Troubled Asset Relief Program Update

This article is interesting as an update and overview of the Troubled Asset Relief Program (TARP) initiated during the Bush administration. It will be interesting to see the effects of the money the Government has been injecting into the economic arena. Most likely the dust won’t settle for at least a few more years, and perhaps then we will have a more concrete idea of how effective these huge sums of money were in stabilizing the economy. Of course the trouble is we will never know what would have happened if the government had not intervened. The course of the Economic playing field in the United States and the world for that matter has been forever altered.


1 comment:

Dave said...

-1 on Delta for a combination or poor capitalization, and a poorly formatted link.

I think public confusion about TARP starts with illiquidity versus insolvency.

For decades, macroeconomists have been preaching that illiquidity problems can arise in the financial system, and the way to solve them is by flooding the market with liquidity.

The problem that macroeconomists did not anticipate is that illiquid firms might be mixed up with insolvent ones. TARP amounted to a gamble that there were a bunch of illiquid ones that could be helped, but that some of the money would go down the drain in insolvent firms.

What appears to be the case now is that the private financial system was in better shape than we thought: insolvent firms got merged into solvent ones, who in turn had been helped by an infusion of liquidity when they needed it.

But, the quasi-public financial system of Fannie Mae, Freddie Mac and so on appears to have been - and still be - insolvent. Unfortunately, the political will doesn't seem to be there to draw a line and say that it is now clear who we shouldn't have helped in the first place, and who we should drop like a hot potato now.