Paulson Says The Banking System Is ‘Stabilized,’ Then Citigroup Loses Half Its Value In Four Days

As the Wonk Room has documented, Treasury Secretary Henry Paulson has repeatedly called the the banking system “safe and sound,” only to see those statements followed by the collapse of the banking system. Now, Paulson has added one more instance to the list.

In an appearance on NPR last week, Paulson announced that, due to the effects of the $700 billion Troubled Assets Relief Program (TARP), the banking system “has been stabilized”:

I believe the banking system has been stabilized. No one is asking themselves anymore, is there some major institution that might fail and that we would not be able to do anything about it.

As the LA Times noted, “So, after Bear Stearns, IndyMac Bank, Fannie Mae, Freddie Mac, Lehman Bros., Washington Mutual and American International Group — no more major surprises. Write it down, folks.”


Paulson must be stunned, then, to see the news that the major bank Citigroup is not stable at all. As the New York Times reported, Citigroup’s “precipitous stock-market plunge accelerated on Thursday, sending shock waves through the financial world.” In the last four days, Citigroup has lost half of its value.

Throughout the implementation of the TARP program, Paulson has been content to throw money at the banking system, provide assurances that everything is going as planned, and refuse to use TARP funds for addressing anything outside of the financial sector. On NPR today, Sen. Chris Dodd (D-CT) called Paulson’s refusal to help homeowners facing foreclosure the “most frustrating” aspect of the bailout process:

Here was a condition we actually wrote in…to provide at least the option of providing a guarantee in the area of foreclosure mitigation. And I say this respectfully, but the Treasury’s refusal to move on this is maybe the most frustrating piece of all, Steve. And yet we’re still dragging our feet on whether or not the government ought to be more aggressive.

Just yesterday, Paulson said that Treasury has been “proactively addressing the problems we saw coming.” But he is not proactively addressing the housing crisis, instead choosing to offer false assurances that the bailout has effectively muted the country’s economic woes.