Screaming "systemic failure, systemic failure" Paulson ran to congress to ask for lots of money to bail out his friends. He got $350 billion with no strings attached and a promise of $350 billion more, if needed.
The Democrats expected that the first tranche would be sufficient until a new administration steps in and directs a better program. But Lucy Paulson is now pulling that ball away.
Of the $350 billion $290 billion are already committed for unconditioned capital injection into big banks. Like most of the money spend so far, the latest bailout for A.I.G. is really a bailout for Paulson’s old company Goldman Sachs, for JP Morgan and other biggies which would take losses should A.I.G. go down. American Express just changed itself into a bank to be also entitled to taxpayer money. What is the systemic importance of Amex? Zero. But that seems not to matter anymore. Whoever asks for money, and has the right friends, is getting it.
Lots of other folks stand in line and wait for their turn on the trough:
The lobbying frenzy worries many traditional bankers — the original targets of the rescue program — who fear that it could blur, or even undermine, the government’s effort to stabilize the financial system after its worst crisis since the 1930s.
Among the most rattled are community bankers.
“By the time they get to the community banks, there may not be enough money left,” said Edward L. Yingling, the president of the American Bankers Association. “The marketplace is looking at this so rapidly that those who have the money first may have some advantage.”
Those who came first certainly have an advantage. That was the reason why Paulson pushed the first big giveaway to only a few big banks. For an investment banker like Paulson, community banks are competition and competition is by definition bad. The big companies that get Fed financing and gifts from the Treasury can refinance themselves much cheaper now and will, over time, push all smaller players out of the markets.
While those who got called first hauled away huge sums of unconditioned money, the
Treasury is now planing to attach conditions to further capital injections. Too bad if those community banks will not be able to meet these and will have to sell themselves for pennies by the big ones. Paulson is orchestrating the oligarchization of the U.S. financial system.
But back to the $350 billion. The three bankrupt car-makers in Detroit are asking for a big gift that would them allow to survive another six month. For political reasons, the Democrats want to give it to them and, if possible, through the TARP program which was marketed as an emergency fond to prevent a systemic financial crisis.
With the auto companies reeling and Mr. Bush sending no signal that he would act, Ms. Pelosi said she had asked Representative Barney Frank,
Democrat of Massachusetts and chairman of the Financial Services
Committee, to begin drafting legislation directing that part of the
$700 billion bailout be used to help the automakers.
Now here is my prediction. Paulson will spend full TARP.
As the first tranche of the $700 billion is nearly gone, the Treasury will tell Congress that help to Detroit through the TARP program can only be given if Congress immediately and unconditionally hands over the full second tranche. Of those $350 billion maybe $50 billion will then be handed to Detroit and on January 21 a new administration will discover that Paulson has given the rest down to the last dollar to his friends.
Why would he not do so?