Bail and Switch
Remember when the world as we knew it was falling apart and the only thing that could possibly save us was a daring and bold plan to buy troubled assets held by financially battered corporations? Everyone seemed to agree that it was the only reasonable thing to do – no matter how much money it took. Congress moved with lightning speed as Democrats and Republicans joined forces to spend money, and we were all going to be saved by our effective and responsive federal government.
And so, the Troubled Asset Relief Program was born, where the federal government would buy worthless troubled assets from companies which would allow these companies to get back to whatever business they were supposed to be in (which hopefully wasn’t money management as they seemed to lack a certain degree of foresight in that area). Anyone who deigned to point out that this was one of the worst ideas ever, was derided as holding a too simplisic view of the economy.
Interestingly, the actual legislation passed by Congress and signed by President Bush gave Treasury Secretary Paulson $350 billion dollars to be used at his discretion – and didn’t include small details like what he could do with it. They also included a “backup” $350 billion to be readily available upon Congressional approval. Today, Paulson announced that the Troubled Asset Relief Program wasn’t actually going to “relieve” “troubled assets.” Instead, Paulson wants to use the money to start buying stock in American corporations that have something (anything?) to do with finance.
In fact, just to make sure we all didn’t get confused somewhere, he reminds us that he told us about this on October 14th when he launched the Capital Purchase Program, although the CPP only originally applied to actual banks. Then again, it seems like everyone wants to be a bank these days to get some of that free money.
So let’s recap. The federal government decided to borrow 350,000,000,000 dollars because they were terrified that the entire financial system might collapse. This entire sum of money was entrusted to the former CEO of Goldman Sachs, who told Congress that they might even make money on the deal, because he will buy a bunch of undervalued assets at very cheap prices. Then, he decides not to buy these corporations’ assets which seems just a little too quaint, but to just go ahead and start accumulating ownership in the corporations themselves. So far (as of two weeks ago), the federal government has spent $115 billion to purchase stock in American corporations.
No word on Goldman Sachs’ cut yet, but as a taxpayer and now suddenly a shareholder in various finance-related companies, I’m sure I’ll receive the dividends as credit on my tax return, right?
