Here’s what the Treasury Secretary has to say for himself this morning:
The actions taken by Treasury, the Federal Reserve and the FDIC in October have clearly helped stabilize our financial system. Before we acted, we were at a tipping point. Credit markets were largely frozen, denying financial institutions, businesses and consumers access to vital funding and credit. U.S. and European financial institutions were under extreme pressure, and investor confidence in our system was dangerously low. …
As I assess where we are today, I believe we have taken the necessary steps to prevent a broad systemic event.
It’s may also be true that actions by the Treasury and the Fed in September precipitated that almost broad systemic event. But still, Paulson is right. We’ve pulled back from the financial brink, which is why now we all have time to argue about loan modifications and AIG bailouts and GM bailouts and fiscal stimulus plans and the future profitability of Goldman Sachs and all that.
Oh, and here’s Paulson explaining why he changed his mind about TARP:
We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we believed that would be the most effective means of getting credit flowing again.
During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets – our initial focus – would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.
Update: He’s still talking. He must have been working on this speech for a while. He says Treasury has decided that, for now, buying illiquid assets “is not the most effective way to use TARP funds.” He also says “global imbalances”–not just regulatory failures–brought us to where we are.