Paulsons Toxic Plan Not Of Much Use To Foreclosure Victims

Posted in Foreclosure Victims, November 18th, 2008 |

From trends being noticed since October it seems that Henry M. Paulson’s toxic plan is not going to be of much use for foreclosure victims. The observers are getting inconsistent signals.

Paulson has decided not to buy soured bank assets. This indicates that he has drawn two conclusions regarding the jumbo $700 bailout package.

Firstly it seems he has realized that the plan would not work out properly. Secondly it appears that the financial and economist pundits who were wary about the direct injection of capital into the banking system seems to have been in the right from the very beginning.

Paulson recently announced that the federal government would soon give up the plans of purchasing troubled mortgage-supported securities from the banks and other jumbo investors. It will now concentrate on how to defreeze the credit markets. Only a week after launching the bailout package Paulson has started giving indications that the focus of help had changed. The money would now go to buying preferred shares of the banks to allow for flow of capital. With the replacement of slow IV drip with an adrenaline shot sent direct to the heart, the stock market got a boost for few weeks. The recent announcement is not a surprise but a re-statement of something that has already happened. $60 billion is yet to be spent from the original outlay of $350 billion. So far the purchase of soured assets has not taken off.

This change of course has put USA at par with the measures being taken by Britain and the rest of Europe. Direct re-capitalization of the banks has become the rule here and the response to financial problems.

Concerns are being raised about the inconsistencies of Paulson. The original plan was labeled TARP – Troubled Asset Relief Program. In the maze of all this shifting the humble foreclosure victim is getting lost and forgotten. Campbell R. Harvey of Duke University said, “This was a major piece of legislation. TARP was what people were voting on, and now he announces that TARP is not going to be TARP.” Paulson and also the Congress are now failing to define the goal of TARP. It was targeting the troubled banks in the beginning but now the talk is about both banks and non-banks. The foreclosure issue seems to be lost in a maze of policies.