By morphing the TARP from a trash asset removal plan to a capital injection plan, Hank Paulson did a big favour to members of Congress. See, supporting the plan was a politically unpopular move, and several politicians lost their seats because of it on November 4th. But the supporters that remain in office (which is most of them) now have a big out.
They can go on cable news and say, “This isn’t the plan we voted for, we voted for a plan to buy up toxic mortgages so banks could start lending to homeowners again. My constituents are barking mad that the money is just going to banks.”
When their furious constituents call up their offices, they can reply, “If I had known what Paulson was going to do with this money, I would’ve never voted for it. It makes me sick, and I’m doing everything in my power to bail out homeowners.”
California Democratic Rep. Jane Harman was on Fox Business News making these arguments last night, and we expect to see a parade of politicians hit the airwaves saying the same thing. Of course, the original plan made no sense at all, but since we never tested it, nobody ever has to know that. The fact that TARP2.0, or whatever they’re calling it is becoming such a joke, only helps Congress more, because it makes the politicians look like victims of a confidence scheme.
So while the Jane Harmans of Capitol Hill can rail away on Paulson, call him a traitor, and say he marks a failure of leadership, you know that privately they’re extremely grateful for giving them cover and removing the responsibility for their actions.
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