There are two things conservative opponents of the Wall Street bailout continually highlighted: (1) it will lead to other bailouts and (2) it cannot be sucessfully managed by the government. Conservatives were right.
First, according to the New York Times yesterday (”Lobbyists Swarm the Treasury for Piece of Bailout Pie”):
The Treasury Department is under siege by an army of hired guns for banks, savings and loan associations and insurers - as well as for improbable candidates like a Hispanic business group representing plumbing and home-heating specialists. That last group wants the Treasury to hire its members as contractors to take care of houses that the government may end up owning through buying distressed mortgages. …
The Treasury set a deadline of Friday for institutions to apply for capital investments, which has meant a grueling few weeks for already overworked officials like Mr. Mason.
The Congressional bailout law gave the Treasury broad authority to decide how to spend the $700 billion. Under the terms of the $250 billion capital purchase program announced last month, cash infusions are available to “qualifying U.S. banks, savings associations, and certain bank and savings and loan holding companies, engaged only in financial activities.”
That definition has grown to include private banks and insurers like Allstate and MetLife, which own savings and loans. It may also encompass industrial lenders like GE Capital and GMAC, the financing arm of General Motors, provided they win approval to reclassify themselves as a bank or savings and loan holding company.
This is of course what happens when the government starts handing out money: everyone gets in line. But the companies and the industries that end up at the front of the line are always those that are the most well-connected with politicians and government bureaucrats. That’s why Goldman Sachs (Secretary Paulson’s former employer) has been one of the biggest winners in the recent bailout bonanza. And now President-elect Barack Obama and his liberal allies on Capitol Hill are going to let the United Auto Workers (UAW) cut to the front of the line.
But besides a long line of outstretched hands, chaos is starting to set in on a government that is completely incapable of managing our private enterprise system. This too from the New York Times (”U.S. Shifts Focus in Credit Bailout to the Consumer”) this morning:
Mr. Paulson conceded that he had scrapped the plan he originally sold to Congress in September, which was to have the Treasury Department buy hundreds of billions of dollars worth of illiquid mortgage-backed securities in order to free up banks to resume normal lending.
The program is still called the Troubled Asset Relief Program, or TARP, but it will not buy troubled assets. “Our assessment at this time is that this is not the most effective way to use TARP funds,” Mr. Paulson said.
Instead, Treasury will step up its program of injecting capital directly into banks and, for the first time, expand it to include financial companies that are not federally regulated banks or thrifts.
It’s hard to believe it but not a single penny of the $700 billion will be spent on what Congress authorized. But don’t worry. Secretary Paulson has a new plan:
As envisioned by Treasury officials, the Federal Reserve would set up a new special-purpose lending entity, which would lend cash to investors or companies that put up collateral in the form of consumer loans. The Fed might lend up to 80 percent of the value of those loans, providing a cushion for taxpayers against losses.
The Treasury would contribute 5 percent to 10 percent of the money to finance the lending. But the Fed would raise most of the money by selling what is known as nonrecourse commercial paper to investors.
Treasury officials said the plan would allow them to leverage the government’s money by as much as 20 to 1, meaning that the Treasury would provide 5 percent of the money and investors would provide 95 percent. Using $50 billion in money from the government rescue program, they said, could thus underwrite $1 trillion worth of lending for consumer loans.
Such an arrangement would bear a similarity to exactly the highly leveraged, and eventually disastrous, special-investment vehicles that banks like Citigroup created in countless numbers to hold, among other things, securities backed by subprime mortgages.
We’re not making this stuff up. This entire financial crisis was created by government policies that created easy money and that socialized risk. After two months, our government officials have come up with a new plan to save the economy, which involves easy money and socializing risk.
Despite Senator Obama’s efforts to distance himself from Acorn and its 
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