Paulson Scraps Original Bailout Plan

When Treasury Secretary Hank Paulson went to Congress in September, he had a clear focus for the $700 billion: the Treasury would buy troubled mortgage assets that were weighing down the nation’s financial institution. That approach was clearly mirrored in the plan’s title: the Troubled Asset Relief Program.

But that approach never got off the ground. And today, Paulson made it official: the department had determined that it “is not the most effective way” to use the bailout money.

Earlier this month, he announced that the department would be using $250 billion to purchase stakes in the country’s banks, and he indicated that would continue to be the focus. The reason for the switch he said, was the “facts changed, the situation worsened.” And buying stakes in the banks was a “more powerful” means of boosting the financial system and gave “more leverage” to taxpayers.

Paulson floated a number of ideas, including pairing government investments with private investments. He also said that the nation’s banks may “well need more capital” after this initial round. But he left it unclear when he might be pursuing these new strategies and also refused to say whether or when he might go to Congress for the second installment of the $700 billion. As we wrote yesterday, the Treasury is well on its way to having spent the first $350 billion installment.

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