The TARP plan that debuted in October was described as a way to purchase toxic assets from banks and other lenders in order to unclog the credit system, which is so essential to the efficient functioning of the economy. I supported that plan then, and I still do now.
Unfortunately, the plan has changed, and I feel as though the rug has been pulled out from under me. The shift to investing in various banks and other financial companies is troubling. So far, the Treasury has injected $244 billion of taxpayer capital into 150 companies. There have been no auctions for toxic assets. And now TARP may be used to bail out General Motors .
Where will it end? A recent news story talked about car-rental, ethanol, and equipment-leasing companies asking for TARP funds. After GM, maybe car suppliers and dealers will want TARP. It’s not hard to envision a long queue in front of the Treasury Department made up of various U.S. businesses hoping to get bailed out.
Once you stuff money into the banks, you create a political argument for stuffing money everywhere else. And now I worry that we have entered a period of unprecedented government intervention in the economy. It’s industrial policy on a grand scale; it’s picking winners and losers.
Another story talks about all these new czars in the White House — an energy czar, an urban-affairs czar, a health czar. Paul Volcker and Larry Summers already are economic czars. And a car czar may be announced this week. But all these czars remind me of the Soviet Union, not our great democracy here in the United States. A potential $1 trillion stimulus plan that relies almost solely on government spending is part of the new-New Deal economic-policy disease.
I don’t know how all this will get unwound. TARP has become much greater than I ever believed possible—technically, financially, and symbolically. Color me very worried.
**For more of my thoughts on bailout nation, click here.