Understanding Treasury's Shift in Focus for the $700 Billion Economic Rescue Package

The Treasury Department says it is going to focus on injecting taxpayer funds into financial institutions (which is called the Capital Purchase Program in the business pages) instead of buying and selling "troubled assets" (which means mortgages and other related securities).

Here's why you care: The Wall Street Journal's Deborah Solomon had the first write on this from what we could tell, and you should read her updates. You care because originally the economic rescue package (aka - TARP) was going to mean the government buying and selling stuff that the financial institutions had a hard time unloading. Today's statement in some ways is Treasury Secretary Paulson saying what most of K Street, Wall Street and Capitol Hill concluded that Treasury was thinking: Problems in the market place necessitated swift action. Swiftest of the swift is a cash injection (that's what the business pages mean by liquidity. Liquidity means cash.). So, as a taxpayer you want to understand the direction Treasury is taking because the $700 billion is quickly drying up.

So what's going to happen next? Treasury says it may expand the Capital Purchase Program (remember that's for those that can get the cash injection) to more than banks or bank holding companies (recall yesterday American Express qualified as a bank holding company, and today the Wall Street Journal's Robin Sidel reports that it would like $3.5 billion from the Capital Purchase Program). But, in expanding the applicant field it may say to the newcomers - you have to raise matching funds. In other words, you have to privately go raise the same amount of taxpayer dollars we inject into you.

Significant. Significant if you are a smaller firm wanting to play. Significant if you are a consumer needing a loan, or just wanting your 401(k) to stabilize.

And guess what? Deborah Solomon also has interesting reporting in her piece indicating Capitol Hill is asking questions about the original intent.

All you have to do is read her piece, one piece, and you'll understand what the financial world is focused on right now.