Bait and Switch? TARP funds turn to CCRP

Well, that didn't take long.

First Paulson wanted unlimited funds, sorry funds limited to only $700 billion at any one time, to buy troubled assets, then he used the funds to give directly to banks with no meaningful strings attached and now he's saying that the funds will be used in another way entirely.

He wants to use the funds to unlock the consumer credit markets turning the program into CCRP, I suppose.

On the one hand I suppose it is a good thing that he's willing to admit when a program isn't working. On the other hand it makes it look like they really don't have a very good handle on the crisis at all and are just flailing about.

Paulson Shifts Focus of Rescue to Consumer Lending
Nov. 12 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''

Here's another take.

Stocks beaten down by changes in bailout plan
Paulson said the government's $700 billion financial rescue package won't purchase troubled assets from banks after all. He said that plan would have taken too much time, and that the Treasury instead will rely on buying stakes in banks and encouraging them to resume more normal lending.

It looks like the abrupt and unprecedented slow-down in consumer spending finally made its way into the perception bubble that surrounds DC.

So, as I read it, Paulson is going to let the troubled mortgage paper be and instead concentrate on buying up bundled credit receivables, namely auto, student and credit card loans.

Does this make sense? Well, since the Fed has picked up $1.2 trillion in "other" assets over the past 6-weeks my guess is that the decision has been made to tag-team the problem by having the Fed buy mortgage paper and focus the Treasury's efforts on the likes of AMEX, GMAC and other "front line" consumer companies.

The problem here is that, once again, Paulson and Bernanke are missing the picture. Somehow they seem to think that the trouble stems from a lack of lenders so they are applying all the trillions to repairing the lenders.

I have not yet found a single quote to lead me to believe they understand that something just as important is missing in action - willing borrowers.

Once the average consumer attends one too many bar-B-ques where people are openly talking about saving and paying down debt, it is over. O.V.E.R.

We are now deep into the psychological territory of a recession, which has nothing to do with the health of the balance sheets of AMEX or GMAC.

It has everything to do with consumer psychology - and consumers are scared right now. This NYT article captures it nicely:

The panic on Wall Street has eased in the last few weeks, and banks have become somewhat more willing to make loans. But in those same few weeks, American households appear to have fallen into their own defensive crouch.

Suddenly, our consumer society is doing a lot less consuming. The numbers are pretty incredible. Sales of new vehicles have dropped 32 percent in the third quarter. Consumer spending appears likely to fall next year for the first time since 1980 and perhaps by the largest amount since 1942.

With Wall Street edging back from the brink, this crisis of consumer confidence has become the No. 1 short-term issue for the economy. Nobody doubts that families need to start saving more than they saved over the last two decades. But if they change their behavior too quickly, it could be very painful.

Unfortunately, instead of helping out families and consumers directly, the vast majority of the big DC programs were, predictably, aimed at the corporate class.

Valuable time was lost, probably eight to ten critical months, and now that the ponderous gaze of the insider bureaucrats has finally swung closer to the true source of the economic slowdown, it is too late.

The consumer has already embarked on a program of saving, paying down debt and all-around thrift.

One too many bar-B-ques has been attended.

In the Crash Course I make the claim that our system requires perpetual expansion or it is threatened with disruption and possibly collapse. The system requires that new credit be manufactured in sufficient quantities or it will be in crisis.

What we are experiencing right now is the impact of not enough new credit and this is why the DC leadership has invested the majority of their efforts into saving the institutions that peddle credit. If they go, then the system goes.

Unfortunately, the 'headwinds' in our story come from 25 years of excessive borrowing and those cannot be eliminated by any combination of TARP, CCRP, or other debt-based government programs.

It is not possible to borrow your way out of a set of problems caused by too much debt and part of the disappointment I feel for practically the entire DC leadership crowd stems from their total inability to grasp this simple fact.


This is a companion discussion topic for the original entry at

Well, on a positive note: There obviously is no conspiracy.
This proves to me that they are really some very clueless losers in the cockpit. They have tweaked the gauges to read green as the engines melt off the wings. Halfway to the alternate airort they decide ugh maybe I’ll fly around as the ship burns and look for another field to land in.
The only thing that would fix it is a world wide foregiveness of debt, and a redomination of every currency backed by gold and a plan for sustainable living and alternate energy.
Since that will never happen I think it is safe to say the brown stuff is going to hit the fan.
Funny, (well really sad) is that after it is over if there is some semblance of what we know as normal today, it will just happen once again as only a few will know the cause of the cancer.

Chris, I think you describe core problem - Paulson et. al. simply do not understand, cannot conceive the fundamental roots of the crisis. It has been so long since they had to worry (if they ever did) about their bank balance or access to credit - let alone trying to pay a mortgage and put food on the table - that they are unable to grasp the obvious. A dangerous and scary situation - more so than a knowledgeable conspiracy. The economy where I live (US SW) is largly dependent on growth, urban sprawl, tourism, and real estate speculation. There are some "real" jobs in agriculture, mining, and manufacturing (much of the later defense related), but the rest is based on bubble economics. As the job losses already in the pipeline begin to really bite, the knock-on effects will be hugely magnified. People simply do not have the wherewithall to take on more debt and by the time Obama takes office I expect the situation will look much worse. We are already seeing store closings, dismal auto sales, state budget problems, etc.

While Obama undoubtedly can understand (has the capacity to) the problem because of his background, it is not clear to me that there are enough competent people in the political class that have this capacity. Most are like Bush (not to call him competent) who started a couple of wars and told people to go shopping. Truely clueless! Paulson is doing the same thing, really - same advice. I can’t recall how many times I have heard economic pundits declare that if if we can stop the decline in home prices and limit foreclosures everything will get back to "normal". Without a sound basic economy that produces something besides a plethora of secondary services - without real jobs paying a decent wage there will be no recovery…

The Fed has finally woken up and realized that deflation is in full force. Unfortunately (or fortunately), their attempts to spur consumer lending will only fall flat on their face as the number of people/companies worth lending to already have all the credit they need. The only people who need more credit right now are exactly the kind of people who are already overlevereged and unsound to begin with. Hopefully banks will just hoard this money for better times or use it to acquire smaller rivals. Lending it out will only drag out this deflationary spiral longer.
October brought us a new age with the popping of a 25-year credit bubble. The new America values savings, shuns debt. This interim period of pain is going to be tough on those who are incapable of living within their means, those that do will thrive.

Does everyone honestly think that the DC leadership crowd has no clue whatsoever? If they’d been doing the same homework I have, which is not much at all, they would have a clue. So I figure, they MUST know, but there is some other motive for these stupid moves, right? I don’t know what, though.

I did not get to watch the whole press conference. Did Paulson mention anything or was questioned by the media about the supposed promised transparency for all this bailout mess? From what I have read online, I didn’t see One mention of any reporters asking about what Congress requested him to do. If not, it shows you how controlled our media truly is.





Their actions suggest otherwise… hard as it is to believe. Those people dwell in a different universe I think. From what I can figure AIG was bailed out in part because the leveraged foreign debt they propped up was enormous and there was fear of angering powerful forengn investors who are part of the web that finances government debt - but the problems of the real economy and real people exist in another dimension from the world of high finance - how connected they are has not sunk in just yet… IMO

World socialist gov’t… loss of US sovereignty… the masses indebted to and relying on the Nanny State.

I could be wrong, but Paulson is wondering around a cliff at night with no flashlight. I’ve read Ben’s speaches. We’d be better on autopilot then with these 2 in the cockpit.
I think a lot of folks are going to be going to the Superdome for shelter.

YEP. Been saying this for nearly twelve months I reckon.

IF it doesn’t happen, and soon, put your head between your legs and kiss your ass goodbye…

The exponentially growing level of debt is now so mindboggling, that the amount of economic growth necessary to pay for it (and worsen the vicious circle even more!) is IMPOSSIBLE to achieve. We don’t even have the resources.

Limits to growth are hard to perceive by people who base everything on growth. It’s a bit like a Christian suddenly understanding that Jesus was actually a Muslim all along, and that he got it wrong all his life… and is now facing going to hell when he/she dies!

Does everyone honestly think that the DC leadership crowd has no clue whatsoever? If they’d been doing the same homework I have, which is not much at all, they would have a clue. So I figure, they MUST know, but there is some other motive for these stupid moves, right? I don’t know what, though.


Their actions suggest otherwise… hard as it is to believe. Those people dwell in a different universe I think.


Therein lies the problem. They are DEFINITELY insulated from the real world. If you repeat a mantra sufficiently, you will eventually believe your own bullshit.

To the Wall Streeters of this world, a non growth economy is simply impossible, just like we all KNOW the Earth is round and a flat one simply cannot be. Except that these guys actually DO live on a flat Earth and they are just about to discover it is actually round. And FINITE!

Like I keep saying, a debt economy must have economic growth to pay the debt and interest back. Now the debt has reached irrepayable levels, the necessary growth is unachievable on a finite round planet, game over…

Denial is not a river in Africa…

Wall St plunges on bailout backflip

Global markets have been rattled by US Treasury Secretary Henry Paulson's decision to change the terms of the $US700 billion bailout package.

He says using the remainder of the package to buy troubled mortgage
assets as originally planned isn’t the most effective use of the money
at the moment and instead it will be funnelled towards boosting the
availability of funds for credit cards, and student and car loans.

And there are growing fears about the health of US consumers, after
electronics retailer Best Buy warned that profits will fall because of
what it calls "seismic" changes in consumer behaviour.

Earlier this week its rival Circuit City filed for bankruptcy
protection, and figures out on Friday are expected to show a 1.9 per
cent fall in retail sales from September to October.

Stocks on Wall Street are down for a third day in a row.

The Dow Jones Industrial Average has lost 4.7 per cent (411 points) to 8,283.

Shares in American Express have fallen more than 10 per cent after
the Wall Street Journal reported it’s asking for several billion
dollars in government help.

But shares in General Motors have rebounded, rising 5.5 per cent as
Democratic leaders argue in favour of rescuing the company.

In Europe, markets were also lower, with London’s FT 100 dropping 1.5 per cent to 4,182 points.

Oil has continued its slide, falling to its lowest level in 20
months and in futures trading and West Texas crude is at $US55.98 a

Spot gold has tumbled to $US711 an ounce.

In local futures trade, the Share Price Index 200 is down 4.6 per cent to 3,801.

The Australian dollar has slumped. Shortly before 8:30am AEDT it was trading at 63.85 US cents.

These people are free-market, exponential growth economists. They cannot accept the idea that the model is flawed. A flawed model implies that they have been, at best, wasting their careers, and, at worst, culpable in creating the conditions for a potentially society-shattering collapse. It simply isn’t something that they can conceive of … sort of like trying to visualize the 10th dimension of string theory or life based on something other than carbon… it is foreign and unimaginable to them.

And they are in charge.

That is scary.




[quote=TimesAwasting]World socialist gov’t… loss of US sovereignty… the masses indebted to and relying on the Nanny State.

No no no no…

You MUST understand that both Capitalist and Socialist/Communist systems are GROWTHIST.

Capitalism grows the economy and gives the profits to the rich

Socialism grows the economy and gives the profits to the state (who then distribute it to the poor)

Communism grows the economy and gives the profits to everyone equally. In theory anyway!

None of them are sustainable, as was shown by the collapse of the USSR… though I will admit it wasn’t that simple, there were other mitigating circumstances.
This is a good read for those of us wondering what Oboma will do and how it will affect us.
Looks like they invited a terrorist to sit in the jumpseat of the cockpit for and ask him for advice.

[quote=Davos]The only thing that would fix it is a world wide foregiveness of debt, and a redomination of every currency backed by gold and a plan for sustainable living and alternate energy.
Can’t quite do that. Forgiving debt isn’t "free"…somebody is taking a loss when debt is forgiven or defaulted on. This is what makes deflation so devestating.

I’m guessing that the ‘DC crowd’ knows full well what is going on, but they are committed to our growth economy and will do anything necessary to prolong that myth, hoping, somehow, that it will turn around somehow.

I used to not think so, but I found these parts of the Big O’s speach that indicates he knows - or at least his speach writer knew:
Instead of finding the right level of government oversight in a vibrant free market, we’ve let the special interests set the agenda. Changes in the financial landscape, driven by technology and globalization, made the 1930’s era Glass-Steagall Actthe New Deal era law that required that investment banking be kept separate from commercial banking–increasingly inefficient. While reform was desirable, the banking, insurance and securities industries spent over $300 million lobbying Congress to shape that reform to meet their own interests. In the two years before Glass-Steagall was repealed in 1999, financial service industries gave $58 million to congressional campaigns; $87 million to political parties; and spent $163 million lobbying Washington. But though the regulatory structure was outdated, the need for oversight was not. Unfortunately, in the rush to repeal the law to create immediate opportunities for certain Wall Street firms, little effort went into modernizing the government’s supervision of the financial industry–to guard against the potential for conflicts of interest, to insist on transparency, or to ensure proper oversight of new and complex financial products or the dramatic rise of investment banks and non-bank financial institutions, like hedge funds and Structured Investment Vehicles. Nearly a decade later, our financial markets–and everyday Americans–are paying the price.
As to your comment on prolonging the myth, there also I agree, otherwise why send Leach. Wow, what a name coincidence.

98% drop in Baltic Dry Index? What do you guys make of this:

More signs of deflation?

This guy is right on (in my book.) More than just the dry index in that part…
Also this was good, 5 trillion