What happened to all the money? About a third has gone into dividends the banks are paying their shareholders. Some of the rest into executive salaries and bonuses. Another portion toward acquisitions designed to raise share values. Another chunk for bailing out giant insurer AIG.

That's not what taxpayers bargained for.

Paulson: I agree with you on the bill. There is no doubt that--so, don’t misunderstand what I say--that when we came to Congress with the intent to get at the capital program that banks were facing and the system was facing through purchasing large amounts of illiquid assets. And so the bill--and it was to purchase those assets and then resell them--and our whole discussion, because that’s what we were talking about, was how to use these, and use this investment position to make a difference and mitigate foreclosures. My only point is now that we haven’t bought those assets, illiquid assets, that at least the intent as I had seen it, at least all the discussions we had, went to buying assets and reselling them. It didn’t go to a direct subsidy. But . . .

Frank: Mr. Secretary, I have to interrupt you. You are talking legitimately about your intent, but we had to get the votes for the bill. Our intent was also relevant. And I read you sections of the bill which says, “Write it down, give them assistance.” So the bill could not have been clearer that one of the purposes--and by the way, we are talking about $24 billion out of $700 billion, you’re talking about 4 percent of the total amount. But the point is that clearly part of this was not just to stabilize but to reduce the number of foreclosures for good macroeconomic reasons. And so, again, the intent couldn’t be clearer from what I’ve read.

Paulson: Let me then, Mr. Chairman, say what you’ve heard me say a number of times before, and that going back many, many months before--it was as topical as it is now--we’ve been working very very aggressively in individual, helping individual[s], because as recently as last week . . .

Frank: Mr. Secretary, I’m sorry. We don’t have a lot of time, and I don’t usually do this, but the question is: The language in the TARP, we understand that there are other activities going on, I don’t accept them as a substitute for using the authority that we very specifically and carefully wrote into the TARP and that was essential to it getting passed.

Paulson: Well, what you’ve heard from me, and what you heard from me last night, and which I will say again, is that I am going to keep working on this and looking for ways to use the taxpayer money as they expect me to here with regards for foreclosure mitigation. We have been, as recently as last week, taking a step, which I think will have . . .

Frank: No, I’m sorry, Mr. Secretary, those are not substitutable. Because I will tell you this, and I apologize for taking the time, it is nobody’s view that we have been as successful as we need to be for the sake of the economy in reducing foreclosures. We have a very large pot that was intended to be part of that effort that is going untapped.

FDIC Chairman Sheila Bair said Thursday she is "still hopeful" of using federal bailout money to help homeowners avoid foreclosure.

"The issue is whether it's an appropriate use of (Treasury bailout) funds or not, we think it is," Bair said in a breakfast speech hosted by the Johns Hopkins University Carey Business School. "We think it's a good investment and so we are meeting with both Congress and the Secretary of the Treasury on that still."

When asked about resistance from Treasury Secretary Henry Paulson, Bair said: "We have a great working relationship and I'm still talking with him. So, still hopeful."
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By the end of the year, foreclosure listing service RealtyTrac Inc. expects more than a million bank-owned properties to be on the market, representing about one-third of all properties for sale in the U.S.

The one thing government is not doing to deal with the economic crisis is foreclosure relief, Bair said, adding she was afraid of sounding "like a Johnny one-note."

Such action would help stabilize home prices in a housing market that Bair fears is starting to overcorrect. "If there's one thing the government has to do it's tackle these unnecessary foreclosures," she said.

Falling home values have been a significant drag on the economy and it made sense for her agency to protect the value of homes on which banks are lending money, Bair said.

Paulson is now on his third plan for how to spend the cash Congress gave him. Nobody knows what he will do next.
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But there is obviously no road map. His actions are inconsistent, and his shifting views are startling.

Furthermore, this massive bailout gives Treasury unprecedented power and is therefore dangerous. Nobody in Congress understands what is happening, nobody knows who exactly the recipients of these huge sums are, and Henry Paulson is vested with massive authority, unchecked. Bureaucrats and politicians, once in power, rarely hand back the checkbook and relinquish their control.

I am also very skeptical of the efficacy of government meddling. The unintended consequences are mind boggling. For example, companies are motivated to take excessive risks because of the prospect of a government backstop, a problem known as moral hazard.

Take Genworth Financial, a troubled insurance and financial services company. It was too weak to survive so it recently decided to buy a weak bank just to be able to tap TARP funding. Many insurance companies are now buying small banks to be able to access government funds. This sort of policy distorts the market and uses capital inefficiently. That capital is needed elsewhere, and should not be allocated by Washington D.C.
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All this enforced egalitarianism thwarts the meritocracy that America has always been, because the rewards for excellence are turned over to politicians and bureaucrats for distribution to the people upon whose votes they depend. Winston Churchill called this utopian notion "the philosophy of envy and gospel of greed", and all it ever produced was poverty, misery, bread lines and failed states.

This bailout plan is making things worse. End it now.