In the least surprising news since Barack Obama's victory last week, the Treasury Department officially announced that it has switched gears and will no longer be using the $700 billion bailout package to buy toxic securities. Instead, the money will continue to be used to inject capital into financial institutions with a stepped-up emphasis on efforts to loosen up the frozen consumer credit market. The Los Angeles Timesdeftly recognizes the no-duh aspect of the announcement and leads with an analysis while relegating the straight-up news story to its inside pages. "The surprise content of the announcement today is precisely zero," a finance professor tells the LAT. "This is not a change of policy, but a recognition of a policy that's already happened."
The New York Timespoints out that, confusingly, the "program is still called the Troubled Asset Relief Program, or TARP, but it will not buy troubled assets." At a news briefing yesterday, Treasury Secretary Henry Paulson emphasized that the consumer credit market "has for all practical purposes ground to a halt," which is "raising the cost and reducing the availability of car loans, student loans, and credit cards." The Washington Postputs this in perspective by pointing out average interest rates on car loans "almost doubled from July to September … and borrowers were required to make much larger down payments, an average of $2,000 more down on a $20,000 car." USA Todaypoints out that many were quick to criticize the Treasury's "herky-jerky approach, noting such changes were leading to reduced confidence that the government would help thaw frozen credit markets and prop up the economy." Indeed, the Dow Jones industrial average plunged 4.7 percent yesterday. The Wall Street Journal notes that investors blamed the Treasury "switch" for at least part of the decline, "as the bailout's widening focus underscores the depth of the economy's problems as well as new strains on the government's rescue net."
The LAT notes that Paulson's announcement that the bailout funds would be directed at "both banks and non-banks" renewed fears that government officials "are failing to specifically define the purpose of TARP." It's little wonder, then, that this lack of specificity has led lawmakers to view TARP money as free cash that can be made available to troubled industries. But Paulson quickly raised the ire of Democrats in Congress by making it clear he has no intention of using TARP funds to bail out Detroit's Big Three and by acknowledging that his department still hasn't figured out how to use the bailout money to help homeowners avoid foreclosure.
"Using some of the TARP money to reduce foreclosures was not only contemplated in it, it was one of our major focal points," Rep. Barney Frank said. The WP highlights that congressional leaders seem intent on keeping the markets guessing about what comes next by emphasizing that Paulson's decisions won't mean much once Obama is in the White House. "I am concerned that we may have to wait until the next administration before we have the real change in economic policy that our nation needs," Sen. Christopher Dodd said.
Truth be told, it's less than clear how much Paulson is even planning to do before he bids farewell to Washington. The Treasury has already allocated $290 billion of the first $350 billion installment, and yesterday Paulson suggested his department might keep the remaining $60 billion as a sort of rainy-day fund. Paulson would have to go back to Congress to get the remaining $350 billion but said yesterday he has no specific plans to do that yet, notes the WSJ article that also points out the Treasury secretary is wary of getting new programs started before Obama's inauguration. "I'm not looking to make anything more difficult by implementing programs that don't need to be implemented before they're here," Paulson said. So, let's see if we got this right. Paulson is running out of money, has no plans to go back to Congress to ask for more, and doesn't want to implement anything new. What's the point in all this, then? An out-loud brainstorming session to confuse the markets?
There seems to be no better example of this shoot-from-the-hip mentality than Paulson's befuddling decision to mention that Treasury and the Federal Reserve would be working together to develop a new lending facility that would aim to thaw the frozen consumer credit market. The NYT goes big with this potential new program but gives the impression that Fed officials were extremely confused as to why Paulson would even mention it in public when it's still so early in the planning stages and no one is sure how it would work except to say that "TARP would likely make an investment in the facility and the Fed would provide liquidity," as the WSJ puts it.
The NYT says Treasury officials are looking to put in about $50 billion into this new lending facility that would help companies that issue student, car, and credit card loans. Any new program is likely to require companies to raise private money and not rely solely on government funds. The NYT hears that Treasury would put in somewhere between 5 percent and 10 percent of the money, and then the Fed would raise money for the rest. This would allow the government to get a huge bang for its buck, but, scarily enough, this type of highly leveraged transaction would be eerily similar to the "eventually disastrous, special-investment vehicles that banks" created to "to hold, among other things, securities backed by subprime mortgages," explains the NYT. Still, it's important to remember that nothing has been decided, and officials emphasized there are several different ways the program could be financed.
Meanwhile, the WP off-leads a look at how the government hasn't filled any of the independent oversight posts that are supposed to keep tabs on the bailout and make sure everything is kosher. The Treasury's inspector general is overseeing the bailout program until the new position of special inspector general is filled, but he readily acknowledges he's severely short-staffed to carry out the job effectively. Congress also has failed on its end of the bargain as lawmakers haven't yet nominated the five-member Congressional Oversight Panel, although party leaders say they expect that it will all be resolved by the end of the month.
Along with Paulson, the White House also said it's opposed to a plan by Democratic lawmakers to use some of the TARP money to give $25 billion in government loans to Detroit automakers. But Democratic lawmakers insist they will move ahead with the legislation, "setting up a final showdown with the Bush administration," says the WP. All this activity by Democratic lawmakers leads the LAT to wonder: "Will Congress be leading or following the Obama administration as it gets its sea legs?" Lawmakers, of course, are quick to say they'll follow Obama's lead once he's in office, but right now they're busy asserting themselves almost as if trying to ensure they'll get a seat at the table early on in the next administration.
In an interesting front-page piece, the WP notes that Iran's leaders seem to be moving away from their repeated calls for direct, unconditional talks with the United States ever since Obama was elected. "For Iran's leaders, the only state of affairs worse than poor relations with the United States may be improved relations," notes the Post. Criticizing the United States is one of the centerpieces of Iranian politics, and there's little sign that will change, regardless of who is sitting in the Oval Office.
The LAT fronts a look at how it has been a deadly week in Baghdad. According to police statistics, 58 people have been killed by some sort of bomb in Iraq's capital since Monday. After a steady decrease in violence, this week's bombings have brought back a sense of vulnerability to Iraqis just as they were starting to feel relatively safe again. Some see it as a sign that the Iraqi security forces aren't ready to protect Baghdad without the help of U.S. troops. American military officials insist that a bad week doesn't take away from all the recent progress and emphasize that there is a confluence of factors, including the end of Ramadan and the U.S. elections, that could be motivating insurgents to step up their attacks now.
The Post's Al Kamen notes that Senate Democrats are in for a lot of wheeling and dealing in the coming weeks as it has "been a while since the chairmanships of so many committees were in play." But while several senators will be moving up and Sen. Joe Lieberman might actually get to hold onto his committee chairmanship, Sen. Hillary Clinton would be left out due to seniority rules. "So, let's see: She pretty much equaled Obama in the Democratic primary race, with nearly 18 million votes, but lost," writes Kamen. "She nonetheless was out there all over the battleground states—even Nebraska—rallying the troops for Obama. And she gets bupkes? Nada? Zip?"
The WP's Dana Milbank highlights a slip by "Treasury Secretary Sigmund Freud" during his news conference yesterday: "I believe and I know that this administration believes the auto industry is a very important, critical industry in this—in this country. We're very supportive of management—excuse me. We're very supportive of—of manufacturing."