By Chidem Kurdas
It is hard to find another example in history of so much taxpayer money spent with so little understanding as has been the case with the Treasury’s Troubled Asset Relief Fund—though the new stimulus package may involve even more money and less understanding, as Mario’s posting on the Macroeconomic Knowledge Problem suggests. A few questions posed by Anna Schwartz offer remarkably lucid insight to the TARP mess.
TARP was originally supposed to relieve bank balance sheets by buying financial paper for which the demand has disappeared. Instead, the first installment was used to buy the equity of financial companies, making the federal government a big shareholder. Then the automakers went to Washington with their hands out and got a piece of TARP. It is not clear how the Obama administration will spend the rest of the money, but they’re speaking about channeling it to households that are defaulting on mortgages. Meanwhile, toxic debt continues to weigh down bank balance sheets. Continue reading