This has been the subtext of a lot of things written about how the TARP and the Fed’s bailout maneuvers have been playing out. Federal aid was being distributed to many to disguise the condition of a few. Everyone gets money so we can’t guess who needs it most. AIG is shored up to help its ailing creditors – creditors who positions are not disclosed.
Well The Baseline Scenario is out there saying this, and doing it from a position of knowing something. Were I to know, instead of merely suspect – I would want to be saying something like this:
I think that TARP’s primary purpose is to protect the financial system against the collapse of any systemically critical financial institutions (I leave it to others to define what those are, but Bank of America definitely is one, GMAC I’m skeptical about), and it has suffered from three main problems:
The people this crap was sold to are expecting this money to prop up an ailing financial system - not save a few well connected financial firms.
- The initial round was too small, with banks only getting 3% of assets or $25 billion, whichever was smaller - which is why Citi and now B of A have had to come back.
- The terms were too generous; I can make an exception for the first round, but I don’t understand why Citigroup 2 and GMAC were so favorable to shareholders.
- Except for the very generous initial round, it’s just a pile of money to be used in ad hoc deals, not a comprehensive program with a coherent strategy, so no one is quite sure how or if it will be able to protect the financial system.
We come out the other end of this thing with bigger banks who are underwritten by the government, and I expect we'll just be queued up for the next time Wall Street decides to stick us with the bill.
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