Remember how urgent it was for Congress to approve the Wall Street bailout last fall to free up credit? Not surprisingly, things didn’t work out that way:

A new report out of the Treasury Department Tuesday confirmed what many lawmakers, housing advocates, small businesses and individual consumers have known all along: That despite hundreds of billions of dollars flowing from Washington to the finance industry, bank lending among recipients of the Troubled Asset Relief Program fell in the last three months of 2008.

Among the 20 largest TARP recipients, median mortgage and business lending both fell by 1 percent over that span, Treasury found, while median credit card lending rose 2 percent, “reflecting greater reliance on existing credit lines by consumers.”

The findings were based on a survey of the 20 banks receiving the most federal help under the TARP, and marks the first in what will be a series of monthly reports analyzing the lending trends among bailed-out banks.

It would be nice to know what the banks are doing with the bailout money, but they don’t want to tell anyone.

How disappointing that Barack Obama’s Treasury Secretary Timothy Geithner wants to continue the misguided effort begun by George Bush’s Treasury Secretary, Henry Paulson.

Here are some more links on why Geithner’s plan “fails on almost every level.” Excerpt:

Robert Kuttner offers a strong analysis of Geithner’s strategy to salvage the banking industry in The American Prospect, noting that Geithner is explicitly avoiding the simplest and cheapest solution in favor of propping up the current Wall Street regime. The current plan is designed to support a financial architecture that has proven completely ineffective in maintaining the nation’s basic economic functions.

Someone who works for a non-profit organization told me last week that he has filled out a detailed six-page application for a $1,000 federal grant, while Geithner wants to get $350 billion on the basis of a vague two-page proposal.

Josh Marshall notes that “a lot of key political appointments at the Treasury haven’t been made yet, let alone been confirmed.” He takes a stab at explaining why:

one of the big issues is that it’s actually hard to find people with the requisite knowledge of banks and the capital markets who aren’t also compromised — either in policy or business terms — by the housing bubble and the rest of the financial collapse. And that raises again as a question: why have none of the people who were financial orthodoxy dissidents and saw what was coming been brought in to the administration. I know I’m hardly the first one to bring this up. And we know that the big appointees — Summers and Geithner — were part of the mix. But there aren’t even any of them further down into the appointment structure. They’re all still on the outside.

Disturbing.

Last week I wrote about some of the problems related to the Wall Street bailout. Among other things, no one knows what the Treasury Department has been doing with the money.

On November 18 Representative Bruce Braley sent a letter to leaders of the U.S. House “urging them to finish naming members of a congressional oversight panel charged with overseeing the implementation of the $700 billion bailout package.” His office released the text of the letter:

Dear Speaker [Nancy] Pelosi, Majority Leader [Steny] Hoyer, and Minority Leader [John] Boehner,

Thank you for your leadership throughout the 110th Congress.  As you know, we are facing an economic crisis as serious as any our nation has faced during my lifetime.  While this crisis started on Wall Street, it now affects Iowans and Americans from all walks of life.  We are all hopeful that the recently enacted Emergency Economic Stabilization Act (EESA) will have a significant impact on the recovery of financial markets.

Just last week, Treasury Secretary Henry Paulson announced a change in course on how taxpayer funds from the EESA will be used to stabilize the economy. He stated that instead of buying troubled assets, Treasury would use the funds to invest in nonbank financial companies, and to promote consumer borrowing through credit cards, car loans, and student loans. As reported in the Washington Post on November 13, 2008, the Bush Administration has already committed $290 billion of the $700 billion rescue package.

With all that is going on, I am concerned that all of the members have not yet been nominated to the five-member Congressional Oversight panel, as designated by Section 125 of the EESA. As you know, the EESA included language that required the release of a detailed report from the congressional panel 30 days after the bailout program began.  This deadline for this initial report has since passed. Additionally, the congressional oversight panel is supposed to issue a report on January 20, 2009, giving an update on the financial regulatory process. Since a congressional panel is not yet finalized, it is unclear as to whether this deadline can be met.

I strongly believe that the American people have a right to know how their taxpayer funds are being used by the Treasury, especially in light of the recent change in course on how to revitalize the economy.  It is essential that Congress conduct vigorous oversight during this process. That is why I urge you to make it a top priority to complete the assembly of a Congressional Oversight Panel as soon as possible.

Thank you again for your leadership, and thank you for your attention to this issue.  Please feel free to contact me if you have any questions.

Sincerely,

Bruce Braley

Braley voted against the first proposed bailout but supported the revised version for reasons described here. Although I didn’t agree with his second vote, I appreciate his effort to improve Congressional oversight so that Treasury can be held accountable for how funds are being used.

I wouldn’t mind Democrats passing an incredibly unpopular bill a few weeks before an election, if the bill solved a big problem.

Unfortunately, the Wall Street bailout Congressional leaders rushed to pass this fall doesn’t seem to have accomplished much, besides hand some Republican incumbents a great campaign issue.

We were told that the Bush administration needed this plan passed immediately, or else credit would dry up and the stock market would go into a tailspin.

But as it turns out, Treasury Secretary Henry Paulson had no idea what to do:

The Bush administration dropped the centerpiece of its $700-billion financial rescue plan Wednesday, reflecting the remarkable extent to which senior government officials have been flying by the seat of their pants in dealing with the deepening economic crisis.

Treasury Secretary Henry M. Paulson said the administration would scrub plans to buy troubled mortgage-backed securities but continue to devote bailout funds to restore liquidity to credit markets.

[…]

“You’ve had a tremendous amount of improvisation here,” said Douglas W. Elmendorf, a former Federal Reserve economist and an informal advisor to Obama’s transition team. “Even smart people get things wrong when they have no models to follow and are acting quickly, so it’s natural that there’d be some reworking.”

Or as Sen. Charles E. Grassley (R-Iowa) put it: “When you see so many changes, you wonder if they really know what they’re doing.”

Paulson, who originally dismissed emergency government investments in financial institutions as a recipe for failure, said most of the first half of the $700 billion had already gone to making emergency investments in banks and other companies aimed at reviving the routine borrowing and lending that are crucial to the economy.

Although Paulson said those actions had helped thaw credit markets and prevent “a broad systemic event” in the global economy, he acknowledged that most financial firms are still deeply reluctant to lend.

So, Paulson has been winging it, doing what he originally opposed, but credit remains very tight.

But no problem, because Congress imposed strict accountability measures in that revised version of the bailout, right?

Not according to the Washington Post: Bailout Lacks Oversight Despite Billions Pledged

In the six weeks since lawmakers approved the Treasury’s massive bailout of financial firms, the government has poured money into the country’s largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

“It’s a mess,” said Eric M. Thorson, the Treasury Department’s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. “I don’t think anyone understands right now how we’re going to do proper oversight of this thing.”

To put that $290 billion in context, the U.S. spent about $170 billion on the war in Iraq during all of 2007. Yet the stock market is still swinging wildly and financial institutions are “still deeply reluctant to lend.”

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid got suckered into backing bad policy that was also bad politics. Barack Obama was eager to go along as well.

Next time leading Democrats want to pass something that expensive, could they at least make it something useful, like universal health care or high-speed rail connecting major cities?

I stand by my contention that Treasury Secretary Henry Paulson’s bailout scheme is among the worst proposals to come out of George Bush’s very bad presidency.

So I am glad to learn that Iowa Treasurer Mike Fitzgerald wants some questions answered before urging Congress to pass the bailout. Click the link to read Marc Hansen’s column about a conference call Fitzgerald and other state treasurers had on Thursday with acting U.S. treasury undersecretary for domestic finance.

I am no economics whiz, but I can help answer Fitzgerald’s first question:

Why $700 billion?

From his office at the Capitol, Fitzgerald listened intently, waiting for the answer that never came. And what did he get instead?

“Nothing,” he says, “other than a lot of babble.”

What’s so magical about $700 billion? Fitzgerald still doesn’t know. It’s about 5 percent of the gross domestic product, if that means anything.

“Magical” is a good word for the number, because as it turns out, they just made it up.

I know this because a few days ago, Open Left diarist fladem posted this link from Forbes magazine:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

David Sirota has written two good pieces quoting Nobel prize-winning economists and others on why there is no crisis requiring a bailout package. Here is part 1, and here is part 2.

In an alternate universe where John Edwards hadn’t disgraced himself, he could have been an effective voice against the rush to shovel taxpayer dollars to Wall Street.

Instead, we have Barack Obama’s campaign letting Roger Altman speak for them in favor of Paulson’s scheme. That’s

the same Roger Altman who was a Clinton Treasury official when the Clinton-backed deregulatory orgy was taking place, the same Roger Altman who is now an investment banker who stands to make bank if this bailout passes, the same Roger Altman who Bloomberg notes “is advising a group of investors who are trying to prevent their shares from being diluted in the U.S. takeover of American International Group Inc.” – that is, who have a direct financial interest in Paulson’s bailout package.

Watching this train barrel down the track is quite discouraging.

If we’re talking about policy mistakes with disastrous long-term outcomes, it’s hard to top the Iraq War for loss of life and the 2005 energy bill for threats to the planet.

In fact, we could be here all day if we set out to brainstorm all the horrible things to come out of George Bush’s presidency.

But it does seem like the proposed bailout of failing banks is a contender for worst Bush administration proposal ever.

Here are a bunch of links on the subject.

Paul Krugman of the New York Times is updating his blog frequently.

Senator Bernie Sanders: Billions for Bailouts: Who Pays?

Former Labor Secretary Robert Reich: What Wall Street Should Be Required to Do, to Get A Blank Check From Taxpayers

Bonddad: This is one of the worst bills to ever be proposed.

Robert Borosage: Financial Crisis: Time for a Citizens’ Plan?

Devilstower: Three Times is Enemy Action

Ian Welsh: How To Bail Out Ordinary Mortgage Holders And Not Just Banks

8ackgr0und N015e wrote a funny piece on one angle of this story that hasn’t received as much attention.

Two of Josh Marshall’s readers ask really good questions.

This post by Matt Stoller includes an excellent statement from Senator Hillary Clinton.

As far as I know, no members of Congress from Iowa have issued public statements about the bailout, but I will post them as they become available.