Monday, October 13, 2008

The Face of TARP

"I'M FROM THE GOVERNMENT AND I'M HERE TO HELP YOU" - Cue 'em Up, October 13, 2008

What's that old saying that there is no problem too complex that it cannot be made worse?

Now we have to listen to Paulson's go-to-guy trumpeting how the government is quickly contracting with law firms, asset managers, and ... otherwise setting itself up as a mega financial manager.

Were your eye's rolling back in your head?

Truly, we are very near the point at which the Bush Treasury should ... stop talking.


I have just one, two sentences that would accomplish more, more quickly:

"I can announce today that the government will begin to offer terms to lenders on defaulted mortgages, of the sub-prime and alt-a category, and those terms will share, probably 50/50, in home price declines, where negative equity exists. All of this activity will exist within the framework of existing law."

Two, three more, and I've got just about the whole thing:

"For now, we are encouraging the Fed to continue to expand its use of special facilities, on a temporary basis, so that firms can manage their liquidity across a spectrum of asset classes and, thereby, meet short-term calls for collateral and the like.

While the banking system, including the finance-arms of companies that drive consumer credit availability, adjusts until it is fully repaired, we will engage in a certain amount of making sure that financing is available to the business sector, by providing capital relief, in a variety of forms*, that allow asset qualities to be conservatively accounted for, until investor confidence is restored.

G7 finance ministers are working with central banks to reduce and neutralize many off balance-sheet exposures, efficiently and quickly, so that the system is no longer burdened by these uncertainties and systemic risk factors are not magnified, in the current environment, by instruments outside the control of regulators."

*there are various forms of capital requirement relief. off hand, there is the obvious capital-injection. There is also the possibility of lower regulatory capital requirements (cf Japan, 1990s). Last, there is consolidation, in which some investors lose their capital so that others can offer a 'stronger hand' behind risky assets management.

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