Treasury Secretary Henry Paulson
Grade: C
The Plan: In late September, Treasury Secretary Henry Paulson asked Congress for $700 billion to save the nation's financial system. It took two votes, but the money was approved on Oct. 3. The original plan was to buy up troubled mortgage bonds that banks couldn't sell — the very bonds that were dragging down their asset values and putting the banks in jeopardy of failing. But that garage-sale approach was quickly abandoned. Instead, much of the money has been invested directly into the banks. The Treasury has already spent or earmarked just more than $350 billion for this, i.e., half of what Congress allotted them.
The Result: The good news is that there hasn't been a single major bank failure since TARP was launched. But the sudden changes in the plan have added volatility to the nation's financial markets and hurt the Treasury Secretary's credibility.
Mortgage bonds originally rallied on the approval of the funds but have since fallen below where they were when TARP was announced. Prices of corporate bonds have dropped too. What's more, even after spending $350 billion, the government has done nothing to stall the rise of residential foreclosures, which is what put the financial crisis in motion. "If you had hundreds of billions of dollars and could go back in time, I don't think we would spend it the way we did," says economist Vincent Reinhart. "The lack of consistency creates a problem for investors."