Let us assume you have some idea what you're talking about. In that case, you know damn well TARP was/is a complete red herring. Regardless of TARP, the banks were going to make a killing once the FED started radically inflating the money supply by swapping toxic MBS and purchasing Treasuries & agency debt.
There have been no end to the number of snarky analyses of how easy it is for the TBTF to make $billions by borrowing at the -0- (taxpayer subsidized) discount rate and buy Treasuries ranging from 2-4%. Even better, of course, is that without Glass-Steagall and the aid of 20-50x leverage (yeah, Basel II met via AIG CDSs - yet another taxpayer subsidy), the prop desk sides are busy gambling via high-frequency trading computers all the free money the FED (actually, taxpayers) is providing them to gun equity markets to 80-100 P/E ratios.
Banks are now sound? Suspend mark-to-market much? A little 2 pt rise in GSE paper would send MBS values back down another $trillion or so. Can you say inadequate "reserves"? Oh, and what about the $3-4T the US gov't has to roll over/issue in 2010? Anything less than 0-2% rates will send the deficit past $2T. Think the FED can stop buying @ this point? Of course not, which is why the $USD is taking a temporary breather before another bout of QE takes the DX below 70.
Your posts are so invidious I might have to start browsing around FR a little more just to patrol the inanities you continue to spew on a daily basis.
When you criticize the government and American business for everything George Bush did, and Ronald Reagan did, and everything that brought us our present prosperity (yes I said prosperity, America is prosperous), then no you aren't going to win my support.
You are also reacting to the force on an independent mind that analyses events on their own, that takes the actual facts of any given matter as vastly more important than Orwellian ideological spin and cartoons. Nobody tells me what I think.
Now to your more particular allegations and misinformation campaign. You claim that I "never hesitate to applaud government intervention". You are in error. You haven't been paying attention.
Yes I supported TARP for the banks as necessary and expedient. I actually suggested an even larger and more aggressive version of it as early as late September last year (for the Fed to buy $1 trillion in corporates outright), but what was done was sufficient.
But I also opposed the stimulus in January as too late to matter, unnecessary, and filled with undirected pork. I opposed the auto bailouts as a giveaway to the UAW. I opposed the mortgage modification stuff as hopeless. For this mix, I was ridiculed on FR, because everything a populist congressmen wants because he thinks it helps some deserving little guy, I opposed. Everything that helped some rich banker, I supported. This is garlic and holy water to the populist bloodsuckers.
My reason wasn't class anything, it was economics and finance. I knew and I know, simply, that the banks would pay it back, and none of the others would. Lending to major banks in a panic is a good trade, as a mere financial matter. Any capitalist could do it, but in the panic they weren't. There is no reason for the Fed or treasury to ignore the good trade.
I also knew it was what the crisis actually needed. I know enough financial history (from the likes of Charles Kindleberger) to know what actually works in a crisis, and to know that the libertarian "burn 'em all down" puritanical nonsense is unworkable crap from start to finish, and always has been. I know that what American (and earlier, British e.g.) capitalism has in fact always actually done, has included lender of last resort support for the financial system in time of crisis.
I told everyone at the time that letting Lehman fail messy was a huge mistake. The puritans got their preferred policy and it blew up within one week. All the libertarian demands in the matter are ideological drivel, and no practical person with real responsibilities can take them seriously.
And no, the TARP is not a "red herring". Support for the banking system has been opposed by populist cretins as supposedly harming the people financially to benefit rich bankers, supposedly purely due to inside corrupt dealings. They present a morality play of the rich stealing from the poor through the government as its instrument. This entire picture is a class war motivated lie, start to finish. And it is entirely material to explode it.
The actual financial and economic interests of the people and of the banks are *aligned*, not opposed. Zero sum thinking spreads conflict and is the class warfare hater's stock in trade, but it is economic nonsense. TARP benefits the banks enourmously, but it *cost the taxpayers nothing*. At most, it was "paid for" by *running a risk*, not by taking a loss. This is utterly normal in finance - correct predictions are *profitable*. And predicting that the banks would survive and prosper was the *right* prediction, and one that could actually be brought about by betting on it heavily enough. To the benefit of *everyone*.
It is very important that populist illiterates on the right learn this, though I am not holding my breath. Their adversarial and thus zero sum view of the world goes all the way to the spiritual depths, and they are not likely to every see their own good in the prosperity of other human beings, especially others richer than (and frankly, intellectually and morally superior to) themselves.
Yes, the banks were "going to make a killing" on all forms of government support combined. That was the whole idea. They were losing money to deadbeats on main street, hand over fist, to an extent sufficient to imperil the whole economy. Stopping their losses was necessary, achievable, and achieved. By the end of 2008 it was actually already achieved, though it took another quarter for any of it to show up in their earnings reports and thus become widely accepted by the market.
And it is not a red herring to discuss TARP and Fed repayments now, because the last point, that it did succeed and reverse the banks' previous losses, continues to be disputed by the populist know-nothing crowd. Not knowing the processes involved or any accounting, they can be deceived by the mere Orwellian word-warmth and rhetorical-fuzziness or lack their of in wire report news stories or worse, doom mongering financial pundit spin. They do not understand that lowering bank funding costs from 4-5% to 0-2% will automatically make them profitable. They don't understand that it is all about spreads and that spreads are all about credit, nor do they get that credit is a decidedly non-zero sum system where all can do better or all can do worse, depending on both confidence and behavior (especially behavior).
And yes, the banks are sound. Your own post is incoherent, you speak of all the ways government action has made it easy for banks to make money and then pretend that they aren't. Of course, they are.
Mark to market was a stupidly destabilizing rule that mattered in the panic itself, but not it is not the cause of the turn and the turn itself has made it largely irrelevant. They aren't hiding losses by not marking to market for the simply reason that the markets aren't going down - they are going up. All of them, since March. Even the worst tranches of the worst subprimes from the worst times, have gone from 30 cents on the dollar to 45, in that period.
The bond market rally has made all of the financial institutions sound again because they are all giant leveraged bond funds, and owning a giant leveraged bond fund may be dangerous in a bond market crash but it is quite healthy in bond bull market. Much of the decline was higher spreads on unjustified panic in the first place, and it has all be reversed. Credit spreads are back to normal.
No, the banks are not leveraged 50 to 1. They are now leveraged about 8 to 10 to 1 with the leverage level falling continually. That is what happens when you start levered that high and your liabilities sit there while your assets jump 40%.
The Fed has already stopped adding to its sheet for over a year. It stopped last October - 2008 - after the crash itself, and all the buying this year has been maintaining money supply by deploying repaid crisis loans to the banks (and abroad to foreign central banks) into treasuries (only back to its previous position size before all of it) and mortgages. It can stop the mortgage buying in March on schedule.
All the doom mongering pundits said "what will happen when the Fed withdraws its support"? and predicted more doom. As of April 23rd, 2008, its support levels to the banks were still at their maximum. Since then, the banks have repaid $600 billion (and foreign swap lines bring that to $750 billion), and guess what? The market took off like a rocket.
Credit spreads never needed to get as wide as they did in the panic to start with, and stocks never needed to fall as low as they did. Both constituted a stretched rubber band ready to launch both markets into orbit. The Fed and TARP had to restore confidence in the banking system for those unjustified credit spreads to narrow; to do that, they needed to make the banks profitable again. They did so by unsticking LIBOR, thus reducing short funding costs, by December. As soon as banks could fund short near 0, they could buy or fund carries of corporate bonds yielding 10-15% and did so.
That means, curing the money market cured the bond market with a one quarter lag. Curing the bond market set off the stock market rebound with a one quarter lag. Both markets moving upward let to net worth growth for US households - over $4.5 trillion off the March floor - which halted the rise in the savings rate and the fall in consumption, and thus GDP. GDP is now growing, and again with a lag, growing GDP will cause unemployment to top out.
That is how the whole system is wired together and the men who fixed it know what they are doing.
You, do not.
Because I also know how it is wired together and how their actions to fix it would actually work, I correctly predicted every scrap of this year's economic and financial developments. I told everyone corporate bonds were a table pounding buy at 12-15% late last year. I told everyone that GDP growth would resume by the middle of the year, last November, when the likes of you were predicting the great depression in re-runs, forever. And I'm telling everyone now that there will not be any large scale inflation in the next 2-3 years, as the doom mongers have moved on to predicting. I've found populist idiots willing to bet me that the CPI will be 1/3rd higher in 3 years time, because they believe your garbage, but it is taking candy from babies.
Let us assume you have some idea what you're talking about. In that case, you know damn well TARP was/is a complete red herring. Regardless of TARP, the banks were going to make a killing once the FED started radically inflating the money supply by swapping toxic MBS and purchasing Treasuries & agency debt.
There have been no end to the number of snarky analyses of how easy it is for the TBTF to make $billions by borrowing at the -0- (taxpayer subsidized) discount rate and buy Treasuries ranging from 2-4%. Even better, of course, is that without Glass-Steagall and the aid of 20-50x leverage (yeah, Basel II met via AIG CDSs - yet another taxpayer subsidy), the prop desk sides are busy gambling via high-frequency trading computers all the free money the FED (actually, taxpayers) is providing them to gun equity markets to 80-100 P/E ratios.
Banks are now sound? Suspend mark-to-market much? A little 2 pt rise in GSE paper would send MBS values back down another $trillion or so. Can you say inadequate "reserves"? Oh, and what about the $3-4T the US gov't has to roll over/issue in 2010? Anything less than 0-2% rates will send the deficit past $2T. Think the FED can stop buying @ this point? Of course not, which is why the $USD is taking a temporary breather before another bout of QE takes the DX below 70.
Your posts are so invidious I might have to start browsing around FR a little more just to patrol the inanities you continue to spew on a daily basis.
You have it nailed 100%!!!