The Treasury’s efforts to detoxify banks’ balance sheets have been a flop, to put it bluntly. Troubled Asset Relief Program (TARP) funds were initially earmarked to purchase banks’ bad assets, but confusion about finding the right price led to the plan’s abandonment. And now the much-touted Public Private Investment Partnership (PPIP), a program that would […]
Buried in the late wire news on Friday, June 26—and therefore barely registering in the newspapers over the weekend—the Treasury announced the rules for pricing its option to buy shares in banks that participated in the Troubled Asset Relief Program (TARP). The Treasury Department said the banks will make the first offer for the warrants. […]
The US Treasury and the Federal Reserve have been struggling for months now to craft a strategy that will revive the credit markets. The numbers are staggering: $350 billion extended under TARP; $1 trillion mooted by the Treasury Department this week. Yet the financial system is still swooning after Treasury Secretary Timothy Geithner’s speech on […]
This week, Treasury Secretary Tim Geithner unveils his plans for the financial system with a speech and testimony in front of the Senate Banking and Budget Committees. Here are the questions (in bold) we would ask him. And, just in case any of you are involved in preparing the Secretary’s briefing book, we also suggest […]
The time-honored principle of public sector intervention to support banks is that of Walter Bagehot, who wrote in 1873 that the central bank should provide lender of last resort (LLR) lending to solvent banks in a panic, but should not lend to insolvent banks. However, because of the too-big-to-fail effect in which failures of large […]
This week, Treasury Secretary-designate Tim Geithner stated clearly—and reassuringly—that the Obama administration will present a comprehensive and detailed economic recovery plan within a few weeks. We know this plan involves a large fiscal stimulus, and it is reasonably clear there will be around $100 billion for housing refinance/mortgage mitigation (out of TARP II funding), and […]
We have a deal. You, the US taxpayer, have generously provided to Bank of America the following: one Treasury-FDIC guarantee “against the possibility of unusually large losses” on a pool of assets taken over from Merrill Lynch to the tune of $118 billion, and a further Fed backstop if the Treasury-FDIC piece is not enough. […]
The current consensus view (e.g., as seen in the World Bank’s Global Economic Prospects) is that we are having a serious downturn, with annualized growth for the fourth quarter in the United States at minus 4 percent or worse. But the consensus is that a recovery will be underway by mid-2009 in the United States […]
Treasury Secretary Henry Paulson announced earlier this week that the Troubled Asset Relief Program (TARP) has succeeded in stabilizing the U.S. banking system. This unfortunately no longer appears to be the case.
Why haven’t banks begun to lend?
When the Bush administration finally persuaded Congress to approve the $700 billion Troubled Asset Relief Program in September, the main objective was for the Treasury to purchase the most “toxic” bank assets in order to get the banks to free up lending again. Later in October, the administration shifted course and decided the best way to achieve that objective was to use at least some of the funding appropriated by Congress to buy stakes in the banks themselves. But despite the promise of capital injections, anecdotal evidence suggests that the banks remain reluctant to lend, and in some cases are talking of using their new capital injections to buy other banks.