The Treasury will spend its remaining bailout funds on consumer credit rescue programs, Henry Paulson announced today, scrapping his original plan of buying illiquid mortgage-related assets from financial institutions. The freeze on consumer credit, he said, is “creating a heavy burden on the American people and reducing the number of jobs in our economy.”
As its name implies, the TARP, or Troubled Asset Relief Program, was originally supposed to be used to buy troubled mortgage assets, but none of the money has been used that way. Instead, Paulson has spent all but $60 billion of his initial $350 billion to buy equity stakes in banks. Troubled asset purchases are no longer considered “the most effective way to use” the funds, Paulson says.