In an interview for the March/April 2010 issue of the Dartmouth Alumni Magazine, Jake Tapper of ABC News asks Hank Paulson about his role as Treasury Secretary during the financial meltdown.  Here is one question that caught my attention (page 37):

Should there not be any organizations that are too big to fail?

Well they are as big as they are, so the key question is how do you regulate them and how do you have the proper authorities and tools in place so you can let them fail without taking down the rest of the system? This is something that Ben and I had talked with Congress about before Lehman went down. We saw we needed these powers. There’s no way we could get them, and the president and current Treasury secretary still haven’t gotten them. But I believe that with the right tools no institution needs to be too big to fail. You just need the power to unwind them outside of bankruptcy.

Maybe the best four-minute explanation of how screwed up our policies toward financially distressed firms have been.  What does it say about us that The Daily Show is the best TV news program? That we are lucky to have The Daily Show.

Watch it here.

Bruce and Pete have already noted that Treasury Secretary Geithner is going to request an extension of the time during which he can treat the TARP as his walking-around money.  Washington appears to hate nothing so much as a surplus.  The right thing to do is to defund TARP, given that its stated purpose has expired, and then do appropriations through conventional processes.  Anything that makes it easier for Congress to appropriate funds without having to confront their cost in a straightforward way is well on its way to being a bad idea.   For a very good discussion, see these two posts by Donald Marron.

The Office of the Inspector General of the TARP released a tough report yesterday illuminating and criticizing the way the flawed design of the AIG bailout led to large transfers from taxpayers to AIG's counterparties.  You can read a good article by Mary Williams Walsh at The New York Times and another report from The Washington Post. 

I would take issue with one statement in the report and the associated discussion.  From the NYT article:

The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.

Last week, the Wall Street Journal reported that "[m]ajor U.S. banks and securities firms are on pace to pay their employees about $140 billion this year."  Referring to their appearances on yesterday's talk shows, the Washington Post headline today is that "Top aides to Obama upbraid Wall St." for bonuses after bailout.  Look folks, you reap what you sow.  If you don't like your current predicament, consider the alternative paths that we -- you, me, the Bush administration, everybody -- could have taken to our present position.

The GAO reported this week on the "Status of Government Assistance Provided to AIG."  (You can get the highlights here and a summary here.)  I have one simple and intentionally naive question: if AIG will not be able to repay its commitments to the federal government, why does the federal government not own 100%, as opposed to 80%, of the company?  Mary Williams Walsh is on the case in The New York Times:

Your must-read column for today is by David Corn at PoliticsDaily.com, "An Economic Time-Bomb Being Mishandled by the Obama Administration?"  For the hard-to-value assets that the TARP and bailouts were supposed to address, out of sight does not mean out of mind.  The key excerpt:

If you are going to regulate an industry, by all means, empower the regulators to intervene when sensible policies are violated.  Mary Williams Walsh -- in my opinion one of the very best reporters working today -- has the story in yesterday's New York Times (emphasis added):

In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound — that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives.

But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.

Binyamin Appelbaum's article in today's Washington Post, "Bailout Overseer Says Banks Misused TARP Funds," could have been drafted last October when the legislation was passed and held for publication until the IG's report came out.  The examples of "misuse" cited are as follows:

Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program.

The report, which will be published Monday, surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts and that 15 had used funds to buy other banks.

Felix Salmon has been a one-man lifeline for an idea called "Own to Rent" originally proposed by Dean Baker and which I happily co-signed in an op-ed in August 2007.  In a nutshell, the idea is to allow homeowners who would otherwise be foreclosed to stay in their homes as renters paying a fair market value.  The mortgage holder would own the property, but the value of the individual property probably would be lower due to the option granted to the former owner.  In this post, I consider how my thinking about the issue and the relevant context has changed in the past two years.