October 29, 2008
First, the $700 billion rescue for the economy was about buying devalued mortgage-backed securities from tottering banks to unclog frozen credit markets.
Then it was about using $250 billion of it to buy stakes in banks. The idea was that banks would use the money to start making loans again.
But reports surfaced that bankers might instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them.
Three weeks after becoming law, and with the first dollar of the $700 billion yet to go out, officials are just beginning to talk about helping a few strapped homeowners keep the foreclosure wolf from the door.
As the crisis worsens, the government’s reaction keeps changing. Lawmakers in both parties are starting to gripe that the bailout is turning out to be far different from what the Bush administration sold to Congress.
In buying equity stakes in banks, the Treasury has “deviated significantly from its original course,” says Alabama Sen. Richard Shelby, the top Republican on the Senate Banking, Housing and Urban Affairs Committee. “We need to examine closely the reason for this change,” said Shelby, who opposed the bailout.
The centerpiece of the Emergency Economic Stabilization Act is the “troubled asset relief program,” or TARP for short. Critics note that tarps are used to cover things up. The money was to be devoted to buying “toxic” mortgage-backed securities whose value has fallen in lockstep with home prices.