Commentary: A new approach to the bailout

This editorial appeared in The Miami Herald.

It is tempting to accuse Treasury Secretary Henry Paulson of pulling a bait-and-switch. Those "troubled assets" held by Wall Street firms that the administration was going to buy with the $700 billion rescue plan approved by Congress? Never mind, Mr. Paulson said on Wednesday. He has a better idea – use the money to bolster consumer credit and buy stock in banks to improve their balance sheets.

This represents a major shift in administration strategy. Mr. Paulson believes Congress gave him the authority to use the $700 billion with maximum flexibility. "I will never apologize for changing an approach or a strategy when the facts change," the Treasury secretary declared. The problem is that the Treasury secretary seems to be making it up as he goes along, with lawmakers and the public left to stand on the sideline and wonder whether the administration is on the right track.

Having said that, Mr. Paulson may indeed have come up with a better idea. The old plan obviously wasn't working. The new Paulson rationale goes like this: 40 percent of U.S. consumer credit is provided through selling securities backed by pools of auto loans and other such debt. These markets need support – and that is where some of the money is going.

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