Thursday, December 4, 2008

Paulson Plan (v6.3) Wobbly

I'm not fond of snark, and "I told you so" is never an attractive-sounding phrase. But one can't help but elicit no surprise at this, an auditors report on TARP, the infamous Paulson Plan:
Treasury has not yet set up policies and procedures to help ensure that (taxpayer dollars) are being used as intended... Treasury also has no policies and procedures in place for ensuring that the institutions are complying with these requirements or that they are using the capital investments in a manner that helps meet the purposes of the act... Treasury cannot effectively hold participating institutions accountable for how they use the capital injections or provide strong oversight of compliance with the requirements under the act.
What did Congress, or anyone else, think was going to happen after the ill-considered, hastily passed, near blank check that was HR 1424? Alas, the question contains its own answer. The results of thinking is the one thing this panic-induced plan never contained.

But there's a more fundamental flaw in both the plan and the criticism contained in that auditor's report and news story: its pragmatic, piece-meal approach, as if had these gaps been filled it would have been a good plan. Au contraire. The Feds had no right to remove capital from private hands to dole out to (resistant, in some cases) banker's hands in the first place. It was bound to be impractical and immoral. The Federal Government has no business trying to 'save' the financial system, no matter what happens.

Imagine, for a moment, that your neighborhood police force decides — in the name of 'saving' you — to remove money from your dresser and give it to your neighbors. Does it matter whether your neighbors (or you) are crack addicts or the most upstanding of citizens? Does it matter if the sudden infusion of funds results in your neighbor becoming the most assiduous gutter trash remover within 10 blocks or if it just feeds his habit? You've still been robbed and the police have behaved like thieves when they're supposed to be protectors.

The size and status of the Federal Government introduces no new principles to the scenario, they only make the misery bigger. Keep in mind, after all, what kind of town has a police force that takes money from one neighbor to give to another.

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