Hank's Mulligan

In golf, you'd call what Henry Paulson did a mulligan. Paulson calls it "adjusting our strategy."

The Treasury secretary now says the government won't use that $700 billion pot of money quite the way he originally intended. Back in September, Paulson and Federal Reserve Chairman Ben Bernanke sold a reluctant Congress on the idea of creating the giant fund to buy troubled securities from financial institutions. These investments were of such concern, they argued, that it was better to let the government have them than to allow them to clog up the nation's credit arteries.

But before you could yell "fore!" it became evident that Treasury couldn't figure out how to price these assets without either bankrupting banks or shafting taxpayers. Once European governments began to inject capital directly into their banks, the game was over. Treasury had to do the same.

Since then, Treasury has committed $290 billion of the first installment of $350 billion to buy stock in individual banks and to help troubled insurer AIG. Not a bad thing necessarily.

But Congress was sold one idea and given another. Paulson now says none of the taxpayer money will be used to buy toxic assets.

In explaining this switcheroo during congressional testimony this week, Paulson noted "there is no playbook for responding to turmoil we have never faced."

It's good to be nimble, but Paulson's quick two-step, combined with a president who seems as clueless as ever, doesn't breed confidence. The credit markets are in better shape, but credit flows remain sluggish, and the markets are hurting.

Plummeting housing prices and rising defaults are the root of this crisis, so why not invest some of the federal bailout money in ordinary Americans? Foreclosures rose 41 percent in September compared with a year earlier in Milwaukee County alone, and housing starts are way off all over the country.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., fears that 5 million more homes may face foreclosure in the next two years. She recommends that $24 billion of the bailout money be used to modify mortgages and ease terms for some of these homeowners. Treasury should embrace this sensible idea.

Time for another mulligan, Mr. Paulson?

REPRINTED FROM THE MILWAUKEE JOURNAL SENTINEL.

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