TARP 2.0: An Octagonal Peg For A Round Hole

Let’s start the day off with Martin Wolf’s commentary on TARP 2.0, suffice it to say he doesn’t think the plan is capable of rescuing the banks. Personally I like the way in which he’s characterized the plan: “The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive.”

However I would like to take the above a step further: when it comes to the current economic crisis the government is suffering from a potentially fatal mixture of denial, ignorance, optimism and a lack of courage.

What else do you call it when the government isn’t willing to accept the idea that the banks are insolvent, and is still talking mortgage rescue even though the real problem is people buying houses they can’t afford?

At the end of the day you can’t solve a problem without having a thorough understanding of it, which includes confronting/accepting various aspects of the problem you may not like. Otherwise you may find yourself deploying solutions that only treat certain symptoms, are only a partial fit for the problem at hand, or are just a bad fit altogether. Think: putting octagonal pegs in slightly larger round holes, sure they pegs they may actually fit but they’re still the round pegs you actually need.

The problem we have right now is that our government is deploying solutions that are more appropriate for the solution as they’d like to perceive it, as opposed to the problem that actually exists.

In any event I won’t say much more about TARP 2.0 as it’s just more of the same tactics I’ve been deriding for months, and Martin does a better job of explaining it’s flaws in the article referenced above. However I will point you towards some additional resources on the subject:

A great interactive graphic from the FT that describes various components of the plan, plus additional coverage from the FT and the WSJ.

Source:

The Financial Times: “Why Obama’s new TARP will fail to rescue the banks” — Martin Wolf, February 10, 2009.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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