The new plan: a way to understand it

Suppose there were an outbreak of flu in the city? How would the Fed/Treasury attack it using their modus operandi under TARP as an example?

First they would stockpile mountains of vaccine and tell us not to worry. The problem is under control. Then they would call in the all the bankers and inoculate them. The Fed/Treasury would then announce that major steps had been made to stopping the spread of the flu. In inoculating bankers they have taken one channel for the transmission of flu out of the public domain. You could expect the spread of influenza to slow its pace.

You see the Fed/Treasury would nothing for you directly. But in building up the bankers 'immunity system the Fed/Treasury would be helping you.

When this did not work the Fed/treasury would announce a program of government paid Vitamin supplements to be distributed to bankers to further bolster their health and block the spread of flue though their ranks. . Meanwhile more nonbankers with major flu problems and hydration issues would be admitted to hospitals. To help with that the Fed/Treasury would announce a plan to subsidize ambulance companies in the city hoping they would pass on the savings to flu victims they might have to pick up and take to the hospital.

So do you still think that the Fed/Treasury plans are so supportive?

WHAT TO DO?
DO THIS:
So let's stop being negative. what could they do?
The Fed could limit its asset purchases to those backed by pools of newly generated consumer loans. It could buy Fannie/Freddie mortgage backed issues if the loans were recently generated instead of old (existing). This would help to get the flow of lending started for sure. Don't just buy old stuff and hope banks will lend. By new stuff on the margin. Make sure that new lending is the result. Restart the market repair economic conditions then banks will lend without prodding.

QED

What the Feds won't tell you...

The not-so OK corral
You know the scene- or maybe not... Nell is tied to the railroad tracks. Cut to the picture of the train. It's coming with a full head of steam. The cowboy is riding hard, whipping his noble white (of course!) stallion across its flanks urging it on. Clouds of dust are churned by the cowboy and his noble steed. You see the train, smoke belching from its smoke stack, on the horizon. The cowboy urges his gallant thoroughbred to gallop faster. The train pounds on at a gathering pace. Nell is frightened, crying, struggling against her bindings. She is still tied tight, draped across the railroad tracks like a lovely limp lump of pristine white spaghetti (it's a spaghetti western, of course). The cowboy finally gets to Nell. He jumps off his horse his white hat flying off his head exposing golden locks of hair swept with wind whisking off the lone prairie. The camera catches him for one brief moment in profile as he moves quickly to grab Nell off the tracks. The train pounds down on his effort...and -

Dang!

Reality bites...
The train runs over Nell cutting her in half spraying blood all over the cowboy and his white hat as it lays on the ground (camera close up on bloody hat). The cowboy's horse spooks at the spattering worthy of an R-rated Halloween slasher movie and it runs into the train; it too is ground under the wheel of that big steel beast, crushed against the silver rail that slickens with red fluid that shoots out from under the train as that steel sliver of rail stretches into the distance, straight and true.

Cowboy hell
The cowboys sits there drenched it the fair maiden's blood. And he wonders about how it might have been as blood drips off his forehead and cheek and it trickles into his mouth...
He wonders: did she have aids?

Yes this is the analogy of the the financial story told in terms of the cowboy and Nell. It is not the one you remember from your youth.

But it's where we are today in the financial markets. Nothing comes 'just in' time and those we once depended on fail us.

YES
THERE WILL BE BLOOD and might well be YOURS!

The way we were...
In those days wearing the white hat was enough to know your horse would be fast enough, you would be clever enough, and strong enough, and tough enough, and that you would prevail.

The real world
But theses days things are different. Help does not come in time. It may not come for you at all. In a more accurate modern day portrayal the cowboy would ride to a BANK and try to pay ransom to get a banker to ride out to save you from under the wheels of the train. But the banker would be crippled or otherwise bust or short staffed or wary that the cowboy's check just might not clear. ...ohh sorry about that too late again..next?

The newest reality 'show'
The Fed is never going to ride to YOUR rescue. Neither will treasury. They have no plans to do things to directly impact new mortgages. There are some work out proposals to help 'troubled lenders' and borrowers. But the main thrust is to help you by helping banks its called trickle down and what is tricking down to you is your money, money spent by the Fed and Treasury on banks. If you are lucky there may be a a few crumbs to drift down to your level or a few drops to trickle if you prefer the liquidity analogy.

SOS SOS SOS SOS (same old stuff)
The plan remains to HELP BANKS> inject them with capital> Buy their bad assets>> then hope that they lend to to he public (i.e. YOU).

DO NOT
DO NOT
do not do anything to help the public directly.

DO NOT

This is something that they will never tell you.

Who is as dumb as a rock?

Scrambled logic
Detroit has been scrambling for money. The big three guys even went to Washington to testify on their needs. In the end the Congressional leaders were not impressed. No money boys. try again. Give us a plan.

I WANT MY MONEY!!
But over the weekend Citigroup's shares dropped sharply and the Treasury couldn't trip over itself fast enough to cram MORE money into Citi's bank and indemnify it against some losses. Did Citi have to present 'a plan?" Right...

The Bank...40mpg and a free toaster
Maybe Detroit needs to make a new car called 'The Bank' so if THE BANK gets in trouble Detroiters can snap their fingers and get money.

Money, money, money, money, money

Banks are special...
Bankers are supposed to be so smart. In a paper written a number of years ago by former NY Fed Chief Gerry Corrigan, he opined on how banks are special, by raising the question. Corrigan wrote in 1982, so long ago that many of the rocket scientists on the Street had not yet been born - or at least were not reading treatises on banks or doing math except on their crib-based abacus. Banks have a special role in commerce and they have deposits insured with the public's money that they use to finance the assets on their balance sheets. Special? you bet...but then the banks did bet.

...But banks are not cool
Banks also are special as are most Wall Street firms because they deal in these intangible products. My God do you know how smart you have to be understand these things? Just try this experiment. Start talking to somebody at random about financial instruments or the outlook for interest rates or the key role of banks and financial intermediaries in an economy or the importance of the financial sector to a developing economy and see how quickly you will get the nick-name "Mr. Sleeping Pill".

Cars are cool
On the other hand start talking about cars, those with big engines or fancy European imports or cool paint jobs or specialty vehicles and suddenly you're Mr COOL. Yeah, cars are cool and even the guys on the assembly line that put them together can understand them. But talk the merits of a CD vs a TD vs a savings deposit or a money market mutual fund or MMDA deposit or AAARRHHHGGG!!!!

You see what I mean.

Cavernous cranium crowd
Yes any moron can talk with some degree of intelligence about a car. But finance is reserved for the cavernous cranium crowd. I guess that's why they had so many of us bamboozled as this financial crisis took hold. They took advantage of poor home owners using fancy financing products...then...wait a minute these valueless pieces of financial paper they created, they also put in their own portfolios. They leveraged it. They BLEW THEMSELVES UP like some middle eastern terrorist. KA BOOM! Or at least they tried... Some brainiacs they turned out to be, eh? But on second thought they were brainiacs, because, through it all, guess what? THEY GOT PAID.

TFBTFF (too friggin' big to friggin' fail)
When the dust settled after these metaphorical bombs went off, instead of seeing banks lying in pieces all over Wall Street, the the Fed and/or Treasury stepped in to glue the little mischievous monkeys back together with applications of new capital some specialized debt forgiveness and other tricks. Yes that's what makes banks special. The have the money in them earned by auto workers, pizza makers and bus drivers so banks can't be allowed to fail - at least not big ones. Imagine if we let them fail and then there were no pizza?

FRANKEN-TIME-DEPOSIT-STEIN
So selling a product that is too difficult even for its own creators to understand (instead of being confused by this statement think FRANKENSTEIN!) is a reason for the government to treat you in a real special way. Oh you have such a big brain. It is so full of such esoteric thoughts we forgive you for losing your way...and our money. Here, take some more won't you?

Auto sector is a GLOBAL issue so why pick on DETROIT?
You many have noticed that Sarkozy (France) and Merkel (Germany) issued a joint statement JUST TODAY(!) saying that they intend to defend their beleaguered auto industries. So why are the automakers in the United States of American pariahs? Maybe because their leaders were not properly contrite? Maybe because the Congress people that need to approve those loans just don't get it? Maybe Congress has too much bank-doo-doo on its shoes and it needed to rebel a bit and ripping auto execs was considered 'safe?' We know you can't rebel against a bank because God knows what might happen- look at what did happen when the Treasury Secretary let Lehman fail in the midst of a financial storm. He still can't come to grips with it as he argues he had no choice. Be a man Hank. Step up and and tell us REALLY why you let Lehman fail. What were the issues? Don't hold your breath waiting for him to answer. You never get clear answers when mistakes are made. So now Congress is just afraid. 'The Citi' may never sleep but it does sneeze and when it does HELP IS THERE!

Auto shows no CD displays
Bankers do not have an annual CD or bank deposit showroom. You can't show off your most recent financial creations the way you can show off a car - or test drive it...

In the end the lemon you make is equal to the justice you take
So Detroit gets stiffed and Citigroup gets paid. It's a delicious irony and juxtaposition in that it happens right after Paulson told us everything was ok and the financial sector had been stabilized. Tell me..can that guy leave Washington fast enough? And he was the Goldman guy that lobbied the regulators for the rule changes that allowed investment banks to use even more leverage. Paulson is the THE POSTER BOY for what is going on and he does not begin to show any sign that he understands it - let alone that he can fix it. The best and the brightest have become dumb as rocks. maybe bankers have second career as pet rocks. Maybe Paulson should go to work in Detroit where 'getting it' won't be as hard.

D-Troit becomes F-Troit

'F' is for failed auto deal
Congressional democratic leaders have given the automakers a failing grade, rejecting their plea for money and demanding a new plan be put before them in early December before the three caballeros reappear to grovel for money.

Is this good policy or good politics or good anything?

Appearance
On the surface it sounds like Congress is toughing up to the problem instead of rolling over and signing checks for more bailout dough. At the same time it is failing to deliver help to needy union member blue state auto workers and that can't play well in Detroit.

Substance
The 'lawmakers' seem to be confused by the issues. If they did not want an estimate of Detroit's expected cash flow shortfalls and a request for a bridge loan to finance the gap, they might have made that clear the first time. Now they apparently want a plan for change, not for financing. With the economy so weak and unit auto sales nearly at 10.5mu at an annual rate, it's hard for anyone to give any estimates that are worth a damn. Autos need financing and with banks not lending to credit score-poor car buyers, the automakers could not sell them the best car in the world even if they made it. Clearly there will be funding shortfalls if sales remain anywhere NEAR that weak- an issue that has to do with the economy and bank lending, both factors that are out of the purview of the Big Three. In the midst of all this, asking them to sculpt a recovery plan will just raise the ante for the amount of money they need since change does not come cheap. But change is not only about money, and the lawmakers know it.

Be careful what you wish for...
The lawmakers should realize that the automakers have not made progress on their situation because of well, the law. The UAW has contracts with them that are paralyzing. They cover issues of pay and work rules and restrictions on further plant closing. The dealers that the automakers use to distribute their cars to the public have other contractual agreements that the automakers would like to renegotiate. But renegotiation takes two. Despite its troubles, GM and the others have not been able to cut the kind of cost saving deals they need. Are the Democrats offering the BIG Three assistance in dealing with the unions or its dealers? How are the BIG Three to make progress without leverage?

Leverage= chapter 11 not big bucks from the government
If you have followed this case at all you know that something called chapter 11 lurks as either the white horse to save Detroit or the troll hiding under the bridge that will grind their bones to make its bread. Which is it? Because of the nature of autos as a costly consumer product, the automakers fear bankruptcy (chapter 11) would be the end of them. They cite Chrysler's drop in sales by one-third when it last was rescued. They also contend that consumers will not buy cars with the fate of the company up in the air as car buyers worry about warranty issues and resale value. All this makes sense, but maybe there is a way for a third party or even government to provide guarantees to smooth that over. The reason it might still be worth the risk is that unless there is some collective bargaining miracle it is hard to see how the automakers get union concessions or dealer concessions so necessary to getting the sort of structural change Congress now seems to be seeking. Nancy Pelosi and Harry Reid must have just finished reading Joseph Heller's Catch -22 when they cooked up this idea of having the automakers re-present their case with some real change.

The question is not why don't those Detroit chickens cross the road but rather how could they with the heavy flow of traffic? Are the law makers helping by stopping any traffic here? No. So what do they expect to happen?

Dancing with the morons
At the hearing last week it was clear that the Big Three had met and agreed to make a common front. Everyone was so nice. The union guy was there and no one pointed fingers at anyone. So civil... so contrived. The union guy went out of this way to note how many jobs had been cut back and how new hires are on the rolls at different and lower pay. But no one mentioned the legacy workers who continue to work and get paid -well paid - under the old rules. When the automakers were asked how come they could be profitable in overseas markets but not at home they responded that it was easier to make money in growing markets than when they have to incur the costs of constant downsizing. True enough, but not the whole answer. The auto guys must have promised to be supportive of the union guy, too. They never mentioned work rules or high pay or constraints on closing factories from collective bargaining agreements. The union guy represents workers who are probably 95% democrat voters. So it suited most Congressman to play along. But if they are serious about getting the automakers to submit a plan with real change they also are seriously trying to destroy high-paying blue collar jobs.

Caught in their own trap?
Did the democrats plan ahead for this or just shoot from the hip. Ready! Fire! Aim! This could really come back to haunt them. Or maybe the CEOs will just come back with agreements to cut their own pay more and will apologize and prostrate themselves in front of the great legislative Po Bahs and that will be enough...maybe.

Turncoat or playing the players
No one should think that those multi-hour testimonies put the real issues on the table. The automakers were looking to fund business as usual through the recession. Structural change was not in their plans. It is not clear how much they now can put into in their plans. To offer any significant change is to ask for much more money. But it's not clear that Detroit can get where it wants to go since it is bound by various legal agreements with their dealers and are bound by collective bargaining rules with their workers. Basically the Congress has just shoved Detroit back into the same corner it has been in. Obviously the CEOs do not know how to get out of it. Chapter 11 is a way but they think it is far too dangerous. So now they have this Catch-22 problem to solve with Congress. Indeed, one suspects that the reason the automakers are not more successful in renegotiation is the realization by its counterparties (unions dealers etc) that there WILL BE federal assistance. Auto workers expect the Democrats to go to bat for them. Actually real change required the opposite.

Strategy to nowhere
All I can say is that it should be quite a spectacle. Congress- they are lawmakers after all- should know better. They joke about not wanting a bridge loan to nowhere. But if it is going to make progress something else is going to have to carry the load other than this bridge. It is not clear that they have anything at all in mind other than making the auto executives uncomfortable as possible and making them sweat in public and take money out of their pockets. So how does that help the US economy and the autoworkers? I don't get it. Are the democrats really willing to tamper with THEIR BASE? I doubt that too. So where are they going? It's the strategy to nowhere.

Take me to your leader...

These are your leaders?
Rest assured that if Martians landed and had seen the events of the past several days they would not to be meeting the leadership of either the House or the Senate. With the economy reeling and a big chunk of the MFG sector on the line these grate leaders of ours (no spelling error there...) sent the auto guys back home because they did not say 'mother may I' before they asked for $25bln. You'd think the House and Senate had never given money away before- ya know?

After this sorry display you know why Will Rogers used to say, "I don't belong to any organized political party, I'm a Democrat."

Let's make a deal..oh, never mind
There had been a deal struck earlier in the day-a bi partisan deal - to rework the previous $25bln retooling monies for the auto companies and as those Senators planned to meet to announced they had reached a compromise their LEADERS headed them off at the pass announced an earlier prcess conference and promptly declared that there was n deal that could pass both houses. Why? BECAUSE I'M THE MOMMY- THAT'S WHY.

Yes welcome to the power-hungry world of Nancy Pelosi and Harry Reid. We are the leaders. You are the peons. The peons do not cut deals without the leaders say-so.

But in their magnanimous leader-fashion they decided they would reconvene in December and the auto guys could try again to beg for big bucks. Oh OH this time they had better be properly subservient. They had better not fly there in corporate jets. maybe a commercial flight and not first classs or... maybe by bus a Greyhound perhaps? Or should they drive one their own cars- something geared for the proletariat not the upper crust. Wagoner could drive a Neon from Detroit. Mullaly could drive a pick-up. Nardelli could drive anything since he is the lone guy who said he would work for - and is working for - a buck a year. He gets it. While I think for the most part these auto execs did not take and pass the course 'begging for $25billion bucks 101,' they nonetheless need the money: that much is clear. And if they need more they'll come back for that too. Until they know how weak the economy is going to be and for how long how COULD THEY know how much they will need?

Gosh this leadership is STUPID. Well they are only politicians you know.

It makes you wonder what will happen when Barack steps in. He 's got four years and maybe eight. But the House and Senate leaders have their own power and the potential for limitless consecutive terms. Hey Barack: You're not the boss of MEeeee! said Pelosi...and Reid.

Just wait.

This leadership did not mind passing the $700bln package after a two week stall and hanging all sorts of pork on it like barnacles on the hull of a ship. Now they send the auto guys back when they are on the brink of running out of money. Ooooo I guess they showed THEM who's boss.

Well I'm not made to feel better. This is another example of politicians getting their egos out in front of their brains and mucking up the country just to flex their own muscle. I am having a bad feeling about this.

Save first. Blame later.

For those of you that are happy that we got rid of Bush just remember the old curse, "be careful what you wish for." I do not have a good feeling about the way this playing out. Not only is the Democratic leadership squashing what looked like a perfectly good deal, it is endangering the work force in a bluer than blue state. Michigan was so blue McCain did not even try to compete there. What a way to say THANK YOU!

Well they did say "You" but the first word wasn't "Thank.'

Dang a lang a ding dong. That is real leadership.

Good luck trying keep control of these 'guys' Barack. I think a Congress full of Republicans might have been easier. If they keep this up, you may find out if that is true or not in your second term.

You see it does not matter if the president is black. Underneath the skin they are all Democrats now. But inside of that they are all power-hungry. And that's exactly the trait did in the Republicans. Now you know why I say, they are all the same to me. In the end all of them are in it for themselves.

Capitalism or Socialsim? Other Isms

ISMs for the year 2008

Paulsonism: You have two cows. They get sick. You diagnose them and apply medicine for a different malady. They get worse. You declare yourself committed to your cows and tend your chickens. The cows get worse. You freeze to efforts on behalf of the cows since a new owner will buy your farm in two months.

TARPism- You have two cows. You say they are fine. Then you say they are endangered. You say you need special expensive and experimental feed to save them from certain death. You get money from the government to buy that feed. Then you decide there is a better way, but you keep the money and spend half of it on new barn, and sell the farm to get the monkey off your back.

Bernankeism: Your neighbor has two cows. They get sick. You apply everything in your medicine cabinet to help them. They stabilize. You invent new uses for medicine but the cows still waver in their health. You help other peoples’ sick cows that come into contact with your neighbor’s cows. You empty your resources and leave the job up to your neighbor who then sells his farm, sick cows and all. You still live next to him an are blamed for being a poor vet..

Bushism: Your neighbors have cows, ducks, pigs and chickens. The cows get ill. You panic. You hire veterinarians to tend to them taxing the pig, duck, and chicken breeders to pay for it. You claim to believe in rugged individualism and say the nation depends on beef and milk.

AynRandism: You have two cows. You botch their care. The government steps in to help them. You complain: ‘What doesn’t kill them makes them stronger’ Capitalism forever!

GMism: You have two cows; you used to have 100. You still employ 50 people. You have 20 people retired who you still support. You pay your workers more than the chicken farmer across the street, whose chickens are healthier than your cows. You are going bankrupt but tell the government you can breed a better chicken than the guy across the street if it lends you money that the private sector won’t. If it won’t lend, you point out that you employ at least 70 people that will become anarchists.

Fordism: You have two cows. You used to have 50. You used to have better ideas. Now you just have a family member whose football team has not won a game all season long and who refused to fire the worst general manger EVER in the history of the NFL until just this year. You put your cows out to graze on the artificial turf of that field. It turns out not to be a better idea. They get sick. You ask for aid.

Chryslerism- You have two cows. They already were sick once but have recovered and have retained no immunity. Once they ate sauerkraut. Now they are eating a private recipe. They are still sick. You want help.

Bankerism- You have two cows. They are special and partly insured by the government. They get sick. One dies. The neighboring banker-breeders panic and stop using the same feed you used. There is no feed, the cows begin to starve. The government steps in and loans you money to give them Feed. The cows improve. The bankers butcher the cows and eat them all themselves in a huge orgy and feast, burp!

Treasury Secretary's NYT Op-Ed annotated

In Case You Missed It:
“Fighting the Financial Crisis, One Challenge at a Time”

Annotations in BOLD added by me

By Secretary Henry M. Paulson, Jr.
The New York Times
November 18, 2008

We are going through a financial crisis more severe and unpredictable than any in our lifetimes (assuming you don’t count the fact that it was CAUSED in large part by our own neglect) . We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

By September, the government faced a systemwide crisis. After months of making the most of the authority we already had, we asked Congress for a comprehensive rescue package (with no strings attached no oversight and no review a request so ridiculous it scared the Heck out of financial markets) so we could stabilize our financial system and minimize further damage to our economy.

By the time the legislation had passed on Oct. 3, (and after our request itself scared the beejeebers out of markets…) the global market crisis was so broad and so severe that we needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our initial intent was to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities (...after saying that housing was the real problem). But the severity and magnitude of the situation had worsened to such an extent that an asset purchase program would not be effective enough, quickly enough (…well it was far too slow, it was experimental and the wheels were coming off the wagon so we reacted to the news on the ground we had helped to create) . Therefore, exercising the authority granted by Congress in this legislation, we quickly deployed a $250 billion capital injection program (...that we had never before mentioned or endorsed, but that followed on the heels of a plan the Brits seemed to be using with some success), fully anticipating we would follow that with a program for buying troubled assets ( WINK,WINK).

There is no playbook for responding to turmoil we have never faced (..and when it comes to thinking outside the box hey I’m only from Wall Street. If you can’t solve it with more leverage or de-regulation, count ME OUT!). We adjusted our strategy to reflect the facts of a severe market crisis, always keeping focused on our goal: to stabilize a financial system (.. or housing?) that is integral to the everyday lives of all Americans. By mid-October, our actions, in combination with the Federal Deposit Insurance Corporation's guarantee of certain debt issued by financial institutions, helped us to accomplish the first major priority, which was to immediately stabilize the financial system. (Thats’ why banks are lending again, the housing market is recovering…oh, wait it isn’t? Geeze, rats…)

As we assessed how best to use the remaining money for the Troubled Asset Relief Program, we carefully considered the uncertainties around the deteriorating economic situation in the United States and globally (...and we decided to BAIL. That’s right we FREEZE our actions for now declare victory Iraq> and plan to DUMP the whole schmear in Obama’s lap) . The latest economic reports underscore the challenges we are facing. The gross domestic product for the third quarter (which ended Sept. 30, three days before the bill passed) shrank by 0.3 percent. The unemployment rate rose in October to a level not seen since the mid-1990s. Home prices in 10 major cities have fallen 18 percent over the previous year. Auto sales numbers plummeted in October and were more than a third lower than one year ago. The slowing of European economies has been even more drastic (Huh? The slowing in Europe is weaker than a drop of 33%?) .

I have always said that the decline in the housing market is at the root of the economic downturn and our financial market stress (..and that is why I am bailing out the banks, that are buying other banks, not lending at anything but high rates to the best possible borrowers!). And the economy, as it slows further, threatens to prolong this decline, as well as the stress on our financial institutions and financial markets.

A troubled-asset purchase program, to be effective, would require a huge commitment of money (…you call it a TARP but we realize it’s a TRAP so we are freezing it!). In mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. But half of that sum, in a worse economy, simply isn't enough firepower.

If we have learned anything throughout this year (…and that is doubtful…), we have learned that this financial crisis is unpredictable and difficult to counteract (DUH!?). We decided it was prudent to reserve our TARP money, maintaining not only our flexibility, but also that of the next administration (Freezing it and doing nothing makes us VERY flexible since now we can do nothing is so many ways…).

The current $250 billion capital purchase program is strong medicine for our financial institutions. More capital enables banks to take losses as they write down or sell troubled assets. And stronger capitalization is essential to increasing lending, which is vital to economic recovery (…even if they don’t do it).

Recently I've been asked two questions. First, Congress gave you the authority you requested, and the economy has only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties, why aren't you addressing those problems?

The answer to the first question is that the purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties (…we pursued this goal despite our repeated statements that the housing market is the problem so not fixing housing has been a clever plan of ours to stop the contagion fro housing as it gets worse since we are clueless about what to actually do to help housing..) . The crisis in our financial system had already spilled over into the overall economy. But recovery will happen much, much faster than it would have had we not used TARP to stabilize our system. If Congress had not given us the authority for TARP and the capital purchase program and our financial system had continued to shut down, our economic situation would be far worse today.

The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures (..and our plan is not achieving that goal at all) . Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending ( eventually…). We are also working with the Department of Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures (at long last).

I am very proud of the decisive actions by the Treasury Department, the Federal Reserve and the F.D.I.C. to stabilize our financial system (..even though they have been see-saw and last minute and have not worked) . We have done what was necessary as facts and conditions in the market and economy have changed (or have been changed by us and our indecision…) , adjusting our strategy to most effectively address the crisis (after we worsened it, for example by letting Lehman go down) . We have preserved the flexibility of President-elect Barack Obama and the new secretary of the Treasury to address the challenges in the economy and capital markets they will face ( by backing out and increasing the probability that things get even worse by the time he gets here…) .

As policymakers face the difficult challenges ahead, they will begin with two considerable advantages: a significantly more stable banking system, one where the failure of a major bank is no longer a pressing concern (probably) ; and the (scratch ’the’ replace with ‘some’…) resources, authority and potential programs available to deal with the future capital and liquidity needs of credit providers (and nearly nothing done for homeowners where prices STILL decline and foreclosures set new records – but don’t worry! The White House is paid for!) .

Deploying these new tools and programs to restore our financial institutions, financial markets and the flow of lending and credit will determine, to a large extent, the speed and trajectory of our economic recovery. I am confident of success, because our economy is flexible and resilient, rooted in the entrepreneurial spirit and productivity of the American people (…so we admit our cluelessness and end the TARP here, taking a risk that nothing will blow up in the next two months and hope that the new administration has a better idea than we did how to fix this thing).