Tuesday, October 07, 2008

How broad, how flexible?

In the statement of the plunge protection team, TARP does not appear under the heading Liquidity, the purported reason for its design and passage, the plumbing problem to which it was sold as an (urgent!) solution. Instead it gets its own heading:

Strengthening Financial Institutions


Strengthening Financial Institutions

The Treasury Department will move rapidly to implement the new authorities in EESA to help strengthen financial institutions that are struggling with troubled assets and/or need to raise capital. It will be done in a transparent and methodical fashion. In the coming days, Treasury will work with the Federal Reserve and other financial regulators to develop strategies that deploy these tools to maximize their effectiveness in strengthening the financial system while protecting the taxpayers' interests.

The new legislation adds broad, flexible authorities to allow Treasury to buy troubled assets and provide guarantees, and address capital raising. The new legislation also enables Treasury to directly strengthen the balance sheet of individual institutions. These authorities allow Treasury to act to remove some of the uncertainty regarding financial strength, and provide financial institutions with greater operating flexibility and enhance their ability to raise additional capital in the private marketplace.

So they got this legislation - hurry up before the frozen feces asteroid hits us!!!!!!!! - which prevented Congress from recapitalising the banking system or addressing the crisis in any constructive fashion (the Fed is going around the banking system entirely to keep favoured industry exploiting on schedule through the drought that allows the tarp to come into being: "In some ways what the legislation does is help facilitate consolidation" in the financial market), now they sit down and figure out what they can do with it, how to get around any obstacles in it while waiting for some banks to fail for GSax and Morgan Stanley to acquire for farthings found under their sofa cushions, some further discovery in 'toxic' asset related lawsuits, some political developments, some European taxpayer bailouts, some public forgetting....


  1. kenoma4:58 AM

    So what do you think of this volte face on recapitalization? It's strange that the sweeping and ill-defined powers granted to Paulson by the TARP act are made explicit in the very act of backing away from the original plan of shameless plundering. Roubini is saying all's well that ends well.

  2. I think there is ferocious competition among the financial institutions now and they only can be cohesive in the class war. So there had to be compromise. they will get to strengthen GS without bothering them with equity stakes, which they would not allow the gov to take; they get, more importantly, to create their hedge fund financial weapon through the gov contract to the middleman but not as big as they thought, but they are checked now and have to do something less radical to benefit the class as a whole. they are not going to be permitted to be as predatory - with competitors, not the public - as they would like. i wouldn't be surprised if some democratic senators close to the military bothered to ask the joint chiefs about martial law, and i wouldn't be surprised if they had it confirmed that if there is a part of the US state that really hates the guts of the bush administration, it is the army. they're not rich like the senators. martial law is probably a can of worms the bush regime of all US admins could open only with serious risk to itself. îts maybe just a terroristic psy op. so the congress can demand things for its funders, not just goldman sachs but all these finance and industry interests. also there are the concerns of the treasury's foreign creditors to consider. they may have indicated a willingness to call the bush regime's bluff.

  3. i mean general nationwide martial law, outright military coup, like they whisperingly threaten.