Francis very clearly explains the distinction between the TARP I stablilization/investment fund versus ordinary “all sales final” spending.

Think about if you had $500 and you blew it on dinner, movies, and presents for some girl you’re trying to impress. That’s one kind of spending. The other way you could spend it is to buy stock in a business corporation.

Whatever you expect to get out of blowing your money on fun and games, you certainly don’t expect to get your money back. When you invest in stock, you DO expect to get your money back.

…(so) keep in mind how the TARP funds are being used. They’re not being used to fund spending, consumption or pork-barrel projects. Those monies have been added to the balance sheets of financial institutions. They represent senior claims on the assets of the institutions. Yes, there is the potential for losses on these capital positions, but it’s not the same as ordinary spending.

That’s the fundamental difference between the disposition of the TARP I funds, which Obama professes to be so disappointed in, and ordinary spending. The worst-case estimates I’ve seen suggest that total taxpayer exposure created by the TARP I will probably amount to $50 billion, maybe $100 billion. It’s just as likely that the liability will be zero or negative, suggesting a positive return on the taxpayer investment.

Francis also explains the urgency and the need for TARP I. As Bush got no credit for the complete lack of terrorist attacks on US soil since 9/11, Paulson is not getting any credit for avoiding a world-wide shut down.

The TARP was a break-glass-in-case-of-fire program, originally conceived as a last-ditch response to an extreme emergency. That emergency materialized in mid-September as the institutional money markets crumbled in the wake of the Lehman Brothers bankruptcy.

On balance, I was in favor of the original TARP plan, even though it created tremendous moral hazard by permitting certain companies to stay in business after making terrible mistakes. The true goal was to keep the global banking system from collapsing, as one trillion dollars in losses nearly wiped out the industry’s entire capital.

If we had allowed that to happen, we might today be looking out at a world in which quite a few of the largest banks in the world were out of business and simply gone. Barack Obama’s stimulus plan would have been a nonstarter because there wouldn’t have been anyone to even give the stimulus money to. Things really were potentially that bad.

It’s true that the implementation of the TARP plan was improvised. But for all Obama’s cheap criticism, there’s no way he could have done any better. In the end, the plan of forcing large banks to give issues of preferred stock to the Treasury in return for TARP cash was a fairly reasonable way to assure market participants that these banks would not fail.

And then Francis addresses the component of TARP I where Bush/Paulson/Bernanke so miserably failed, despite the successes of their policies. Communication: Why do the American people blame this all on Republicans? Why is it SO misinterpreted? (And tangentially, why did McCain fail so miserably in his feeble and reluctant attempts to explain Democratic culpability in their blockage of attempts to reign in Fannie and Freddie?) Just as Bush gets no credit for the complete lack of terrorist attacks on US soil since 9/11, Paulson is not getting any credit for avoiding a world-wide shut down.

TARP proponents Hank Paulson and Ben Bernanke initially proposed TARP to Congress in closed sessions that scared Hell out of everyone who heard them. Since time was of the essence, no thought whatsoever was given to explaining the program to the public, much less selling it.

This was a PR failure of gargantuan proportions, right up there with the worst ever. Almost instantly, the people were told by the news media that Wall Street was looking for a $700 billion handout from taxpayers to ensure that the best-paid people on earth would get their multi-million dollar bonuses this year, even though they were losing money. And that, for some unexplained reason, the world would end if we didn’t give them what they wanted.

To this day, many people think that’s what the TARP plan is all about.

and then warns of Obama/Frank/Dodd et. al. truly diverting funds to non-financial intermediation targets in much larger chunks than the $15 billion that was so wrongly diverted to the auto industry. Let the criticism fly, but keep in mind that under Bush the misguided total was “only” $15 Billion. You ain’t seen nothing yet.

But that’s not how Obama understands the TARP. Remember, this man is all about fiscal stimulus. He wants to spend as much borrowed money as he possibly can, as fast as he can, to buy whatever he can think of, because he’s become convinced that somehow that’s a good idea.

Obama is trying to blow as much as a trillion dollars on dinner, movies, and presents for favored governors and other politicians. He’s disappointed because Paulson chose to use the TARP narrowly and efficiently, for financial stabilization.

What Obama is trying to do is to add the remaining $350 billion in TARP funds to his New New Deal program. He doesn’t want to invest it. He wants to spend it.