The Republican strategy on the TARP so far has been clever: first, make sure as few Republicans as possible voted for the bill (while still guaranteeing its passage), so that Congressmen in contested districts could make a show of opposing it -- a strategy which worked so well that it forced a second vote on the bill and put Nancy Pelosi and Harry Reid in the very public and unfortunate position of shilling for an ill-conceived plan out of Bush's treasury.
Now that blame for the largest expansion of government in American history can be shared with the party traditionally considered to be in favor of big government -- and facing an incredible temptation to use funds that have "already" been appropriated in order to bail out its core constituencies (like auto workers). An Obama Treasury will be put in the position of demanding the next $350bn, and will be showered with blame when it is misspent -- key Republicans, like Richard Shelby, are already setting themselves up to be stringent critics (and rightfully so) of the TARP, in a move that elides the origins of the program.
Meanwhile Paulson as much as admits there was never any possibility the TARP -- $700bn of leeway for Treasury to selectively capitalize American corporations, with no oversight -- would be used in the way he told Congress it would be. The emergency operation needed to inject liquidity into illiquid markets -- remember that Congressmen were threatened with the spectre of martial law to get them behind the bill -- is just the biggest slush fund in history:
A troubled-asset purchase program, to be effective, would require a huge commitment of money. In mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. But half of that sum, in a worse economy, simply isn’t enough firepower.Paulson's future is secure: every banker in the country owes him one. Is what he leaves behind enough money to address a critical economic situation, the right tools for the right job in the right hands? Or is it "simply not enough firepower"? Is it a huge cock-up for which no one will ever be held accountable? Or a poison pill for Obama's economic policy?
If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract. We decided it was prudent to reserve our TARP money, maintaining not only our flexibility, but also that of the next administration.