“Even if you don’t have the authorities—and frankly I didn’t have the authorities for anything—if you take charge people will follow.” So said Treasury Secretary Henry M. Paulson, Jr., former CEO of Goldman Sachs, to the Washington Post on November 19, 2008, just about two months after TARP (the Troubled Asset Relief Program) passed through Congress. The Treasury Department, for example, guaranteed one trillion dollars’ worth of money-market funds without legal authority. Secretary Paulson said he hated to bail out banks—it was against his philosophy—but he had to do it. Famously, the banks were considered Too Big to Fail. Paulson committed, according to Bloomberg, $13 trillion to bail out the banks and others.
TARP remains the most despised act in the history of Congress. The public resents the fact that slack government regulators allowed the bankers’ greed to create the crisis in the first place, then put in place a feeble recovery without establishing any plausible safeguards to protect them from the bankers’ bad behavior bringing on another collapse. The Too Big to Fail banks are bigger than they were before the bailouts.
Secretary Paulson’s lawlessness established the basic operating principle of the Fiscal Crisis, which continues today. Both the Bush and Obama administrations claim that...