An illogical reversal

Six weeks ago, Congress passed an extraordinary $700 billion economic stabilization package partly because lawmakers wanted to provide relief for strapped homeowners. Nevertheless, Treasury Secretary Henry Paulson testified to Congress Tuesday that the focus of the package was to shore up the very financial institutions that dragged the nation into this unprecedented mess — and not its victims.

A defiant Paulson told the House Financial Services Committee that his plan was to continue to inject capital into financial institutions because “the primary purpose of the bill was to protect our financial system from collapse. The rescue package was not intended to be an economic stimulus or an economic recovery package.” That’s a gross reversal from the original intent of the stabilization plan; or at least how it was sold. Entrusting financial institutions with tremendous amounts of taxpayer money, without proper oversight on how those institutions spend that money, would be a remarkably illogical move because it would further empower lending institutions to give loans to people who increasingly cannot afford them.

Indeed, why the Treasury wouldn’t just give the money directly to consumers is beyond comprehension. Sheila Bair, chairman of the Federal Deposit Insurance Corporation, breaking with the Bush Administration, proposed to lawmakers a $24 billion plan to rescue homeowners from foreclosures, preventing about 1.5 million foreclosures, according to Bair’s estimates. That’s roughly one third of foreclosures expected. We say give the money to the people. It was, after all, theirs to begin with.