Treasury Secretary Paulson is sending mixed messages. The summary of his recent speech: we needed the money for the bail out, the bill finally passed and now he has changed his mind on what to do with the TARP funds. They will buy assets, no they won't, yes they will. We do know that AIG was the first asset purchase for the funds. On November 10th, $40 billion of assets were purchased from AIG, the troubled insurance company. This is after a loan of 85 billion was given to AIG for a two year period.
Five weeks have passed since the bill was passed. Asset managers have not been hired, nor have assets been outlined as purchases. TARP was sold to Congress as a way to buy, and thus remove, the worst assets from the bank's balance sheets. Instead, we have focused on giving the bank's capital instead of taking an ownership role. I would prefer the assets be purchased and we would have some upside in the asset when the industry returns to a profitable status.
The banks appear to have stabilized at their current levels but capital is not flowing to the consumers yet. Now the auto makers are asking for a bail out and that is proposed to be a separate tax bill of 25 billion. Next in line are the insurance companies and many were downgraded by Goldman Sacs research earlier this week. The life insurance companies have issued more annuities with life guarantees than they may have the capital for payout. If their assets fall, their credit rating will fall, and customers begin to withdraw assets as they fear the company might go into bankruptcy. We have already seen the banks play musical chairs and most of them were left standing when the music stopped and they are out of the game.
The market posted a nice gain yesterday of over 550 points. However, it was a swing of 900 points intraday and enough ups and downs to make me feel like I was on a teeter totter.
Please, Mr. Paulson give us some insight on your plan and actions.