The Stupidity Of Attacking Paulson

The board that Congress appointed to take on the job of keeping track of how Henry Paulson was spending his bailout fund is about to make its first report. That may determine whether Treasury gets the second $350 billion of the total $700 billion which was approved.

Paulson is likely to be slapped around. He did change the rules once or twice. Those toxic asset he was going to take off the balance sheets of big banks never got bought.

According to The Wall Street Journal, "The panel overseeing the Treasury Department’s $700 billion financial-rescue fund is expected to release a report Wednesday that is highly critical of the government’s handling of the bailout."

At the top of the list of Paulson’s "mistakes" is his reluctance to use more of the capital to help prevent home foreclosures. Looking at that problem, renegotiating or paying off most of those mortgages would take months. The mountain of paperwork would be immense. The process would require contacting hundreds of thousands of people and hundreds of banks. Auditing the system would require an army of mortgage experts.

Paulson did what he thought was best with the capital. He did his best to save the US banking system. While much of what was done was ham-handedly, the fact that there has been no major bank failure is some testament to the efficacy of Paulson’s plan. Did he get enough equity in the banks he helped? Did he make a mistake by making all the big banks take equal amounts of money when some where more needy than others? Yes, on both accounts.

The Treasury was asked to staunch the bleeding in they system and believed that it only has a few weeks to accomplish that.Given that other national governments have taken a remarkably similar approach, Paulson’s decisions at least have the support of "experts" who took the same approach.

Paulson could have gone down any one of a number of paths. He took the one which he believed would do the most to keep the economy from collapsing with the credit markets. It has worked, at least well enough.

He should get some credit for that.

Douglas A. McIntyre