Publisher's Note:

One of the most significant things you can do to promote Liberty is to support our efforts. Please make your gift to the 2020 Year-End Campaign today. Thank you! —Mark Alexander, Publisher

Terence Jeffrey / Nov. 19, 2008

Trusting Paulson

President Bush’s trusted treasury secretary, Henry Paulson, is setting the stage for the all-Democratic government that comes to power in January to vastly increase government control over our economy.

At an Oct. 23 briefing, CNSNews.com correspondent Fred Lucas asked White House Spokesperson Dana Perino whether Bush wanted there to be a timeline for the Treasury Department to give up the stock it was planning to buy in American banks. This was important because the bailout law passed by Congress does not require the government to do so.

“The president is trusting his team over at the Treasury Department to design this program, and he believes that they’re doing it the right way,” said Perino. “I don’t have details for you on it. So we’ll let them – we’ll just trust our treasury secretary and those that he’s tasked with to implement the program.”

On Sept. 23, Paulson told the Senate Banking Committee he would use the $700 billion he was requesting from Congress to buy “complex illiquid mortgage and mortgage-related securities to unclog our credit and capital markets.”

He specifically said he had considered and rejected the idea of buying stock in banks.

“Could you just in a few minutes describe several of the proposals that you considered, telling us in … specific terms why those proposals were deemed inadequate by both the Treasury and the Fed?” Republican Sen. Richard Shelby of Alabama asked Paulson.

“The root cause is housing and the housing correction,” Paulson responded. “And until we get at that, we’re not going to solve it. And as we looked at the – how we get at that, there were some that said we should just go and stick capital in the banks, put preferred stocks, stick capital in the banks. … But we said, the right way to do this is not going around and using guarantees or injecting capital, and there’s been various proposals to do that, but to use market mechanisms.”

Three weeks later, Paulson did an about-face.

“Today I am announcing that the Treasury will purchase equity stakes in a wide array of banks and thrifts,” he said.

In fact, Paulson had virtually ordered nine major banks to sell ownership stakes to the government and accept some government restrictions on their activities.

Paulson did not pump money into these banks because they were in trouble, but to give government leverage over the banking industry. “These are healthy institutions, and they have taken this step for the good of the U.S. economy,” said Paulson.

A month later, Paulson announced he might not use any of the $700 billion to buy mortgage-backed securities. “Our assessment at this time is that this is not the most effective way to use TARP funds,” he said at a Nov. 12 press conference.

So, what did he plan to do with the $450 billion not used to buy ownership in banks? He signaled he may use it to buy bad securities made up of “credit card receivables, auto loans, and student loans and similar products.”

Yesterday, Paulson told the House Financial Services Committee why he gave up on buying hundreds of billions in bad mortgage-backed securities: He did not have enough tax money left over after he bought the ownership interest in the banks.

“It became clear that, while in mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact, half of that sum, in a worse economy, simply isn’t enough firepower,” he said.

How much tax-backed “firepower” would be needed?

Paulson did not say. But as CNSNews.com correspondent Matt Cover reported this week, the Federal Reserve revealed in its latest report on “Flow of Funds Accounts of the United States” that as of the second quarter of 2008 Americans owed $11.2 trillion on their home mortgages. Of this $11.2 trillion, $6.6 trillion had been bundled up in mortgage-backed securities.

Even as Paulson was testifying in Congress on Tuesday, the Federal Reserve was revealing that home mortgage delinquencies had jumped from 4.39 percent in the second quarter to 5.08 percent in the third. In the 17 years the Fed has tracked delinquencies, this is the first year it has broken 4 percent, let alone 5 percent.

Five percent of $11.2 trillion in mortgages means $560 billion in bad mortgages. With unemployment going up, that number is also bound to go up.

So is the power and influence of government over our lives.

In a front-page feature in The Washington Post on Tuesday, President Bush’s trusted treasury secretary revealed he was working on a new plan with president-elect Obama in mind.

“Paulson said he will unveil proposals in coming weeks urging president-elect Obama and the new Congress to endow the federal government with broad new authorities to take over any failing financial institution, not just banks,” said the Post.

COPYRIGHT 2008 CREATORS SYNDICATE INC.

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2020 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.