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

Monday, October 04, 2010

TARP, Requiescat In Pace

TARP ended today. Its net cost was estimated to be $50 billion.

Was it worth it? I think so. The proponents were absolutely correct about the shape of the world in the absence of TARP--large numbers of bank failures and massive credit deflation. TARP bought us time for banks to replenish their capital.

Now that the program bought us time, let's forge ahead to get rid of the economy's systemic risk--discretionary Federal Reserve monetary policy, which is the source of the risk, and fractional-reserve commercial banking, which is the transmission channel.

TARP limited the capital market's downside risk, but what was responsible for the upturn? Chalk that up to a lesser known program, TALF. This is my favorite program because it jump-started the securitization market, which is how most lending is done nowadays.

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