He who places his hope on thee, O Virgin all-glorious, will prosper in all he does.

Inscription on Byzantine coin during reign of Romanus III

Thursday, October 07, 2010

TARP Debate: Soros Vs. Summers

I've mentioned previously that I thought that the TARP program was necessary to avoid a catastrophic meltdown of the American banking system. Rather than being a bailout solely for the financial system, as is commonly report, it was in fact a bailout for everyone. Everyone benefits when systemic risk is mitigated.

We can argue about the proper role of government, and whether the State should be offering bailouts to anyone. Yes, that's a longer term issue. The imbalances created by discretionary Federal Reserve monetary policy have grown so big that they endanger the entire financial system. That should be corrected.

The acute problem, however, was how to avoid a government-induced meltdown of the financial system and concomitant misery for millions of people.

In this link, Larry Summers and George Soros disagree on the merits of TARP. Their discussions focus correctly on the most important issue: how to deal with the "toxic" assets that banks held on their balance sheets. Writedown or price floor?

Soros vs. Summers

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