Today Secretary Paulson, Chairman Bernanke and Chairwoman Bair testified before the House Financial Services Committee Chaired by Barney Frank. Committee members were a little irritated by the fact they voted for a bailout package under false pretenses.
Some members felt duped by the bait and switch calling it the 2nd largest in history. The largest bait and switch was the invasion of Iraq according to one House member.
In response, Paulson said that markets changed materially. That banks were failing, events in Europe worsened and the credit spread widened. These factors justified a change in strategy for the $700 billion bailout plan.
Paulson said he feels the program seems to be working.
Bernanke said he sees some signs that the credit markets are improving, but more is needed on mortgage modifications. He also said that credit conditions are "still far from normal".
Chairwoman Bair has a system for modifying loans that the FDIC is utilizing and urges Congress to develop a plan to avoid 1.5 million foreclosures.
Paulson said he has not said no to mortgage help in the TARP, but in a prepared statement at the beginning of his testimony he said he is not in favor of using TARP funds for foreclosure mitigation because, and get this, that was not the intent for the use of the funds when he sold the concept to Congress.
One House member was very upset that a bank in his district could not get a response when applying for TARP funding. He said that the bank was in a relatively healthy position, but got the run-a-round when attempting to apply. He wondered why some banks that received money didn't even ask for it and didn't need it to survive. Paulson said that TARP funding was not designed to prop up weak banks only healthy ones and he wanted to get it to them before they needed it, not after.
This logic sounds familiar. Banks tend to lend money to people that don't need a loan and the ones that do can't get a loan. I can understand this philosophy, since banks want to get repaid and people with money are more likely to pay it back. But if you're trying to save the economy from financial collapse, giving money to healthy banks and not to banks that need some help from failing lacks logic. That's like saying bank failures won't hurt the economy. If that's the case then what was the point of TARP in the first place?
The Auto makers are seeking funding as well. Paulson says that funding for an Auto industry bailout was not the intent of TARP. TARP funding was intended to bailout the financial industry, although as we've heard from Paulson, only the healthy portion of the financial industry.
Paulson said Congress should consider modifying the $25 billion offer from the Department of Energy to bailout the Auto makers.
Paulson says there is no plans for the remaining TARP funds, yet.
In other news:
The U.S. producer prices plunged 2.8%, most on record.
Auto makers will testify before Barney Franks committee this afternoon to push for aid. In the meantime they sell assets to raise cash.
Blackrock announced job cuts for the 1st time in its history.
Home prices drop in 80% of U.S. cities due to a rise in foreclosures. Paulson says more needs to be done for homeowners.
Berkshire Hathaway trades at a 2 year low, trading below $92,000 share. Berkshire's credit risks soar on their AAA rated debt.
Airlines are looking for buyers of their idle outdated aircraft. They are being forced to absorb storage costs and are shopping emerging markets to unload excess inventory.
Idle planes does not bode well for plane makers like Boeing, whose Dreamliner delays are a major setback for the company. Shares are falling.