Paulson Pulls the TARP Off Taxpayers’ Eyes

by Florida's #1 Mortgage Planner on November 14, 2008

Paulson, Bernanke, and Government Continue Pissing Money Down the Drain You remember that $700 billion bailout package, loaded with pork, that was passed not too long ago?  As is typical with the Federal Reserve and Treasury Secretary Henry Paulson’s plan of late, things change.  Paulson and Bernanke found themselves running out of ammunition in the battle to give banking CEOs rewards for their failures, and to keep what is left of the corrupt banking system afloat.  And with Democrats in control and President Bush backing away from his veto threats, it was all too easy for a bailout package to get slammed down our throats, one that relinquishes power to Paulson and Bernanke.

I will congratulate Paulson on waiting until after the election results and the hoorays for Barack Obama to subside before announcing a change of plans.  That’s right, two days ago in case you missed it, Paulson announced that the money was no longer going to purchase troubled assets as the plan was presented, rather to dump more money into saving corrupt banking institutions on the basis of "encouraging them to lend."  Do you seriously think they will stop at just $700 billion dollars?  Let’s not forget what they changed to save AIG.

Remember that the Federal Reserve stepped in to keep AIG afloat, promising initially to lend them $85 billion.  It did not take very long before that figure grew to over $122 billion, a 45% increase.  Wouldn’t you like to get a 45% increase on your mortgage, especially when you are underwater?  I certainly would.  So, why would you think that the government isn’t going to extend well beyond the $700 billion promised already?  If they increased the same amount, by 45%, that would mean the cost to taxpayers would grow to a little over $1 trillion dollars, a number most of us mortgage bloggers had figured a long time ago.

So, Paulson takes what is known as "TARP", which stands for "Troubled Asset Recovery Program", and turns it into something other than its original intent.  Instead of purchasing troubled assets from banks, the Treasury plans to continue investing directly in banks, using your money, encouraging them to lend more. Apparently, jump-starting a market for mortgage-backed securities is apparently too tricky, so why not give the money to the banks that got us into this mess in the first place, right?

And if that wasn’t enough, Paulson announces his intentions for the remaining TARP funds.  Secretary Paulson’s suggestions are that the government provide more easy money for other loans, such as student, auto and mortgage loans, and even to provide credit card relief.  His obvious take is that the extension of credit, by any means necessary, is what will get us out of this mess.  It all makes sense now, doesn’t it?  Since the extension of credit (free money) got us into this mess, it must be the answer to the crisis.     

So what ever happened to the "troubled assets"?  Apparently, that troubled asset has become the US Consumer.  Just look at this quote from Brian Dunn, the CEO of Best buy…

“In 42 years of retailing, we’ve never seen such difficult times for the consumer… Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen."

Now, if you are wondering just how easy it is to get money from the TARP, look know further than here.  Thier easy online application process makes virtually anyone accessible to the money.  Who knows, if you apply you may even be able to get some of the free money.

What does it all mean for mortgage rates?

Well, the initial reaction to the change of course was met by a sell off in stocks and that meant mortgage backed securities rose, which sent mortgage rates down a bit.  However, mortgage rates remain trapped in a trading range they cannot seem to break out of, even with more and more dismal data painting an economy that is in a recession, though no one wants to admit it.  For now, you can expect mortgage rates to remain somewhat steady, at least until reality sets in.

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