Geithner: "Oops. We wasted your $700 billion"
The rationale for TARP (according to its marketers, who sought TARP bailouts for selfish reasons) was to get credit flowing again. Wall Street needed our trillions, we were told, because Main Street requires the big banks to lend it money.
Well, many months later, after trillions of dollars in taxpayer subsidies from the Treasury and the Federal Reserve, banks still aren’t lending much:
“To date, frankly, the evidence is mixed” that the federal assistance has eased the lending markets, Mr. Geithner said as he testified before the Congressional Oversight Panel.
This proves the crisis was never — as it was repeatedly billed by bailout proponents and a pliant financial press — a “liquidity crisis.” This crisis is about bankrupt banks and massive net worth deflation. Business and consumer consumption and investment demand plunged. Business and consumer credit-worthiness plunged. And, on the credit supply side, banks' loanable funds dried up because so many banks had gambled their way to massive negative equity.
If trillions of dollars had been spent adjusting mortgages, stimulating the economy directly and helping strengthen relatively healthy banks, rather than filling gaping holes in the sickest banks' (im)balance sheets, our economy would be much healthier today and on its way to recovery. Instead, we may now be unable to fund the stimulus we should have funded last year.
What a shame. At least if the world economy gets sucked into a black hole, we now know who to blame.
Posted by James on Tuesday, April 21, 2009