As policymakers continue to fumble about in their endeavors to fix the U.S. economy, the business community has become very happy to weigh in. The problem, however, is that even some good ideas that Washington outsiders might have are politically impossible. Three such suggestions were offered today by former hedge fund manager and author Andy Kessler in a Wall Street Journal op-ed. Even though each might help on some level, each would be political suicide.
Here's Kessler's first idea:
The Fed's quantitative easing has been focused on buying Treasurys as well as packages of high-quality mortgage assets. It's time to go back to the original TARP and start buying toxic assets directly from banks, no matter the price. If they become insolvent, set up the Treasury to inject capital a la TARP2 and allow the Federal Deposit Insurance Corporation (FDIC) to implement a quick-turnaround, prepackaged bank resolution and receivership. Clean those balance sheets up for good, else we relapse into financial crises again and again.
As Kessler says, TARP never actually fixed the problem for which it was designed. Banks were left with toxic assets, but they declared lots of losses, ramped up their capital, and everyone was content. Kessler worries that more losses are being hidden by banks, and he may be correct. Banks would likely argue that any future losses from toxic assets will hit gradually over time, and new higher capital will be sufficient to cushion them.