Terry Jeffrey

President Bush's trusted treasury secretary, Henry Paulson, is setting the stage for the all-Democratic government that comes to power in January to vastly increase government control over our economy.

At an Oct. 23 briefing, CNSNews.com correspondent Fred Lucas asked White House Spokesperson Dana Perino whether Bush wanted there to be a timeline for the Treasury Department to give up the stock it was planning to buy in American banks. This was important because the bailout law passed by Congress does not require the government to do so.

"The president is trusting his team over at the Treasury Department to design this program, and he believes that they're doing it the right way," said Perino. "I don't have details for you on it. So we'll let them -- we'll just trust our treasury secretary and those that he's tasked with to implement the program."

On Sept. 23, Paulson told the Senate Banking Committee he would use the $700 billion he was requesting from Congress to buy "complex illiquid mortgage and mortgage-related securities to unclog our credit and capital markets."

He specifically said he had considered and rejected the idea of buying stock in banks.

"Could you just in a few minutes describe several of the proposals that you considered, telling us in ... specific terms why those proposals were deemed inadequate by both the Treasury and the Fed?" Republican Sen. Richard Shelby of Alabama asked Paulson.

"The root cause is housing and the housing correction," Paulson responded. "And until we get at that, we're not going to solve it. And as we looked at the -- how we get at that, there were some that said we should just go and stick capital in the banks, put preferred stocks, stick capital in the banks. ... But we said, the right way to do this is not going around and using guarantees or injecting capital, and there's been various proposals to do that, but to use market mechanisms."

Three weeks later, Paulson did an about-face.

"Today I am announcing that the Treasury will purchase equity stakes in a wide array of banks and thrifts," he said.

In fact, Paulson had virtually ordered nine major banks to sell ownership stakes to the government and accept some government restrictions on their activities.

Paulson did not pump money into these banks because they were in trouble, but to give government leverage over the banking industry. "These are healthy institutions, and they have taken this step for the good of the U.S. economy," said Paulson.

A month later, Paulson announced he might not use any of the $700 billion to buy mortgage-backed securities. "Our assessment at this time is that this is not the most effective way to use TARP funds," he said at a Nov. 12 press conference.


Terry Jeffrey

Terence P. Jeffrey is the editor-in-chief of CNSNews

Be the first to read Terence Jeffrey's column. Sign up today and receive Townhall.com delivered each morning to your inbox.

©Creators Syndicate