Sunday, November 16, 2008

TARP and Reality

Think back. Think far, far back into the past. Think all the way back to the last week of September 2008. Historians tell us that at that time many Americans took leave of their senses. Despite all the evidence of their own eyes, ears, and noses, they became persuaded that the world as they had always known it stood on the verge of utter destruction. Hysterical "journalists" and "experts" on radio and television told them so. What else could they do? Because life without a flush 401(k) lay beyond their wildest imagination, they concluded that "something must be done."

That realization became the signal for hundreds of devoted public servants to leap into action to save civilization. Understanding full well that the people expected them to "do something," they looked around for something to do, and the first thing they noticed was a bill that the Treasury Department had put forward. They didn't like it at first, but after rather frantically redesigning it as a gigantic Christmas tree with all sorts of ornaments and lights they fancied would aid their reelection, they enacted the Emergency Economic Stabilization Act of 2008, known in some quarters as the Bailout of Abominations.

The core of this statute consists of the Troubled Asset Relief Program (TARP), in which the Secretary of the Treasury would expend as much as $700 billion in two installments to purchase rotten paper, such as mortgage-backed derivatives, from banks and other financial institutions. It was a bold stroke, to be sure. An unnecessary and foolish stroke, too, yet, withal, bold in the fashion of fearing nothing but fear itself, which was precisely the kind of boldness the crisis seemed to demand...

Some might to tempted to call the TARP an utter failure, given that it failed completely to carry out its stated objective, but brighter boys will see that this interpretation is all wrong. Look, Hank’s pals have the $290 billion that the Treasury has agreed to hand over to them; and before long, no doubt, Congress will authorize the Treasury to tap into the second bag of $350 billion for the purpose of promoting good will toward men, especially men (and women) whose votes for Democrats need to be rewarded in the Brave New Obama era. The United Automobile Workers union appears to be a leading candidate for such a reward (indirectly, in its case)―besides, if GM, Ford, and Chrysler went belly-up, life on earth would screech to an untimely end, long before global warming had killed off the whales and the cockroaches. But many others besides the Detroit Bad Boys and their not-always-hardworking employees will be straining at the bit for a sweet chunk of the loot.

Notwithstanding the many developments on the bailout front during the past six weeks, the New York Times, like other media outlets, continues to quote Wall Street insiders who report, as Alex Roever of JPMorgan Chase did recently: "You have a market that is frozen." What planet do these guys live on? It certainly is not the same one to which the Federal Reserve's data apply. I’ve been singing this song for many weeks, but I’m going to keep singing it until somebody in the news media wakes up and realizes that these "frozen credit market" tales are pure hooey. Look at the data, for crissake. By now we should all be ready to move beyond hysteria, get a grip on reality, and begin thinking about how to repeal everything the government has done during the past six weeks.

read the entire essay


My thoughts: An excellent analysis from one of the greatest economic historians writing today. The American people were completely lied to on a subject they really can't comprehend. The data did not back up the official story, so the the media bombarded us will anecdotal evidence. The American people still opposed the bill. It was passed anyway. The Dow has dropped about 20% since the passage and Washington seems shocked that its plan failed. Actually they will never admit failure, but continue with new "solutions".

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