Congress is asking Treasury why it changed the TARP program from one of toxic asset acquisition to one of capital injection into banks and financial companies.

First and foremost among the answers we believe to be true is the fact that the original toxic asset purchasing plan had some fundamental flaws, not the least of which was the excessive amount of time it would take to implement.

Secondarily, we believe Treasury miscalculated the expectations and actions of financial markets around the world, and misread the global reaction to the collapse of Lehman Bros. That collapse triggered an unprecedented liquidity crisis, which was fundamentally underway anyway, but became heightened with the collapse of that historic firm.

Third, we believe the British, hearing of our outline through sources at the London School of Economics and our contacts at the Chancellor of the Exchequer's office determined that the only way to resolve their crisis in liquidity and the LIBOR rate (set by bankers in London), is to pour capital into the system, forcing banks to lend again.

Once the Italians decided to jump on board, again via our contacts in Rome, it put the European Central Bank and finance ministers across Europe in the position of joining the concept. This placed exceptional pressure on Secretary Paulson, whose reaction to the plan was not one of "irrational exhuberance". He acquiesced to the European activity realizing that the markets were never going to wait for months for a solution.

A British civil servant in HM Treasury who spoke to us at the time, referred to the original TARP program as "CGSM", initially defined as "Consignment of Geriatric Shoe Makers" or, "a load of old cobblers". We would simplify it as "bull". They knew, as we at the Institute did, that the original program would not work.

Eventually, it became clear that buying toxic assets was really not the way to resolve liquidity, and the plan written by this Institute (see Invest In America) would be the most effective in the short term, in bringing liquidity back to the system, and lowering the LIBOR rates.

Unfortunately, Treasury rushed into action without consideration in many ways. Though they put some strings on the acceptance of the funds, they did not put any on the use of funds, violating the intent of the capital injection. Banks began to use the money for acquisition of other banks, rather than lending. Why?

Because with the media coverage so strong on the liquidity crisis, applications for most loans has dried up considerably. None of the major commercial banks that accepted $125 Billion put out one single advertisement saying or even suggesting they were lending again.

The TARP program was not mismanaged by Treasury, but it was poorly planned. It could have been executed much better by following the outline specified in this website, before the legislation was passed by the House.

Congress gave Treasury considerable latitude in the use of the funds, however, it failed to ensure proper oversight and management, even though its intent was clearly to include protections. That intent was based on toxic asset acquisition, but before oversight could be established, it became necessary for Mr. Paulson to act, under pressures from the markets and world financial leaders, in a timely and expeditious manner.

The opportunity exists now for Congress to properly monitor the second tranche of funds. We believe this should include at least a $50 Billion business investment program.

There would be little better for this nation than for government to become an incubator of new business and venture capitalist for small to mid-sized enterprises. As we outlined in the Invest In America program, businesses coming up with a business plan for evaluation and 40% of required capital on their own, could get 60% of their needs from a capital investment by government.

Recipients would have to answer to government about execution of their business model, but over a 10 year period, those shares could be bought back, with government taking a profit of about 14% (we estimate).

Some would say this is socialism, but we disagree. It is merely government sponsored capitalism. But if it is implemented, we hope government officials would consider giving us a call so we can advise how to implement this in the most effective ways.

As for Treasury misusing the TARP funds as suggested in a House Oversight Committee hearing recently, we believe this to be untrue. Congress must resist the natural temptation to blame people as such activities only provide fuel to an already hypersensitized volatile market.