Where Is The $700 Billion Bailout Going?

The Christian Science Monitor reports that the bailout is changing.

It’s getting bigger and more ambitious and is looking more like a trillion dollar program.

The first change was for the government to start buying a direct stake in banks. Now the government may buy stakes in major insurance companies.

Auto companies have received generous and large loans.

The FDIC may start insuring mortgages.

Where will the madness stop?

Libertarians are free-marketers are aghast.


“There’s no principled way to say ‘no’ until they’ve run out of money,” says Gerald O’Driscoll, a senior fellow at the Cato Institute and former vice president at the Federal Reserve Bank of Dallas.

The federal government in fact may still be able to set limits on who or what needs to be rescued. But in any case, given the financial turmoil that has swept through the globe this October, a $700 billion commitment that seemed large at the beginning of the month appears smaller at the end.

At a Senate Banking Committee hearing on Oct. 23, Neel Kashkari, the interim assistant Treasury secretary overseeing the bailout, said the US remains committed to the plan’s first intention – the purchase of bad mortgage-based securities that are cluttering the books of financial institutions.

The Troubled Asset Rescue Program, or TARP, has begun hiring key staff. But the Treasury hasn’t actually bought any bad loans yet and is still figuring out the process for doing so. Meanwhile, it has moved ahead with a shotgun infusion of cash into the nation’s nine largest banks.

Twenty-two smaller regional banks now are also slated to receive government money. On Oct. 24, Treasury officials backed off a plan to publicize the list of these banks, as some institutions felt it would brand them as unhealthy.

One deal did go public, however. PNC Financial announced that a government infusion of $7.7 billion had paved the way for its Oct. 24 purchase of a loss-ridden Cleveland bank, National City.

Treasury secretary Henry Paulson once said that direct government purchase of financial institution stock would represent “failure.” But capital markets deteriorated much faster than the Treasury had anticipated in mid-August, and the US needed to do something – anything – fast.

“Buying equity was a faster way to put capital in the system,” Mr. Kashkari told the Senate Banking panel.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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