How Hank Paulson Blew $125B
The banks have the cash, but why is everyone surprised they're not lending?
By Clay Dillow,  Newser Staff
Posted Oct 31, 2008 9:15 AM CDT
Treasury Secretary Henry Paulson takes part in a news conference at the Treasury Department in Washington, Monday, Oct. 20, 2008.   (AP Photo/Gerald Herbert)
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(Newser) – Not too long ago, critics from left and right were clamoring for Hank Paulson to abandon his plan buy up toxic mortgage-backed securities at auction to unlock credit markets. Instead, they argued, the government should give money directly to banks for them to lend. Too bad Paulson listened, writes Steven Pearlstein in the Washington Post, because he's blundered away $125 billion. Now these same folks are shocked that banks are not lending, but paying dividends, paying off executives or building their capital reserves.

Paulson never should have abandoned his original strategy, which stood a good chance at succeeding, nor should he have forced banks to take no-strings-attached money they didn’t need. But now that they have the cash, it’s theirs, not ours. "We might not like their choices, or their values," he notes, "but this is still a market economy, and these are still shareholder-owned companies." The worst thing: other industries are lining up for "similar sweetheart deals," and who can blame them?