, or because it is intended as a CYA apparatus (I’m sure they use that phrase at Goldman Sachs) for the current administration.
Secondly, and apparently because involving Congress is too cumbersome, the Treasury repealed an obscure tax provision, which resulted in a $140 billion windfall to banks, according to the Washington Post. The provision previously limited certain tax shelters where businesses offset profits by purchasing shell companies with negative balance sheets. Using your more forceful “commissar” title, you called in the heads of the major banks and forced them to take taxpayer dollars, which at least two bank CEOs tried to refuse. Statutory authority for this mandatory program is absolutely nonexistent. Incidentally, a recent Wall Street Journal study found that the accumulated and yet-unpaid bonuses for executives in the banking industry exceed $40 billion. But as they say at the Treasury department, all money is fungible.
In coordination with the Fed, it is now reported that more than $2 trillion of “assets” have been exchanged at the discount window for taxpayers’ money. You and the Fed take the position that those assets, their price, and the entities receiving payment are secret and will not be disclosed in a Congressional hearing. This whole effort properly fits under the heading of big government and incompetent socialism.
You have rejected bailing out individual mortgage holders because of the moral hazard; apparently there is no moral hazard involved in the insurance business (e.g., AIG) or in giving money to new banks like Goldman Sachs. The head of the Federal Deposit Insurance Corporation, Sheila Bair, has suggested that financial assistance to mortgage holders who stay in their homes be provided through government guarantees on modified mortgages and third-party mortgage administrators. Unpaid Wall Street bonuses are a hardship without question, but having no place to live and being evicted from your house is worse. A tarp is not much shelter in these conditions.