"W's" Last Screwup

Call it “W’s” last screwup.

With only five days left to go in his presidency, George Bush and his advisors are caught in critical mess over what to do with the second tranche of the Troubled Asset Relief Program. Barack Obama and his incoming staff want access to it. Senate Republicans, angry at their GOP kinsmen in the White House, are dragging their feet in releasing it. What’s next?

The issue may be a minor storm in the great hurricane of the financial crisis, but it illustrates very clearly how ill-thought out TARP has been so far. Supposedly created to buy up toxic debt and get it off the market, Bush and his Treasury Secretary Henry Paulson have used it for any number of purposes, depending on what day of the week it is. These include buying shares in banks, adding to liquidity, bailing out two automakers and letting firms become banks overnight so they can get access to it. More than the first tranche of TARP’s $350 billion in already gone.

Not that Obama isn’t having his issues. His team wants to spread the second $350 billion or so tranche around to help distressed mortgage holders, cities and small businesses. Many Republican senators and congressmen don’t like that, either, but they really don’t like Bush’s generosity to non-financial firms such as General Motors and Chrysler.

Another problem is that by bailing out banks hither and yon, the Bush Administration has created an environment of unrealistic expectations. Back in October, everyone from Merrill Lynch, to AIG, to Wachovia was said to be in such utterly extreme crisis that unless some money came forward to prop them up, we’d all be headed for a financial maelstrom the likes of which no one has ever seen.

What, in fact, has happened, is that Treasury (meaning taxpayers like you and me) essentially covered all these huge banks for the first three quarters of their losses in 2008. With the economy still badly stumbling, we’re all expected to handle Quarter Four as well when there are plenty more losses to go around. That’s behind the news that Bank of America says it needs more than $25 billion in public funds to stay viable as it digests Merrill Lynch. CitiGroup, which is expected to anounce a big loss on Friday, is said to be downsizing its credit card business, Primerica and its subprime lending unit. Will it need even more federal money? It probably will ask for it.

Whether or not Obama gets the second tranche released isn’t really the point — he will eventually. The issue is what the hell we are doing. What is TARP really designed for? Where’s the oversight? Why should people like you and me suddenly be responsible for the miscalculations of Kenneth Lewis and Vikram Pandit?

To be sure, Obama wants a stimulus package of $800 billion or so on top the rest of TARP. Maybe that will pull us through. But it’s disheartening that just days before “W” leaves, we’re still dealing with his team’s incompetence.