Why Obama’s new Tarp will fail to rescue the banks

[Better Believe It]

Why Obama’s new Tarp will fail to rescue the banks
By Martin Wolf
Published: February 10 2009 18:06 | Last updated: February 10 2009 18:06

Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.

(snip)

The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.

Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.

Please read the complete article at:

http://www.ft.com/cms/s/0/9ebea1b8-f794-11dd-81f7-00007...

I saw this posted on the economic forum.

[Name removed]

1. Deleted sub-thread

Sub-thread removed by moderator. Click here to review the message board rules.

[Dawgs]

2. "Has Barack Obama’s presidency already failed?" WTF!!!!

:rofl: :rofl: :rofl: :rofl: :rofl:

[Better Believe It]

4. What points do you disagree with in the article on TARP and why?

Your knowledge and expertise in capitalist economics is welcomed here.

I'm listening!

[Thrill]

9. I thought there were no details yesterday? So how do you figure its not going to work?

[Dawgs]

11. Obama hasn't done ANYTHING with the TARP money yet.

Ask me again when they have an actual plan, okay?

[barb162]

3. Obama is trying ; unfortunately there is Congress with Republicans.

[HiFructosePronSyrup]

5. Has Better Believe It's thread already failed?

In even troubled economic times, this is a rhetorical question.

[Name removed]

6. Deleted message

Message removed by moderator. Click here to review the message board rules.

[AndyA]

7. How about posting articles that don't require logins if you want people to read them?

Obama has barely had the chance to get up to speed on anything at this point. Anything that claims he's already failed is kind of ridiculous.

It took Emporer Bush 8 years to make this mess. It's going to take longer than 3 weeks to clean it up.

[Better Believe It]

10. You also are commenting on an article you haven't bothered to read

If you read the article before commenting on it you would know the author DID NOT claim that President Obama has already failed.

Perhaps you should read articles before you comment on them. That's what I do but you don't have to follow my example.

In order to post articles on DU I was under the impression that one must log-in.

If there is another way to post an article on DU without logging in I'd like to know about it.

As usual, I'm listening.

[AndyA]

12. Again, if you want people to read the article, it needs to be on a site that doesn't require a sign

up to read it.

Got it? :eyes:

[Better Believe It]

13. All you have to do is register at the site if you really want to read the article. Got it?

Registration at FT is FREE, or is that too complicated for you?

Now do you have any other HUGE issues that you'd like to discuss that are not related to the content of the article?

If so, post your irrelevant comments somewhere else.

I don't have anymore time to waste on your petty stuff.

Got it?

[AndyA]

21. Yeah, I got it.

It's rude to post links to sites that require registration, not tell people that they have to register to read the article, and then criticize others for not wanting to register to read something you started.

Got that? :eyes:

[Thrill]

8. How do you know something is going to fail. When you don't even know the details of the plan

LOL.

[Better Believe It]

16. A plan without clarity and clear details can't succeed. It's not a plan!

We need a plan .... NOW! Some partial, unclear, half-way, conservative measure without details just won't save the financial systems.

Of course, you can believe that and defend that if you like. Now that ought to be interesting!

The major banks need to be nationalized.

[Occam Bandage]

17. Details have not been released yet. That obviously does not mean there will never be details.

God, you're weird.

[Thrill]

19. So if there is no plan. How do you claim, its going to fail?

In a span of one day. This guy has written two articles. One claiming Obama's Presidency is already a failure and then this one claiming a plan he doesn't even know the details for is going to fail.

Sounds like he's one of the guys on Wall Street, that isn't happy unless the fed is backing the truck up with Trillions of dollars to bail them out.

[Occam Bandage]

14. This is what, your tenth kneejerk anti-Obama post in two days? Give it a rest already. nt

[Teaser]

22. This one's going for the record

.

[firedupdem]

15. Anything beginning with that question is unreadable bullshit. n/t

[jefferson_dem]

18. This was the lead story on sludge today and the one being parroted by all the right-wing wackos.

Congrats on dragging the nonsense here.

Curious: Did you vote for Obama?

[AtomicKitten]

26. That speaks volumes about intent. n/t

[Danger Mouse]

20. An article opening with a question that stupid isn't worth reading.

[JSK]

23. Did anybody hear Ravi Batra yesterday on Hartmann's show?

He said that there is nothing we can do to avert the crisis. It's too late. He said it is a good thing politically for Obama that he is not trying anything new and different yet, because it would not work and would be touted as a failure. The old ways will not work either, of course, but when they fail, then perhaps we can approach things from a different angle. Batra says we will be in a depression by the summer. But don't despair -- the "new golden age" is coming. (if we survive to see it)

www.ravibatra.com

[zulchzulu]

24. Geez... "pettifogging conditions on assisted institutions..."

WTF...

This boneheaded attempt at somehow "predicting the future" of the TARP as somehow being the demise of the Obama administration is, at best, handwringing and a cherished attempt at not providing alternative answers to an inherited problem to Obama.

What the hell is he supposed to do when the banks threaten to go into a financial global tailspin if he doesn't propose some requested assistance, however "pettifogged"... :crazy:

Insipidly stated, the article screeds "Why then is the administration making what appears to be a blunder?..." Who the FUCK says it's a blunder? The banking industry? The global markets looking at a global economy teetering on the edge?

The article is an attempt at wanting to have it both ways... wanting success while interjecting failure... nicely played... nicely played... :crazy:

[Better Believe It]

27. The negative posters clearly don't understand what's happening in the economy

They need to read Roubini and Krugman if they want to learn.

"What the hell is he supposed to do when the banks threaten to go into a financial global tailspin"

I'm glad you acknowledge that you have no ideas on what President Obama should do.

That's a tad better than other posters who can't indicate what it is they disagree with in the article and why.

Read Roubini and you'll learn what needs to be done.

Nationalize the major banks and spend whatever it takes to help people avoid any further foreclosures on their homes for starters.

Read and learn critics!

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=8189385&mesg_id=8189385

Well, this might be way over the heads of some posters just like the article they attacked.

[damonm]

25. read the article - DRIVEL.

Much like you other postings to date.