Treasury Secretary Henry Paulson announced Nov. 12 that he would be redirecting the $700 billion bailout to focus on propping up financial institutions instead of buying troubled mortgage assets, which was the original intent of the Troubled Asset Relief Program (TARP).
The announcement prompted Alexis Glick, host of the Fox Business Network’s “Money for Breakfast,” to comment on CBS’s “The Early Show” Nov. 13, “If anybody can do this overnight, maybe we are going a little too far.”
Glick said the Treasury Department’s move away from the original plan to buy up troubled mortgages “does not make sense” and was “actually pretty outrageous.”
“[T]he markets responded to that yesterday.” Glick told co-host Maggie Rodriguez. “Look, the original intent of this Troubled Asset Relief Program was to purchase troubled assets. And I think the marketplace started to adjust several weeks ago when we started to see the size and magnitude of the capital injections.”
Glick said the real problem lies in the fact that Treasury wasn’t doing anything to “stem the tide of foreclosures.” The anchor made the point that if Treasury made the decision not to purchase troubled assets, then it has no leeway in telling banks they need to start lending again.
“They right now have no real guidance or oversight to say it’s a must. They’ve already given the capital injections, so what you see right now is a potpourri of housing conversations between Fannie and Freddie, Hope Now, FHA Securities, the FDIC chairman has a different plan. It is so complicated and it’s a mess,” Glick said.
The government still thinks if it asks banks nicely, they might start lending again.
“The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers,” according to an interagency statement from the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Office of Thrift Supervision.
“Supervisors will continue to review the dividend policies of individual banking organizations and will take action when dividend policies are found to be inconsistent with sound capital and lending policies,” warned the statement Nov. 12.
The Economist probably put it best when it wrote Nov. 13, “One of the most humbling features of the financial crisis is its ability to humiliate policymakers who, thinking that they have a bazooka in their closet, soon discover that it is a mere popgun.”
“When Hank Paulson, the treasury secretary, first called for a $700 billion programme to buy troubled mortgage assets (the TARP), markets sensed salvation; when Congress first rejected it, panic ensued,” the magazine said.
“Three, didn’t Paulson say the root of the problem is housing? So why are we still arguing about the solution? There’s a plan called Hope Now, FHASecure, thru Fannie and Freddie, by the FDIC, by private banks. Are you confused? Is it a mess? Is there one central well thought out solution? No,” she wrote. “Ask any borrower or home owner how to figure this out? They’re at a loss. Should we do something to help homeowners? Absolutely. Why didn’t we address this from the start? How come there wasn’t language in the original TARP program that required financial institutions to refinance homeowners if they took TARP funds. It’s a mess!!!”