Well, that didn’t take long.
First Paulson wanted unlimited funds, sorry funds limited to only $700 billion at any one time, to buy troubled assets, then he used the funds to give directly to banks with no meaningful strings attached and now he’s saying that the funds will be used in another way entirely.
He wants to use the funds to unlock the consumer credit markets turning the program into CCRP, I suppose.
On the one hand I suppose it is a good thing that he’s willing to admit when a program isn’t working. On the other hand it makes it look like they really don’t have a very good handle on the crisis at all and are just flailing about.
Paulson Shifts Focus of Rescue to Consumer Lending
Nov. 12 (Bloomberg) — U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.
“Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,” Paulson said today in a speech at the Treasury in Washington. “This is creating a heavy burden on the American people and reducing the number of jobs in our economy.”
Here’s another take.
Stocks beaten down by changes in bailout plan
Paulson said the government’s $700 billion financial rescue package won’t purchase troubled assets from banks after all. He said that plan would have taken too much time, and that the Treasury instead will rely on buying stakes in banks and encouraging them to resume more normal lending.
It looks like the abrupt and unprecedented slow-down in consumer
spending finally made its way into the perception bubble that surrounds
DC.
So, as I read it, Paulson is going to let the troubled mortgage paper be and instead concentrate on buying up bundled credit receivables, namely auto, student and credit card loans.
Does this make sense? Well, since the Fed has picked up $1.2 trillion in "other" assets over the past 6-weeks my guess is that the decision has been made to tag-team the problem by having the Fed buy mortgage paper and focus the Treasury’s efforts on the likes of AMEX, GMAC and other "front line" consumer companies.
The problem here is that, once again, Paulson and Bernanke are missing the picture. Somehow they seem to think that the trouble stems from a lack of lenders so they are applying all the trillions to repairing the lenders.
I have not yet found a single quote to lead me to believe they understand that something just as important is missing in action – willing borrowers.
Once the average consumer attends one too many bar-B-ques where people are openly talking about saving and paying down debt, it is over. O.V.E.R.
We are now deep into the psychological territory of a recession, which has nothing to do with the health of the balance sheets of AMEX or GMAC.
It has everything to do with consumer psychology – and consumers are scared right now. This NYT article captures it nicely:
The panic on Wall Street has eased in the last few weeks, and banks have become somewhat more willing to make loans. But in those same few weeks, American households appear to have fallen into their own defensive crouch.
Suddenly, our consumer society is doing a lot less consuming. The numbers are pretty incredible. Sales of new vehicles have dropped 32 percent in the third quarter. Consumer spending appears likely to fall next year for the first time since 1980 and perhaps by the largest amount since 1942.
With Wall Street edging back from the brink, this crisis of consumer confidence has become the No. 1 short-term issue for the economy. Nobody doubts that families need to start saving more than they saved over the last two decades. But if they change their behavior too quickly, it could be very painful.
Unfortunately, instead of helping out families and consumers directly, the vast majority of the big DC programs were, predictably, aimed at the corporate class.
Valuable time was lost, probably eight to ten critical months, and now that the ponderous gaze of the insider bureaucrats has finally swung closer to the true source of the economic slowdown, it is too late.
The consumer has already embarked on a program of saving, paying down debt and all-around thrift.
One too many bar-B-ques has been attended.
In the Crash Course I make the claim that our system requires perpetual expansion or it is threatened with disruption and possibly collapse. The system requires that new credit be manufactured in sufficient quantities or it will be in crisis.
What we are experiencing right now is the impact of not enough new credit and this is why the DC leadership has invested the majority of their efforts into saving the institutions that peddle credit. If they go, then the system goes.
Unfortunately, the ‘headwinds’ in our story come from 25 years of excessive borrowing and those cannot be eliminated by any combination of TARP, CCRP, or other debt-based government programs.
It is not possible to borrow your way out of a set of problems caused by too much debt and part of the disappointment I feel for practically the entire DC leadership crowd stems from their total inability to grasp this simple fact.
by davos