So, what did he plan to do with the $450 billion not used to buy ownership in banks? He signaled he may use it to buy bad securities made up of "credit card receivables, auto loans, and student loans and similar products."
Yesterday, Paulson told the House Financial Services Committee why he gave up on buying hundreds of billions in bad mortgage-backed securities: He did not have enough tax money left over after he bought the ownership interest in the banks.
"It became clear that, while in mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact, half of that sum, in a worse economy, simply isn't enough firepower," he said.
How much tax-backed "firepower" would be needed?
Paulson did not say. But as CNSNews.com correspondent Matt Cover reported this week, the Federal Reserve revealed in its latest report on "Flow of Funds Accounts of the United States" that as of the second quarter of 2008 Americans owed $11.2 trillion on their home mortgages. Of this $11.2 trillion, $6.6 trillion had been bundled up in mortgage-backed securities.
Even as Paulson was testifying in Congress on Tuesday, the Federal Reserve was revealing that home mortgage delinquencies had jumped from 4.39 percent in the second quarter to 5.08 percent in the third. In the 17 years the Fed has tracked delinquencies, this is the first year it has broken 4 percent, let alone 5 percent.
Five percent of $11.2 trillion in mortgages means $560 billion in bad mortgages. With unemployment going up, that number is also bound to go up.
So is the power and influence of government over our lives.
In a front-page feature in The Washington Post on Tuesday, President Bush's trusted treasury secretary revealed he was working on a new plan with president-elect Obama in mind.
"Paulson said he will unveil proposals in coming weeks urging president-elect Obama and the new Congress to endow the federal government with broad new authorities to take over any failing financial institution, not just banks," said the Post.