Confused about what’s happening with the federal bailout money and how it’s being spent to boost the economy?
You’re not alone. In fact, those in charge of the program are displaying a distressing lack of consistency about what they’re going to do, and for whom.
Recall that barely a month ago, officials said one of the primary uses of the $700 billion in bailout funds — as part of an effort to stabilize credit markets — would be to purchase failing mortgages held by troubled financial institutions.
Not anymore. On Wednesday, Treasury Secretary Henry Paulson said he had rejected that idea in favor of providing direct infusions of cash to and purchasing equity in banks. That’s the best means to quickly improve credit market conditions, he said.
We defer to Paulson when it comes to knowledge of economics and credit markets. But it is worth noting that when the plan was to buy mortgages, the federal government at least had the potential to recoup some of its money as the mortgages are eventually paid off, even at discounted rates. Exactly how and when the banks will return the money, or buy back their equity from the federal government, has not been announced.
Equally important, the bailout was supposed to restore confidence in the U.S. financial system. Paulson had better stick with this plan. Confidence will be elusive so long as those running the program appear indecisive about how best to use the money.