Paulson Shifts Course with Bailout

Wow. 

The government has abandoned the original centerpiece of its $700 billion rescue effort for the financial system and will not use the money to purchase troubled bank assets.

Treasury Secretary Henry Paulson said Wednesday that the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending. He also announced that the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans.

[...]

The administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was “not the most effective way” to use the $700 billion bailout package, he said.

The announcement marked a major shift for the administration which had talked only about purchasing troubled assets as it lobbied Congress to pass the massive bailout bill.

The bailout money also should be used to support efforts to keep mortgage borrowers from losing their homes because of soaring default levels, he said.

From a good government perspective, this decision underlines the complete abandonment of our system of checks and balances.  The Congress ceded so much power to the Secretary of the Treasury that he can unilaterally decide how to spend hundreds of billions of taxpayer dollars.  That much power in the hand of a single, unelected member of the Executive branch would have been unthinkable to our Founding Fathers.

From a policy standpoint, this is a better plan than the taxpayers buying up a bunch of bad debt.  I still oppose the bailout, but if we’re going to do it, this is a better way.  Of course, the devil is always in the details, which are few and far between right now.