“The markets got awfully shook up when Paulson spoke,”

This story from Bloomberg merely illustrates a few themes that I've been harping on:

"Paulson may ask Congress for the remaining $350 billion from the Troubled Asset Relief Program as he puts together plans to boost consumer credit. Treasury and Federal Reserve officials are working on an effort to buttress the market for securities backed by auto, student and credit-card loans, Paulson said last week. He’s also assembling an office to address mortgage foreclosures. "

I've been arguing that TARP was sold as a Credit Stimulus Plan without the Stimulus, which would be lending. Sec. Paulson said that wasn't the point of TARP, but the point was rather to buttress up the financial system. In doing so, he managed to drop any value that there was in the CDO market and further calcify it, one effect of which is the bailout of Citi. He also managed to terrify everyone that banks might not lend until the downturn was beginning an upturn. I can understand the banks feeling this way, but not accepting the TARP money as well knowing what lawmakers wanted them to do with it. This is a case of very bad faith on the part of the banks.
It also seemed that he was leaving the mortgage problem to the FDIC.

If you read the above statement, you'll find that it's an about face. Some people will blame Paulson, and I'll be one of them, for a dizzying array of positions. However, in my opinion, this "any way the wind blows" policy making is built into TARP. TARP is a Hybrid Plan, and, if there are any merits to Hybrid Plans, and I, for one, don't think that there are, it's that you can expect to feel like you're on a Tilt-a-Whirl when you're in them, and you'll have the freeing feeling of constantly changing your mind and holding opposing positions while you're in them. It's quite a ride, almost always expensive and inefficient. That doesn't mean that no good can flow from them, just that it's not cost effective or easy to get out of. Hybrid Plans have a bad habit of morphing on indefinitely, often taking on other acronyms and guises.

"Paulson’s pivot is the latest in a series of changes."

Let's go along for the ride. Whee.

1) "He won authorization from Congress in July to aid mortgage companies Fannie Mae and Freddie Mac by saying he doubted he would need to use it, seven weeks before doing exactly that. " ( Well a doubt isn't a certainty )
2) "Two weeks ago he abandoned the TARP’s original intent of buying bad bank assets in favor of direct capital injections. "
3) "The Citigroup rescue came five days after Paulson told the House Financial Services Committee that Treasury and the Fed’s actions had resulted in “a significantly more stable banking system where the failure of a systemically relevant institution is no longer a pressing concern rattling the markets.”

This isn't even the whole list. What has the effect been?

“The markets got awfully shook up when Paulson spoke,” said Fred Dickson director of research at DA Davidson & Co. in Lake Oswego, Oregon. “The credibility right now in terms of Treasury and the administration is part of the problem. We’re not at all past concerns about financial institutions".

“You have systemic fear everywhere,” said David Winters, who manages $3 billion as chief executive officer of Wintergreen Advisers LLC in Mountain Lakes, New Jersey. “People don’t know what to believe” and “confidence is completely drained out of the system.”

"President-elect Barack Obama today said at a press conference that there has been “confusion on what the overall direction might be” of the Bush administration’s plans for dealing with the financial crisis. "

He's been to financial panic, what a pryomaniac is to a fire. A Panicmaniac. Would things have been worse without the Hybrid? Yes, because there was no Plan B, which would have meant a "Go directly to meltdown card, and please don't stop at "Go" ". On the other hand, this whole mess of lobbying, unclear and unspecific legislation, reeling markets, calcified markets, conflict of interest, finger-pointing, etc., is a function of choosing a Hybrid Plan.

Here's a funny line from President Obama:

"In announcing his nomination of New York Federal Reserve Bank President Timothy Geithner to succeed Paulson as Treasury chief, Obama also pledged to “honor the commitments” of the outgoing teams, suggesting he has no plans to overhaul the implementation of TARP funds committed so far. "

Paulson can drive the car in any direction he wants, but President Obama needs to stick to the road. What's wrong with this picture?

"Paulson, with less than two month left in his tenure, spent much of last week defending his actions."

Here's where I feel sorry for him. He might have to spend his whole life doing this, and know that some history books will be written featuring him as a disaster. It's not all his fault by any means. If anything, he's one of the only Bush people who's intelligent enough to try and change course. In this administration, he a breath of fresh air.

“Some have chosen to scapegoat the Lehman failure as the cause of the deepening crisis in September, as opposed to a symptom,” he said. “That is at best naïve, and at worst disingenuous.”

He's terribly wrong about this, and I'd gain a lot of respect for him if he'd admit it.