The Bailout: The Feds Pull the Wool Over Our Eyes

The Treasury just made a stunning announcement that appears to have been met with a yawn.

Treasury Secretary Henry Paulson said Wednesday that original plan to purchase distressed mortgage assets from Wall Street firms is not the best use of the $700 billion financial rescue package, and officials will now focus on direct capital injections into the struggling financial firms.This comes after Paulson said buying troubled assets -- the plan originally advertised to the public -- would take too much time in a financial crisis that continues to test the patience of investors, government and the public.

In his statement, Paulson said that nonbank financial institutions, including companies that deal with credit cards, auto loans and student loans, may be eligible for direct capital injections. Companies such as American Express (AXP: 20.70, -1.70, -7.58%), which is one of the country's largest credit card companies, is reportedly seeking $3.5 billion in fresh capital from the government, according to The Wall Street Journal.

“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,” Paulson said.

Wait a minute. I thought the problem was that these institutions were all holding far too much toxic paper. I thought that if the Treasury bought this paper we could eventually sell it and maybe even at a profit. Instead, the Treasury will just give all of these folks money. This is not a loan or an investment. They are simply giving a bunch of financial institutions money. Furthermore, he has by fiat expanded the universe of companies eligible for the bailout. About a month ago, I pointed out that Hank Paulsen is now the most powerful person in the world. Talk about power, he has now decided to spend about $700 billion not as it was intended, but as he intends.

The taxpayers have been swindled. First, we were forced into this bailout at the end of the proverbial financial gun. Now, the bailout has been reorganized in a manner that we weren't told about by one person. Apparently, there is nothing anyone can do about this.