"Treasury's Version of the Weapons of Mass Destruction"

Two new stories out this week that shed some more light on the Halliburton-ization of the Wall Street bailout (a phenomenon progressives warned about). First the New York Times [1]:

It is starting to appear as if one of Treasury's key rationales for the recapitalization program -- namely, that it will cause banks to start lending again -- is a fig leaf, Treasury's version of the weapons of mass destruction.

In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, "the government wants not only to stabilize the industry, but also to reshape it." Now they tell us.

Indeed, Mr. Landler's story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers...

First [Treasury] says it has to have $700 billion to buy back toxic mortgage-backed securities. Then, as Mr. Paulson divulged to The Times this week, it turns out that even before the bill passed the House, he told his staff to start drawing up a plan for capital injections. Fearing Congress's reaction, he didn't tell the Hill about his change of heart.Now, he's shifted gears again, and is directing Treasury to use the money to force bank acquisitions. Sneaking in the tax break isn't exactly confidence-inspiring, either.

So, to sum up, Henry Paulson sold the bailout bill as one thing, and has used secrecy, innuendo and lack of transparency to turn it into something else - knowing he was going to do just that in the first place.

Meanwhile, the Houston Chronicle [2] reports on the redactions that I and Bailoutsleuth.com [3] have been tracking:

"This isn't a typical banking agreement. This is a government contract. That means the bidding process should have been open, or to use Kashkari's term, transparent in all aspects. We should have known going in what [Bank of New York] and its rivals bidders were offering...In addition to the BONY deal, the Treasury Department last week hired two accounting firms: Ernst & Young to provide general accounting and PricewaterhouseCoopers for internal controls...Both firms, by the way, have potential conflicts in this deal, too. Both have worked for Lehman Bros., the bankrupt investment bank -- E&Y was its auditor -- as well as insurer AIG, the object of an earlier government bailout. Last year, E&Y paid $1.6 million to settle securities and exchange Commission charges related to its AIG work. In other words, everyone involved in this process deserves oversight and scrutiny. Yet the contracts are being handled as if no one involved in the process understands the rules have changed."

If you are an individual and you walk into the U.S. Treasury Department and hold it up, you'll be carted off to jail. If you are a bank and you walk into the U.S. Treasury Department and do the same thing, you get a smile, a redacted contract and a handshake from Hank Paulson.