Holes In TARP Hurting Market Confidence
Frenzel, Schatz and others say there's no shortage of struggling manufacturing industries ready to join the auto companies in seeking a handout.
"This is just the beginning of corporate welfare in a big, big way," Richard Shelby (R.-Ala.), the ranking Republican on the Senate Banking Committee, told NBC's "Meet The Press" Sunday.
Meanwhile, some House Democrats want TARP funds used to help the foreclosure problem, an idea Frank strenuously argued for during a committe hearing with Paulson and Fed Chairman Ben Bernanke Tuesday. (That issue was indirectly addressed through the original auction process, which would have bought distressed mortgage-backed securities.)
Whether it is corporate welfare or simply a good deal, there may still be more to come.
Paulson's other surprise disclosure last week was that he was now leaning toward the requirement that companies receiving capital injections also needed to raise money from the private sector.
That's also met with some skepticism in Congress. Some legislators are critical over Paulson's decision to seek only a 5 percent dividens for its capital infusion, compared to what Berkshire Hathaway Chairman Warren Buffett extracted from Goldman Sachs.
"The key issue there will be whether his overwhelming sense of generosity to Wall Street will force him to inject capital on terms that are much worse for the tax payer than the terms private investor insist upon," says Rep. Brad Sherman (D. Calif.), who voted against the TARP legislation. "And by having those two groups come in at the same time, the differential in how those two groups of investors are treated will be all too apparent. "
Sherman suspects Paulson will try have the government continue to take preferred stock, while forcing private investors to buy something else, probably common stock, "to make it harder to compare apples and oranges."
Critics both in and out of government trace many of the problems to the TARP's origins. It was hatched in a crisis environment and is too vague in statute.
"The law has to be loose so the manipulators can attack different problems they see," says Frenzel, with the irony of a Capitol Hill veteran.
It addition to giving the Treasury Secretary too much authority, the TARP lacks adequate oversight, critics say. At the same time, though the exigencies of the crisis have forced the government to act quickly in spending funding, operational progress has been slow. Rules for the now uncertain auction have yet to be disclosed and the oversight board unfilled.
The oversight board may be constituted before the last dollar is spent," says Rep. Sherman. "And keep in mind the word 'oversight' is a misnomer. This is a critique board, not a control board. This board can issue press releases and write op-eds. It can't delay, halt or reverse any action taken by Paulson."
Dan Mitchell, a scholar at the Cato Institute, says the US is acting like a "banana republic."
"The legislation from the very beginning was an absolute blank check," explains Mitchell, who served as an economic aide to then-Sen. Bob Packwood. "I don't think there's any way a program like this can be successful. Politics is going to be the dominant factor."