New Name for the Bailout?
Late last night, I came across this article which explains the latest twist in Treasury’s Troubled Asset Recovery Program (TARP). It turns out the Treasury Secretary doesn’t plan to purchase many troubled assets – at least, not the residential mortgages people assumed were the “troubled assets.” I guess this comes as a surprise to many, but the text of the legislation actually defines troubled assets very broadly. Directly from the bill, we learn:
(9) TROUBLED ASSETS.—The term ”troubled assets” means—
(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and
(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.
So, basically, the bill gave Secretary Paulson the authority to buy anything he and the Fed Chairman decide they need to buy. The fact that the Treasury is buying stocks in companies doesn’t really require a renaming of the plan. Stocks, after all, can certainly be defined as “any other financial instrument.” Under the language of the bill, these actions are completely justified.
The bigger problem is all the “credit” we keep throwing at the “credit crisis.” According to this article, a New York research firm estimates the U.S. government has committed nearly $5 trillion to solving the crisis (so far). That’s a bunch of tax dollars, and represents about 40 percent of GDP. I’m sure 95 percent of us will get a tax cut pretty soon, though.
NM
