October 14, 2011

Latest Pajamas Media Column (‘October 14, 2008: The Day the Economy as We Knew It Died’) Is Up (Add-ons: Who Was in on Paulson’s TARP Hijacking? Qs for 2012 Prez Contenders)

Filed under: Economy,Taxes & Government — Tom @ 7:00 am

It’s here.

It will go up here at BizzyBlog on Sunday (link won’t work until then) after the blackout expires.

The topic: “Hank Paulson’s ‘gun to the head‘ hijacking of TARP, and the sickening silence which followed.”

What follows is a “cutting-room floor item” and a tie-in to the current presidential campaign.


Left on the cutting room floor: There was no space to address a critical question which honest historical inquiry will hopefully someday answer — “Was what happened on October 14, 2008, when then-Treasury Secretary Hank Paulson almost certainly illegally betrayed the Troubled Relief Program original intent and forced the nation’s largest banks to take preferred equity ‘investments’ done as a result of being blindsided by the scope of the problem and the need to immediately get liquidity into the banking system, as claimed — or was it something he knew he was going to do all along?

Evidence of the latter follows.

First, the amount of money involved in TARP as originally intended — to have Treasury buy up “toxic” mortgages — was literally made up, with no attempt to relate the amount of money in the legislation to the possible size of scope of the problem. On September 23, 2008, Josh ZumBrum at Forbes noted the following:

… some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

Ohio Senator Sherrod Brown is quoted with something which should be remembered next fall: “Sen. Sherrod Brown, D-Ohio, says his office has gotten ‘close to zero’ calls in support of the $700 billion plan proposed by the administration. He doubts it’ll happen immediately either. ‘I don’t think it has to be a week” he says. ‘If we do it right, then we need to take as long as it needs.’”

Second, in hindsight, the “really large number” claim looks like deliberate misdirection. CNN’s tracking of all bailouts, which may not be current, shows $11 trillion in commitments and $3 trillion “invested.” At the time, the American people weren’t used to hearing the word “trillion” thrown around as casually as it is today.

Third, with GM and Chrysler on the brink of collapse, the Washington wheels were already turning on how to “save” them. Buying up mortgages as the TARP legislation intended wouldn’t help that cause. “Investing” hundreds of billions in banks would, by creating the cry of “If the banks and Wall Street get bailouts, why not Main Street?”

If one concludes or learns that this is what Paulson planned to do all along, then the question becomes: “Who else was in on it?” Again, it’s an “if” question, but here’s my take on who the candidates would be and the likelihood that they knew:

  • New York Fed Chairman Tim Geithner — almost certainly;
  • Ben Bernanke — just short of almost certainly (at the very latest, the day after the legislation passed;
  • President George W. Bush — probably not, at least at the time TARP passed. He probably learned what Paulson wanted to do a few days after the original TARP passed, and didn’t find the courage to stop it, fire Paulson, or call out the deception;
  • Nancy Pelosi and Harry Reid — probably;
  • Barack Obama and his Democratic presidential campaign chief David Axelrod — probably;
  • GOP presidential nominee John McCain, the candidate who infamously suspended his campaign to look like a statesman and ended up looking like a fool — almost definitely not;
  • House Republican Leader John Boehner and Senate Minority Leader Mitch McConnell — almost definitely not.
  • Key members of the press, particularly at the New York Times and the Associated Press, who both tried to make what Paulson did look like a matter over which he had no real choice — 50-50.


TARP and the 2012 campaign: No honest discussion of “TARP” is possible without an understanding of the difference between the law Congress passed and what Hank Paulson (probably illegally) did.

The presidential candidates need to answer two questions.

First, what was your original position on the TARP legislation? Barack Obama supported it. Most GOP candidates with the exception of Ron Paul and probably Michele Bachmann opposed supported it.

I totally get the idea that you can criticize candidates on the basis of principle over their support of the TARP legislation. I also get the idea that if you believed that it was a one-time fixable problem like the early 1990s savings and loan debacle, you might grit your teeth and say, “okay” (I would not be among them).

But you can’t criticize anyone who originally supported TARP based on what actually transpired, because the TARP which passed isn’t the TARP which was implemented. You can argue that support of the original TARP gave Hank Paulson the cover to do what he illegally did; but you can’t track actual results of what people voted on against what actually happened, because what was intended never actually happened.

That leads to the next question: Where were you when Hank Paulson hijacked TARP?

My takes:

  • Barack Obama — almost definitely celebrated.
  • Mitt Romney — He should have objected strenuously. He almost definitely didn’t. Defense: If he thought about it, John McCain probably talked him out of it. (Given his connections, though, it would be worth knowing if Romney was aware of Paulson’s possible intention, as discussed above, to hijack TARP from the get-go.)
  • Herman Cain — was in private life, but probably had an active radio talk show. Cain’s current position is that he supported the original TARP legislation but opposes how it was implemented. In other words, what he’s saying, using terms which are in my opinion far too polite, is that he opposed Paulson’s hijacking. I think it would be very important to go back to his shows to see what he was saying on October 14 and 15, 2008. But even if he was wrong in principle for supporting the original TARP (and in my opinion, he was), Cain is the only candidate who is publicly recognizing the difference between what Congress passed and what Paulson did.
  • Rick Perry — as a state governor not contemplating a presidential run, he’s arguably off the hook for not saying anything at the time, which he probably didn’t.
  • Michele Bachmann — should have spoken out. Did she?
  • Newt Gingrich — perceived as a policy wonk extraordinaire. Should have been out there. Almost definitely wasn’t.
  • Rick Santorum — was in private life.


  1. ECONOMIC TERRORISM! This was absolutely orchestrated as we recognized at the time it happened. Still, McCain was handed a double-digit win building on the lead Palin gave him if he had spoken out against it naming it Bush-Obama TARP, voted NO, then offered legislation to end mark-to-market and privatize Freddie and Fannie. However, being a true political moron, he (and the U.S.) lost everything that week. This isn’t hindsight. We wrote about this at the time. Again, look up “political business cycles.”

    Comment by Joe C. — October 14, 2011 @ 10:32 am

  2. Here’s some of the earliest mentions:

    (Sept. 30, 2008) http://www.liberallyconservative.com/community-organizers-todays-meltdown-and-obamas-link/#comment-101175

    (Nov. 21, 2008) http://www.bizzyblog.com/2008/11/21/couldnt-help-but-comment-112108-morning/#comment-126053

    (Nov. 28, 2008)http://pajamasmedia.com/comment/161335/

    Comment by Joe C. — October 14, 2011 @ 11:04 am

  3. But you can’t criticize anyone who originally supported TARP based on what actually transpired, because the TARP which passed isn’t the TARP which was implemented?????????


    Comment by G — October 14, 2011 @ 1:44 pm

  4. #3, You can criticize them for their vote or their support on principle. But you can’t criticize them for what resulted, because what they voted for or supported isn’t what resulted. Unless you can prove that they knew what was really going to happen, or could reasonably have foreseen what was really going to happen, they are therefore not responsible for what resulted. These points really aren’t arguable on any logical basis.

    To the extent that it’s the case for each of them (which would include even those who opposed TARP), they ARE responsible if they did not object loudly and longly when it became clear that what they voted for isn’t what resulted. And the vast majority of them — if not all of them — didn’t.

    You may not like the position Cain has taken, which I will assume until proven otherwise is the position he’s had since mid-October 2008. I don’t like the fact that he supported the legislation. But at least his position is intellectually coherent, and recognizes the clear difference between the TARP legislation and Paulson’s “gun to the head” less than two weeks later. I’m not at all certain that any of the others (including Ron Paul) really do.

    Clear enough?

    And I’m quite sober, thank you.

    Comment by TBlumer — October 14, 2011 @ 2:20 pm

  5. If TARP didn’t do what it was originally intentioned, that proves that it wasn’t needed, and the crisis manufactured. I blames them for gullibility, and giving the leftists the key to the bank, regardless of the outcome or policy.

    Comment by Joe C. — October 14, 2011 @ 8:45 pm

  6. #5, to your first sentence, they would argue that “something” was necessary, so getting cash into the banks was the way to do it more quickly than buying mortgages would have been. I don’t buy it. They could have estimated what was due and settled up later instead of going with quasi-nationalization. The basic question of necessity is open. I’ve never had a chance to look into the orchestration cash-draining which supposedly spooked everyone.

    IMO, nobody without inside info could have reasonably foreseen that Paulson would do what he did. The problem is that Boehner, McConnell et al (and esp McCain) didn’t go crazy when it happened.

    Comment by TBlumer — October 14, 2011 @ 9:20 pm

  7. #3, to emphasize, if I board a plane from Cincy to Chicago and the pilot takes me to Cleveland, how is that my fault?

    Comment by TBlumer — October 14, 2011 @ 9:22 pm

  8. William Issacs’ “Senseless Panic”, a book highly critical of TARP, details many of Mr. Blumer’s assertions. For instance, Treasury almost immediately switched its plan to buy troubled loans to direct investment in the banks. The switch was so sudden that Treasury didn’t buy a single “troubled asset”. He also points out that several of the largest banks didn’t want to take TARP funds, but had no choice in the matter. When he mentioned the second point near the end of the book, I thought of what I had read on this blog back in the day.

    Comment by Stephen Goldsworth — October 15, 2011 @ 2:20 am

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