WASHINGTON — Recent attempts, and apparent misses, by the Treasury Department to resolve pressing financial problems could be chalked up to the fact that there are no easy answers.
But that is little consolation to a department whose reputation has suffered under the Bush administration.
Its first secretary, Paul O'Neill, was seen as distracted by peripheral issues like workplace safety, and his successor, John Snow, was criticized by some for serving mainly as a White House mouthpiece.
When Henry Paulson arrived in July of last year, hopes soared that he could match the leadership of Robert Rubin, who led the department during the Clinton administration. But now that many have received a taste of Mr. Paulson's more dynamic approach, the reviews are no better and may be even worse.
With few exceptions, the Treasury's much-previewed loan modification plan was met with widespread disdain last week. Critics on the left said it was too little, too late, while those on the right said it was an unnecessary, potentially dangerous intrusion into the housing market. No one said the plan was just right.
Other major announcements from the Treasury have been greeted with similar scorn. A plan to help organize a bank-funded conduit that would back up the asset-backed commercial paper market has been derided for its almost total lack of detail.
The loan modification agreement "is another plan like the … [master liquidity enhancement conduit] plan," said Joseph Mason, an associate professor of finance at Drexel University's LeBow College of Business and a former Office of Comptroller of the Currency economist. "They are trying to mask over the difficulty to officiate and deny the losses. Everyone wants to appear as if they're doing something, and the fact of the matter is there is not a lot to be done. … It's a way to look busy, to look like we are trying to do something, but it's not helping."
Peter Wallison, a Treasury general counsel in the Reagan administration and now a resident fellow at the American Enterprise Institute, said he saw a similar public relations pattern in the announcements of the "super SIV" to purchase structured investment vehicles and the loan modification plan. Both leaked early to the press and were debated initially with few details. Their details are still unclear, he noted.
"I have not been able to determine how this will exactly work," he said, referring to the loan modification plan. "Now I don't know whose problem that is. It does seem to me that this is a very opaque situation. There is just not a lot of useful data about how this is going to work. To me, this is puzzling."
Both subjects were hot topics last week. As President Bush announced the modification plan, The Wall Street Journal reported that the SIV fund likely would be half of the $100 billion originally envisioned, apparently because some SIVs did not want to participate.
The loan modification agreement, meanwhile, came together in a relative rush. Sources said that discussions on it did not begin until after Thanksgiving, and that the first meeting on it was not until Nov. 29. Details of the plan were still being worked out until moments before the announcement Thursday afternoon.
Indeed, federal regulators appeared to have been kept in the dark about many of the plan's details. That proved awkward at a House Financial Services Committee hearing on loan modifications Thursday morning. Chairman Barney Frank challenged bank regulators on the plan, who acknowledged it was still in flux.
A Treasury spokeswoman did not return calls seeking comment.
The plan ultimately appeared much narrower than originally anticipated, driven mainly by negotiations with the American Securitization Forum, sources said. The group, which represent a wide swath of securitizers, set out to narrow the plan from a call for five-year modifications on all subprime hybrid adjustable-rate mortgages.
Ultimately, they agreed to support modifications on a fraction within that set, including borrowers with less than 3% equity in their homes and FICO scores above 660. With those restrictions, it was unclear, even to administration officials, how many people the plan would help.
Officials said it could apply to roughly a third of the 1.8 million subprime hybrid mortgages whose rates are due to reset by 2010, but other estimates were much lower.
Senate Democrats and consumer groups said the plan had become too targeted, but some analysts said the Bush administration was limited in what it could do.
"Absent all the policy issues related to bailout and moral hazard, there were the simple constitutional and statutory realities involved in structuring any agreement of this sort," said Karen Shaw Petrou, managing director for Federal Financial Analytics Inc.
A bank lobbyist, who spoke on the condition of anonymity, agreed and argued that a broader plan would have run into legal difficulties and could have constituted a bailout.
"The larger question is this: What can the government do, short of starting to go out and buy people out of their loans? What can they really do?" he said. "Everything they can do, short of interfering in the market, and if they did that, the question becomes, 'OK, when else should they interfere in the market?' They are already being accused of it now with this sort of light touch."
An industry source familiar with the negotiations said the press leaks before the plan's announcement made the plan seem grander than what the Treasury ultimately was ready to accept. "This stuff got to the press sooner than anyone wanted to," he said. "Expectations were created, and they were trying to meet those expectations. … It was a herculean task."
Even the day after the announcement, when the plan was being met with large criticism, Mr. Paulson tried to defend it. Industry sources said more time would have helped assuage concerns. "There are a lot of misperceptions that arguably could have been handled if some additional traps had been run in advance, and so now we are having to backtrack and educate and clarify," one source said.
Though Mr. Paulson emphasized that the plan was not a government bailout, and that the SIV plan was not government-run, some said the Treasury's involvement in both sends a strange message.
"That's the issue with these Paulson plans now — is this is some private-public partnership?" Prof. Mason said. "Because I don't understand what these are. … It's really very unclear what the administration purpose is here."
Bert Ely, a banking consultant, agreed. The loan modification plan "was a disjointed, fragmented presentation and not totally clear who was doing what," he said. "I don't think the thing was presented very well."
