President-elect Barack Obama and President George Bush have joined forces to obtain the second $350 billion of the original $700 billion TARP bailout fund. There is way more than collegiality at work here. Obama and Bush are proving to be true ideological twins. With Treasury Secretary Hank Paulson at the helm TARP has turned into an all purpose political slush fund and Treasury Secretary nominee Timothy Geithner has made it clear he plans to do the same, “broadening its scope … to municipalities, small businesses, homeowners and other consumers.”
Enough is enough. Whatever real problems TARP was created to solve, TARP has now become part of the problem. As we wrote this November:
The biggest problem with Paulson’s announcement yesterday, however, goes deeper than whether this or that new program is justified or acceptable. By once more shuffling the deck of possible interventions, Paulson has jeopardized the very stability of the markets that he was intended to restore.
Markets need to engage the price discovery process and to clear transactions. These functions are being hindered by uncertainty regarding Treasury’s next move. In his own statement he acknowledged as much, saying, “We must allow markets and institutions to absorb the extensive array of new policies put in place in a very short period of time.”
Unfortunately, Paulson ignored his own advice, sowing the markets with additional confusion. The constant array of new ideas, new strategies, and changed courses mean that the Paulson Treasury has become perhaps the single most disruptive force in the global economy.
It is time for this to end. Henry Paulson should stop tinkering and allow the world’s financial markets time–and freedom–to work.
