What exactly happened in the wake of Henry Paulson’s impassioned plea for a bailout of no less than $700 billion dollars? Irwin Stelzer narrates:
Consider this. Treasury Secretary Hank Paulson persuaded congress to give him a $700 billion pot of money with which to buy the rotten IOUs on banks’ balance sheets. The theory was straight-forward: relieved of this burden, the banks would resume their role of lenders to potential homeowners, businesses, and consumers. Sounded like a good idea. But almost immediately it occurred to Paulson that British Prime Minister Gordon Brown had a better idea–recapitalize the banks by buying shares so that they could begin lending again. That, too, was confidently touted as a good idea. But we have moved beyond the range of what we know about credit crunches. All we know is that the results so far have not matched the predictions of the proponents of these policies. Which is one reason why Paulson decided not to use the second half of his $700 billion, and to leave it to the next congress and the incoming president to decide whether it might not be better to pass the remaining $350 billion directly to home owners falling behind in their mortgage payments.
Think about that for moment. The Secretary of the Treasury demanded a massive bail-out of Wall Street and banks predicated on the idea that there was no choice and that something had to be done immediately. There was no time to think it over, to consider alternatives, etc. This same bail-out affected the dynamics of the presidential election and, more importantly, scared millions of consumers into save mode thus exacerbating economic forces pushing toward recession.
THEN, he decides his approach was the wrong one! And further concludes he should wait on figuring out what to do with half of the huge bail-out funds? Congressional spines should be stiffening everywhere. The technocrat who came in with demands based on his incredible authority and expertise has been left flailing.