The Changing Face of the $700 Billion Rescueby Tim Manni
It comes as no big surprise that the initial goals and structure of the $700 billion rescue plan could change somewhere along the way. The Wall Street Journal reported today that the Treasury Department is considering expanding the financial companies that receive a capital injection through the TARP program. TARP began with merely supplying public banks with capital in an effort to increase lending — discussion soon expanded to privately held banks and insurers. Sources from the Treasury have now revealed careful consideration into supplying other economically-influential companies with a capital injection:
In focus are companies that provide financing to the broad economy, including bond insurers and specialty finance firms such asCo.’s GE Capital unit, Inc. and others, these people said.
Originally the plan was designed to spend large portions of the proposed $700 billion to purchase bad assets off the books of financial institutions:
Treasury’s original plan to purchase distressed assets now appears to be taking a back seat. Treasury was expected to conduct auctions as early as this month but has yet to select asset managers to help the government decide what to purchase and how much to pay. The hiring has been complicated by concern over the fees the government will pay and a lack of manpower at Treasury.
That idea has also been roundly criticized by economists of all stripes, who argue that buying troubled assets is a less effective way to combat the credit crisis than directly pumping capital into firms. Mr. Paulson eventually agreed and announced the program to inject $250 billion into banks.
Referring back to a story we posted yesterday, institutions like JP Morgan claim that their recent capital infusion from the Treasury allowed them to free up enough cash to initiate a foreclosure-assistance program. There can be some cause for concern when an entire game plan changes midstream, yet we’ll have to wait and see if a newly structured $700 billion plan can enhance economic recovery.
Help us answer this question: “If the $700 billion plan is restructured, is it an intelligent shift to pinpoint what’s working, or a miscalculation by the Treasury since the beginning?”