It Is Not too Early to Start Repairing the Damage Done by Foreclosures

The country should have come out of its shell shock state by now and start mending the fencing. It is never too early to start repairing the damages wrecked by foreclosures.

Henry Paulson must have had solid reasons behind his actions – confident that without taking the steps that he took, the country would have been in a far worse situation. But as yet none of the results are apparent – America continues to reel under foreclosures and recession. The entire financial system has become wobbly.

Just a few weeks of after having received $25 billion from the $700 billion bailout package, Citigroup confessed to the Treasury that the markets still do not have faith in Citigroup. In response another $20 billion was handed over to Citigroup from the same TARP funds. This was followed by the Treasury guaranteeing $306 billion assets of Citigroup. For doing so the Treasury did not ask for much except for a small slice of its stock. The $306 billion was an open gift without trappings. The Treasury did not even bother to explain why this was done except for mumbling something about the “decline stock price” of Citygroup.

The gift of nearly $300 billion is not something to be sneezed at – it is a handsome amount. It is about 2% of the gross domestic product and what is spend per year on the departments covering agriculture, education, homeland security, energy, HUD and transportation taken together.

If Paulson had seen to the execution of his initial plans and bought the soured assets of Citigroup at the prevailing market rates, there would have been a limit to the risks as the amount would have been part of the $700 billion deal that was to be disbursed. Instead of doing so, Paulson took upon himself the right to distribute ad-lib limitless dollars without being bound by Congressional supervision. Today nobody knows the character of the assets that the Treasury is guaranteeing. If the money had come from TARP there would have been some accountability.

When a jumbo financial body is thought to be “too big to fall” then there are other issues involved. The best thing would be to let it all – it is perhaps too big to save. In the case of Lehman Brothers this was allowed to happen. Alternatively if it is that important then it should be nationalized to control its influence over other firms and to protect the strength of the financial system. The shareholders should be shown the door and the management totally replaced.