A reader writes:
Now my memory may not be perfect but what I do remember about TARP I makes me wonder about the negative reaction to Geithner's plan, especially by Krugman. One of the memes that quickly developed is that this plan is bad because it was similar to but ultimately scrapped by Paulson.
This implies two things: 1) Paulson was a part of the previous Administration and anything associated with it should always be rejected; and 2) Paulson and the Bush Administration scrapped it so it MUST be bad.
Well, could it be possible that Paulson was wrong to scrap his plan?
If there was a good reason Paulson gave for the about face, I didn’t hear it. Keeping in mind what he ultimately did was not really what Congress approved (the modus operandi of the previous Administration).
In deciding to only take equity stakes, Paulson seems to have only nipped at the edges of the problem. The problem has always been the assets. Taking equity in the banks has basically done nothing. It allowed them to deleverage (maybe?) but it still left them with the implications and obligations of the bad’ assets. Kind of like a tax break or stimulus check early in a recession only instead of taxpayers stashing it or paying debt, it was the banks. TARP I appears to have done nothing towards the stated goal of the program... freeing up credit markets. The underlying question has ALWAYS been what to do with the assets. At least the Geithner Plan aims to price and move these assets around. It’s not perfect. It’s expensive. It’s risky. But the recession has been exponentially more expensive.
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