There is something approaching a consensus that the Paulson Plan -- also known as the Troubled Asset Relief Program, or TARP -- was a boondoggle of an intervention that's flailed from one approach to the next, with little oversight and less effect on the financial meltdown.
But perhaps even more troubling than the ad hoc nature of its implementation is the suspicion that has recently emerged that TARP -- hundreds of billions of dollars worth so far -- was sold to Congress and the public based on a Big Lie.
President George W. Bush, fabulist-in-chief, articulated the rationale for the program in that trademark way of his -- as if addressing a nation of slow-witted 12-year-olds -- on Sept. 24: "Major financial institutions have teetered on the edge of collapse ... [and] began holding onto their money, and lending dried up, and the gears of the American financial system began grinding to a halt." Bush said that if Congress didn't give Treasury Secretary Hank Paulson the trillion dollars (give or take) for which he was asking, the results would be disastrous: "Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession."
For the most part, the press has continued to echo Bush's central assertion that there's a "credit crunch" preventing even qualified borrowers -- that's the key point -- from getting loans, and it's now part of the conventional wisdom.
But a number of economists are questionioning the factual basis of the credit crunch narrative. Columnist David Sirota recently looked at those claims and concluded that Americans "had been punk'd" -- that "the major claims about a credit crisis that justified Congress cutting a trillion-dollar blank check to Wall Street were demonstrably false," and the threat of a systemic banking crash was used by the Bush administration to overcome popular resistance to the "bailout."
It's a reasonable conclusion; this is an administration that used the threat of thousands of al-Qaida sleeper cells in the United States to sell Congress on the Patriot Act, the specter of mushroom clouds rising over American cities to push through the Iraq war resolution and the supposedly imminent crash of the Social Security system to push for privatizing Americans' retirement savings.
But the question comes down to what they knew and when they knew it. The analyses that suggest the whole credit crunch narrative is false are based on data that lagged behind the numbers that policymakers had available, in real time, back in September. So the question -- probably unanswerable at this point -- comes down to whether or not they looked at the situation and in good faith believed that pumping hundreds of billions of dollars into the banking system would contain the damage and save an economy teetering on the brink of collapse.
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