Two months ago, to hear advocates of the Emergency Economic Stabilization Act tell it, the financial system was in impending danger of complete meltdown unless the US government stepped in to strip away toxic debt from lenders’ balance sheet, among other measures. Yesterday, Treasury Secretary Henry Paulson all but declared that this thinking had been a mistake. Purchasing illiquid mortgage-related assets, it was decided, he said, “is not the most effective way to use TARP [Troubled Asset Relief Program] funds.”

To be sure, there were many critics of TARP within the CRE industry; the criticism focused on the mechanics of how the assets would be valued and purchased as well as concerns that the funds waiting on the sidelines to pick up distressed paper and assets would be priced out of the market by taxpayer funds.

Still, though, to have the program snatched away suddenly is a blow — – both in the expectations that funding would improve as a result of the buy-back program, as well as a vague confidence that Treasury really knew what it was doing.

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