Lately we’ve been hearing so many contradictory statements from Treasury Secretary Henry Paulson in such a short period of time that I’m beginning to wonder if we have two look-alikes running around Washington testifying on Capitol Hill and giving impromptu news conferences where they say exactly the opposite.

Paulson’s most notorious about-face to date has been about the purpose of the $700 billion Troubled Asset Relief Program. When he came to Congress in September and literally begged House Speaker Nancy Pelosi for the money, he said it would be used to buy up illiquid assets such as mortgage-backed securities so they wouldn’t clog up the balance sheets of banks, which had effectively frozen their lending and deep-frozen the credit markets.

That didn’t work so well, as Paulson seems to have anticipated, because lickety-split, as soon as the legislation passed a few weeks later, he had already decided that he didn’t like the original plan much after all and he would just give the money to the banks and let them decide how to spend it.

A few weeks after that, he admitted that he had indeed changed the plan for TARP and he got a tongue-lashing at an appearance before a House oversight committee, excoriating him for not only backing away from the original plan to buy up mortgage-backed securities, but resisting plans by FDIC chair Sheila Bair to implement a proven way to help distressed homeowners facing foreclosure that had already shown signs of success at IndyMac Bank.

But Paulson insisted just last week at those hearings that massive capital injections into banks were a far more effective way to rescue the financial system than trying to buy up the mortgage-backed securities. And he promised to keep searching for ways to help homeowners without committing to Bair’s plan.

He also said that he would reserve the balance of the TARP funds to give the Obama administration the flexibility to use the money as it saw fit, but that he thought a chunk of it should go toward helping the consumer finance sector. He was adamant about not using any of the money for the automobile industry, even if it meant millions of jobs could disappear. And he reassured Congress that he had succeeded in stabilizing the financial system and that no major financial institution was in danger of collapse.

That was last week.

Over the weekend, Paulson dipped further into the dwindling TARP funds for an emergency bailout of Citigroup to the tune of $20 billion, not to mention another $249 billion in guarantees on loans that already appear to be risky.

On Tuesday, Paulson was again back before the cameras touting his plan to devote another $20 billion to helping the consumer finance sector, including automobile loans, despite his avowed resistance to using TARP for the auto industry. The $20 billion, however, will be backing a much larger $200 billion lending facility from the Fed. Paulson referred to the $200 billion as just “a starting point.”

So much for reserving the rest of the TARP funds for the Obama administration to use. Some have speculated that Paulson took the appointment of his colleague Timothy Geithner, president of the New York Federal Reserve, as the next Treasury Secretary, as a tacit endorsement of his approach. Geithner has been working with Paulson on the TARP program, but seeing that as license to once again have free rein over funds that haven’t been released by Congress would appear to be a dubious assumption.

And what about those mortgage-backed securities?

After first saying that the Treasury would buy them, then that it would not, Paulson again was back to talking up plans to buy them, at least the securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. The plan there is to buy up as much as $600 billion worth of the bad debts.

All of this far exceeds the original $700 billion cost of the bailout. It appears that Paulson has for now abandoned any pretense of trying to curb the demand for more borrowed capital. The next time he appears before the cameras, don’t be surprised if he says, “And now for something completely different.”


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