Will Paulson Cover His Buick With A TARP This Winter?.......

................only if Barney Frank tells him he can.

So we heard from Secretary Paulson this week that Treasury was changing course and that the 700 billion fronted them by the Congress would no longer be used to purchase mortgage backed securities, but would instead be used to make direct investments in companies. In a related, but little reported story, the Secretary also announced that the day that comes after Monday would henceforth be referred to as 'Tuesday' and the period of time when the sun doesn't shine will be called 'night'.

Describe it as a fait accompli, de facto, or in any of the other Romance languages, it remains the case that what the Secretary announced was simply a recognition of what has already taken place.

Think back the long six weeks to when the bailout was passed by Congress. The initial plan was that Treasury would buy the now worthless mortgage backed securities from the institutions that hold them in an attempt to restore stability to the financial system. So far, none of these assets have been purchased. Instead, the substantial action to date has been direct investment in some of the nation's banks.

In fairness, the announcement wasn't entirely old hat. In describing the new course of action the Secretary indicated that investments would be made in both banks and non-banks. I'm no taxonomist, but couldn't that conceivably be everything? I mean something, anything, is either a bank or it isn't, isn't it?

Regardless, it is clear that over the last few days the calls from the Democrats have been to include General Motors in that non-bank category and that it was time for Paulson to send a check to a Detroit zip code. Now it seems it won't be that easy.

Early indications were that the Democratic leadership believed that the legislation already passed gave Treasury the authority to extend bailout cash to GM. Now we are told that the House Financial Services Committee (Chairman - Barney Frank D-Mass.) will hold hearings next week on this topic. I have seen it reported that a refusal from Secretary Paulson to bailout GM is what has forced the hearings, but I find that hard to believe. It is possible that there are members of Congress, including some Democrats, who feel they voted for a bailout of the financial sector and that now sending this money to US automakers is akin to a billion dollar bait and switch.

So now Frank will have his hearings. If they result in legislation that comes before Congress and the President we will see where the line is being drawn (at least at that particular moment). Are we at the point where AIG is still salvageable and worth saving, but GM is just too far gone to help or not worthy of help for reasons ideological or otherwise?

With the Secretaries announcement though, one thing is certain: The bailout is dead. Long live the bailout.

P.S. The fact that there is confusion about whether or not the original bailout legislation allows for direct monetary aid to US automakers raises a whole host of troubling questions about how we pass laws in this country. Chief among them, do the people that make our laws actually know what is in them? And secondly, and possibly more frighteningly, if they don't, then who does?

P.P.S. If brevity is the soul of wit, I am afraid these posts are getting increasingly soulless, or worse, witless.